Is FI done?

That’s what we all want to know.

In the short term, we have had to wrestle with the decision of whether we pull out what we can, or decide that selling for a fraction isn’t worth it and just hoping for the best.

And on that it is just a hope rather than anything else, because none of us know for sure what will happen next. There are going to be more plot twists ahead that we can’t currently forsee.

There are two parts to this. One is the big issue of trust and reputation. Is it possible that FI can ever realistically recover from this catastrophe?

Second, practically speaking, is what they have served up with Leagues and the new dividend structure actually a sustainable, fun product that people would want to use in the event that FI could overcome all of the other issues on trust?

I am aware that even looking at whether Leagues is practically viable or not is unpopular with some, particularly if you have chosen to sell up. But I have done it anyway and I think it is important. 

Simply because at least a basic understanding of what Leagues looks like is helpful when trying to make a rational judgement on whether FI can continue. And, whether or not we would want to remain a part of it even if it did.

Trust and Reputation

Clearly, this has taken a hammer blow. They aren’t dead yet, but that wound may well turn out to be fatal. On current information, I’d personally judge it more than likely that it is fatal. But there may be plot twists ahead we cannot yet foresee.

It is really hard to see how the product, even if Leagues was positive (more on that below) and even if current management played a perfect game from here could get enough oxygen to attract lots of new customers. 

Without some kind of heavy compensation for those who have lost (that they likely cannot afford) they are likely to be dogged by angry former customers where ever they go. There are already campaigns actively setting out to destroy them. 

This is bad for any company. For a company that requires you to trust them to hold large sums of money, this is utterly disastrous. 

The changes they made on Friday are huge. There is more below on whether they could actually work or not. But long story short I would say that the new systems are actually a reasonable way to set up a product if starting from day 1. 

The problem is, FI are not starting from day 1. And in making these changes, they have knowingly ridden a coach and horses through the portfolios of their existing customers. Not to the extent that they are worth near zero, but the panic in itself has driven portfolios down to a fraction of what they were. Yes, that is trader action. But FI knew this would happen if they dropped this bad news.

And FI’s fear of just this scenario is probably how we got here with this announcement coming, far, far too late.

FI were not open with us about the difficulties they were having. In fact, they tried their best to paint a positive picture of the future whilst these troubles were brewing in the background. This is why people now feel misled and that is extremely understandable. There may even be grounds there to contest that legally or through regulators. I’m no lawyer, though.

Now, this kind of thing is not unique to FI. There will be very few companies in the world that will voluntarily tell us they are struggling out of fear of driving people away. This fear is multiplied for FI who are running a market. Because had they told us earlier about these problems it is likely the market would have crashed anyway as people feared the worst. 

Not neccessarily a good thing for traders – and I guess FI gambled that it would be better to ride it out, try to fix things, and hope nobody ever noticed. That gamble has failed spectacularly, because we are now in a worse situation.

I think, if FI had come out early and said “Look guys. Things are tough. The market is obviously not what it was when we doubled dividends. We are uncertain we are going to be able to sustain current payout levels and now need to reduce them and bring in this new Leagues system to make things more stable in the future. We’re sorry but we hope you understand. We have X Y Z actions in place and if the market recovers we hope to restore dividends back to previous overall levels.”

What’s the impact of this? Probably still a major crash, including at the top end, in fact, especially at the premium end of the market who are always under pressure to deliver the most.

There would still have been a lot of anger. 

But probably a lot less anger. Probably the crash would have been severe but instead of seeing £1 premiums we might be seeing £2 premiums.

And, because FI had been open with us sooner, the feeling of betrayal would likely be far less. So they would have taken a huge hit, but we might not be sitting there after that wondering if FI was to survive. And people might not be quite so furious and feel betrayed, which is crucial. In that scenario, there would have been a much, much better chance for FI to recover.

But in fearing that, and trying to gamble on having no major crash at all, they have caused the mother of all crashes. And crucially, damaged trust possibly beyond repair.

This, when the dust has settled, will likely be highlighted as a key point where they made a whopping management error.

And I think going forward, for this and other products, we have learned an important lesson here. I think the way dividends are calculated needs to change. It should not be a fixed sum. Rather, it should flex with the market in some way. I don’t want big, glitzy dividend increases in these products anymore where it is all euphoria and irrational buying. 

And really importantly – we need to live in a world where FI can reduce dividends to let off pressure in bad times without it being a massive, market crashing disaster.

I suggest dividend increases and falls should become routine and automatic. Tied, in some way, to a percentage of the market or trading revenue. Ensuring that they are always sustainable, and automatically flex to increase in good times and reduce in the bad. So we don’t get these cliff edges or mad days of euphoria, and we don’t have the Board sitting there with every incentive to cover up problems for fear of a crash.

How do FI restore trust from here? Can they?

In this new structure, payouts are quite low now. They are no longer bleeding huge sums if popular players win. Fewer shares will be held. I strongly suspect it is the market maker hoovering up these shares at rock bottom in order to burn them and reduce liability every time they do.

So, without access to the books, I would guess it is feasible that FI can limp on, at least for a few months. They may be hoping that things settle in a few months, and that with a good value proposition on the table, people will be tempted back in. That isn’t as crazy as it sounds right now. 

I know this because, to my surprise, even yesterday of all days, I had messages from people who were keen to go back in perhaps with hundreds rather than thousands, to chance their arm on an FI recovery and potential huge rewards. 

I did not give a very bullish answer to them, let’s just say that. I would be very cautious right now and only do this if you really are up for a gamble with money you are expecting to lose. But what it does tell us is that when there is money to be made, there are a lot of people who will forgive and forget a lot. And this may be what FI are relying on.

Perhaps a few olive branches here and there. A little time for the dust to settle. A good product that is probably sustainable from here in terms of the mechanics (should enough customers return, at least).

But like I say. There are people out there who will not forgive and will not forget. They will be hounded throughout and this is extremely challenging for them.

I think the best hope lies in all of those smaller above things but crucially, some kind of game changer. I think I will stop short for now at least, of calling for particular heads to roll. I don’t know who did what. Mike has not been CEO long and the succession of events that led to here started long before his time at the helm.

Whilst here, I want to say that I am particularly shocked and disgusted at the threats of violence to staff that I have seen online. Bear in mind, I am speaking as someone who expects to lose tens of thousands of pounds and my job over this. We are all angry. I am trying to stay calm and rational when I am positively furious and worried about the future. But I want people in any community I am part of to be better than that even under the worst circumstances.

But after reflection, and proper investigation, clearly someone is responsible for some very, very poor decisions that got us here. And if traders are to return, they deserve a reason to believe that things are different. 

– That could involve significant changes to the Board.

– That could involve, possibly sensibly, someone that traders know and trust from the Community to sit on that board as an adviser and observer. (I think the key here is that it needs to be someone who can be discreet, sensible, and is concious of how critical it is that the business operates sustainably. What we as traders need more than anything is a stable platform as well as a game that is fun and potentially profitable.)

– That could involve strengthening the protections on deposits beyond the current “medium” level. 

– That could, if at all possible, involve some form of compensation for those who lost. And if they have no cash on hand for this, even in the form of free shares – maybe even ones that can’t be sold for a while or similar (Literally pulling ideas off the top of my head there – but it would do FI no harm if they gave some of the many enemies they just made a reason not to want to destroy them). 

– That could involve a rebrand, and possible takeover perhaps. But I do not personally see that as likely. I think if you are a competitor, you might be better starting fresh without association with a damaged brand and free and clear of any obligations buying the company may bring. 

– A rebrand of the existing company is probably worse than just continuing and trying to rehabiliate. If FI stay and fight it out, I think you stick with the brand and try to rebuild it – changing brands won’t work as people will just unmask you in seconds, and it looks even worse as though you are hiding. 

So, there are potential routes back. It is not hopeless. But I think it requires more than just a little time and a few tweaks. It will require a game changing move or two as above.

And it is a very, very long and hard road of rebuilding trust. There are no quick fixes. Anyone running a business should know that it can take years to build a reputation for being a straight edge, and just one day to lose it.

FI must believe that with reduced payouts, they have bought themselves time to restore that trust, almost hibernate for a while whilst they regroup. It’s possible. 

But my word. If they are up for this fight they have a colossal mountain to climb from here. All whilst a significant group of people will be sniping at them and wishing them to fail.

Is the new dividend structure and Leagues system sustainable, enjoyable and potentially rewarding?

As I say, the above issue on trust is the main issue. Yet, it is worth parking that from here out and I will be discussing Leagues and the new dividend structure specifically and whether it really works as a concept.

It is important to at least have some understanding of this as part of our overall decision making. This can be a factor in whether we just pull out now to salvage what remains, or whether it is worth any kind of bet on a recovery. 

If this new structure looked unsustainable or unattractive, and was essentially a non-starter, that would be no decision at all. You’d just pull out now. So I spent much of Saturday analysing this for members. 

I know that by Saturday many were not ready to absorb this kind of analysis, it was too soon. I felt a bit like that too honestly, but I felt I had to stay professional. But more people may be ready for this now.

You can read the whole article from that full day of writing if you wish, it is here. I’ll give the highlights in Part 2, and if you want more working out behind how I got to these points, have a read through that, and also Friday nights Live Blog. These are now opened up to people who are not site members.

But that is a lot to get through, so for most people, I suggest waiting for Part 2 which will come this afternoon.