Leveson Report: Reaction Is The Problem

Leveson Report: Reaction is the problem

If you are living in Britain, you probably cannot escape the coverage of the Leveson report. I admit that I have not read the report and am therefore not going to comment on its content. However, as I was listening to morning radio on the way to work, it occurred to me how many people (politicians in particular) were keen to commend the report as “very good” whilst at the same time admitting that they had not read it fully. What precisely did they like? the name on the cover? the binding? its thickness? the executive summary? This does not inspire confidence.

Leveson: Focus Too Narrow

I came across a good piece by Graham Jones entitled “Leveson has wasted his time”. Its an article worth reading and notes the flaws within the report that basically focusses on printed newspaper journalism rather than the wider “media” which as we know would include blogs, tweets, facebook and an array of “media”. The short truth is that the existing laws were broken and had these been abided by the scandals would not have occurred. The problem is really one of access to justice and the general assumption that “there’s no smoke without fire” which in media terms is really saying, we believe you are guilty, so whilst we don’t have proof, we will charge you as such. Lord McAlpine was one of those that experienced this sort of folly. The damage to individuals and businesses is largely done by whispering masses, which in 2012 is the on-line world.

Reacting to Reactions – What Happened to Principles?

The current Leveson story will soon be over, but often revisited. The main issue I have is not one of freedom of the press, (which I take to be an obvious requirement in a democracy) but of the constant perceived need to have a quick answer or response, a sound-bite. One must ask whatever happened to contemplation, reflection and assessment. This is actually the problem within media of all forms. The constant need for reaction. This is a cultural issue too, just applying this to my own field of expertise – many play the game of reacting to events. The stock markets – up or down – what is your move? what is the reaction? how will you position the portfolio this afternoon? this misses the point of long-term investing which is based upon rational principles that should not be changed hurriedly. My own view is that this approach to life is rather adolescent at best – unable to yet move into adult responsibility, but rather blown by the wind.

Freedom Brings Responsibility

As has been said before “with freedom comes responsibility” and that has been sadly lacking, (but not purely by newspaper journalists – some television “documentaries” that I have seen in the last year are a very good example of very weak or very poor investigative journalism). However, we all make mistakes and have a tendency to say the wrong thing, but freedom of the press – or our own free speech, should never mean that its OK to insult people just because you can. Sadly the financial adviser blogs are often places where many seem to relish the opportunity to release toxic vitriol upon anyone in their sights – invariably this is the regulator. So before we are drawn to conclude the newspaper industry needs reforming, many could do with some time for self-reflection. Myself included.

Leveson Report: Reaction Is The ProblemDominic2023-12-01T12:23:13+00:00

The RDR Advice Gap

You may have heard of something called “the advice gap”. This is a relatively newly coined phrase used to describe the expected result of the FSAs Retail Distribution Review. The accusation being that as a direct result of RDR, fewer people will receive advice. Why? because in order to receive advice, clients will have to pay a fee, commission is banned. You would be forgiven for assuming that I would be delighted by such news – after all, I set my firm up in 1999 on a fee basis, our clients pay fees. True. However my clients are not “average people”. They have wealth and want to use it to enable them to improve and maintain their lifestyle for the remainder of their life. They are forward-thinking and responsible. They are independently minded and not reliant upon the State (or presumably a fairy godmother) coming to the rescue.

Complexity Breeds Paper

As I have said before, my clients are therefore not the “norm”. There are many people that have great difficulty with their finances and have little understanding of or the ability to apply many financial planning concepts. The cost of providing financial advice has soared. Unlike many other professionals (doctors, lawyers etc) financial planners cannot simply provide one page prescription. There is mountains of paper justifying why something needs to be done, how it has been selected and so on. This is largely to satisfy the regulator and also a future court of law, should a complaint be made. Neither are terribly inspiring reasons are they? In addition, all advisers have improved technical skills and the financial landscape has become ever more complex, with the need for ever more expert guidance.

End Of The Free Lunch

RDR was intended to break the relationship between the product provider (pension/life insurance company) and the adviser which could be manipulated by extra or different commission between products. This created a decidedly uneven playing field and provided precisely the motivation in 1999 for me to create a level playing field so that there was no difference in our charge, irrespective of provider or product, thereby demonstrating impartiality. Frankly RDR could have simply stopped there. However from January all advisers will have to charge a proper fee, ending the myth once and for all, that advice is free. Unfortunately, advice and service is rather expensive, despite the many advantages that technology brings to efficiency of productivity. As a result, many people will be understandably put off paying fees, in the same way that many are put off paying for a dentist, or eye check up etc. It is also the case that good financial planning needs regular reviewing. A distinction between a financial planner and a financial adviser is probably that the former doesn’t really focus on products, and provides a regular review service. An adviser, well probably could be a one stop shop – sorts a problem but doesn’t really join everything together. Why regular reviews? well think of your planning a bit like a plane flight, one degree off course at the start may not make much difference for a few miles, but if not corrected will ensure that you don’t make it to your intended destination. A financial planner is like the pilot, adjusting the financial architecture regularly to keep on track.

Do-It-Yourself, Really?

In practice this means that many people on average or below average wages will probably not pay for financial advice. They will be forced to do-it-themselves. As a nation, we aren’t good at looking after our own long-term interests when left to our own devices. Think of all those gym memberships in January. Of course, some people are, but most simply lack the required discipline or knowledge and let’s face it finance is fairly dull, (OK very dull). I recently attended a talk by a well known adviser who writes in the national papers who summed up his 40+ years of advising people with only one couple investing sensibly when left to their own devices. However, this couple sat down every day to review their portfolio. To my mind that is not financial planning, that’s investing and terribly stressful and rather a waste of life.

Another Banking Crisis?

To compound the problem, Banks are not trustworthy and most will not be providing financial advice, earlier this year (or perhaps last, its all such a blur or excitement) analysis was done that revealed that the cost of a Bank providing advice was at least £250 an hour. Given the current climate, can you see that working? no? neither could they – so they have stopped providing advice to all but their high net worth customers, though I have no idea why these people use them as the Banks are really rather poor at advice and service. Coincidentally, when the FSA ceased their own final salary scheme in March 2010, they offered staff the option of seeking independent financial advice about their options offering £250 towards the cost of the consultation. This at least acknowledges that independent advice is best, but clearly fails to appreciate the cost.

Back To The Future

Just to put a final twist on things, from January advisers will either be “restricted advisers” or “independent advisers”. In other words back to polarisation that should never have been scrapped in 2005. It only enabled Banks to sell more stuff that they weren’t able to understand. This has led to the term “the advice gap” which simply put means – people that won’t or cannot afford financial advice. Most financial planners will have to focus on their more wealthy clients, yet very few (and I really mean a very small percentage) actually have a workable, sustainable business model that enables them to look after clients properly and profitably, ensuring that they are there to do the same next year. Fortunately for me, I’ve been developing and improving my business and services since 1999, so have a rather long head-start on most.

Technically RDR comes into effect on 31st December. So that’s just under 4 weeks time, but allowing for the Christmas season – rather fewer days. The House of Lords has finally begun to understand the implications of the advice gap and has been debating the topic, in a typically empty looking House. Interest is frankly nowhere except within the industry, but it does or rather will have a dramatic impact on everyone in just a few days time.

The RDR Advice GapDominic2023-12-01T12:23:12+00:00

The PPI Claims Scandal

The storms and floods that have swept Britain seem to mirror the PPI claims scandal. You will remember that predominantly Banks, sold payment protection insurance to anyone with a credit card, loan or mortgage. On the face of it this seemed like quite sensible planning, but in practice, the insurance wasn’t worth having as for the majority of people it would never have paid a claim. Unfortunately the regulator was not responsible for this sort of insurance during most of the mis-selling. The Banks didn’t acknowledge a problem. It took a consumer champion (Martin Lewis) to get the Banks to admit a problem and begin addressing it. The scale is huge, probably far larger than anyone previously thought.

PPI Claims Companies

As a consequence, there has been a plethora of claims companies all offering to assist people with their claims. Indeed, this and my previous blog have been systematically targeted as yet another opportunity to push their services. Whilst I am fairly sure that a few of these companies are probably honest, the majority are nothing short of ambulance chasing opportunists with only their own interests at heart. Taking a lesson from direct marketing, they appear to believe that if you chuck enough muck, some of it will stick. Like most of you, I have had a social media bombardment – website, emails, text and phone calls assuring me that I have thousands of pounds to claim. I don’t. I didn’t have any PPI, neither did I advise any client to take any out. There is deliberate intent to simply encourage complaints in the belief that “nothing ventured, nothing gained”.

Wasted Resources – Jobs For Paper Pushers

Unfortunately, these practices have resulted in the Financial Ombudsman being overwhelmed, needing to recruit more and more staff to simply handle the volumes. Who pays for the FOS? well I do (advisers do). This means you do. This is a case of lose-lose. Very few advisers sold PPI, yet they are stumping up the costs. Today FOS announced that they increased their staff by 25% this year and may have to do the same again next year… paid for by? well you and me. As you may imagine, this has set off another spate of storms in the pink paper trade press today.

Reality Check

The 2011/12 annual review shows that FOS received 1,268,798 initial complaints. However only 264,375 turned into proper cases for complaint (19.4%). Some 201,793 were resolved by adjudicators and 20,540 actually resolved by ombudsmen. PPI complaints rose by 31% which amounted to 60% of all complaints and the highest number of complaints about any financial product or process ever. Over half of all complaints related to just 4 financial institutions, I dare say you could guess all four correctly. The cost to run FOS – well £108 million for the 1700 staff. That’s an average cost per capita of £63,500. My source? the FOS site Annual Review 2011/12.

The PPI Claims ScandalDominic2023-12-01T12:23:12+00:00

Solicitors Referral Code

The world of financial planning grows ever more complex. Followers of this and my previous blog will appreciate that the financial advising community is finally going to ditch commission payments. From January there will be two types of financial adviser – restricted or independent (note one or the other). To be independent the adviser must meet the FSA’s definition of being independent – being able and competent to advise on investments of all types (except direct shares). So it is a little puzzling that the Solicitor’s regulatory body has decided not to move its definition to cope with this change, but has instead opted to potentially allow Solicitors to refer their clients to restricted advisers. To my mind, that’s not good news for clients that get a restricted option. However, this all rather depends on the experience that the Solicitor has had him or herself. Sadly, many Solicitors report that this often fairly unimpressive when it comes to dealing with advisers. So perhaps it isn’t too surprising. However, my experience of Solicitors is that most want their clients to get impartial advice, which means independent advice, so I imagine that despite the noise in the financial pages, most Solicitors will continue to see independent advice as best advice and best practice.

UPDATE: 29 November 2012: Law Society

The Law Society has urged Solicitors to ignore the advice from the SRA allowing them to select restricted advisers. It seems that the professional body “gets it” but the regulator doesn’t. Where have I heard that before…

Solicitors Referral CodeDominic2023-12-01T12:23:11+00:00

New Governor

The new Governor of the Bank of England

Canadian Mark Carney has been announced as the next new Governor of the Bank of England. Mr Carney’s credentials are impressive, most importantly his understanding of credit risk enabled Canada to largely escape the banking crisis that swept most other western nations. He is currently working as the Head of Canada’s Central Bank (since 2008), with a further two years on his contract. He is 47, married with 4 daughters. I understand that he will take over from Mervyn King next summer on 1st July and is expected to hold the position for 5 years.

…meanwhile Mr Bean has agreed to stay on to help with the transition process. As you might expect, not that Mr Bean, but Charles Bean, the current Deputy of the Bank.

New GovernorDominic2023-12-01T12:23:11+00:00

A Class Act Performance

A Class Act

Some people are a class act. Anyone that knows me, will be aware that I love the creative arts, be it music, theatre, film, art and literature and will often soak myself in it. Whilst this isn’t everyone’s “cup of tea” for me the creative arts are inspirational and sustaining in a way that little else achieves (for me). Anyway, I was delighted to be at a Martyn Joseph performance on Friday night. Martyn is someone that I have followed since 1985, he is a folk singer (and I’m not particularly into folk music). Why I enjoy his performances so much is that he comes across as a truly genuine man, full of hopes, fears and doubts. He wrestles with some of the big questions and many of the less obvious. He is a creative, writes great poems to music that seek to touch and inspire the soul. He is passionate about his music and about the world in which he resides. He doesn’t opt for the easy answers or duck the difficult, questions. As with every person, I may not agree with all of his ideas or thoughts, but he is one of those people that conveys warmth, acceptance and a truly inspiring sense of love.

Deep Confidence

It struck me in particular at this latest performance, possibly because I’m a little older and hopefully wiser, that he is also able to share and indeed give a platform to someone else, however much his junior. In my experience, there are not many performers that can do this quite as well. Perhaps this is the mark of someone that has not only kept true to himself, but also knows himself and has the self-confidence that eludes so many. By “pop” standards, he has not had huge “commercial success” yet surely exemplifies what it is to be truly successful by remaining committed, creative and inspiring. A life on the road was given new significance, apart from the obvious strain of a life performing around the world out of a suitcase and away from family and friends which I imagine to be tough; it is also the road of life, on which he is so well travelled and has many helpful insights to offer.

Authentic Values

As a financial planner, my objective is to help money make sense for my clients. To help them live a life that is authentic to their values and work towards their ambitions. Creativity is very much part of the thinking process, not in the way some might imagine of “creative accounting” but of thinking differently, of thinking of the life you want rather than simply the one that appears prescribed by the media. This is a frequently revisited conversation with clients and of course as it is something that I’m interested in, invariably creeps into dinner table conversations as it did again this weekend. People like Martyn inspire us all to think about what we can add.

A Class Act PerformanceDominic2023-12-01T12:23:10+00:00

The Best Tax Systems In The World

The Best Tax Systems For Entrepreneurs

The UK is currently 16th in the world when it comes to the best tax system in the world for small to medium sized businesses. PWC, the big Accountancy firm conducted research on a global scale over several years. They considered the rates of tax, the time taken to pay it and comply with tax rules as well as the number of times tax has to be paid in a year. The UK’s position is improving, but still not in the top ten. This suggests that UK Governments are making it a little easier for entrepreneurs to start and develop their businesses. This after all is where economic growth is found and where wealth for individuals and the nation is created. However Ireland our closest neighbours is rather more favourable and ranked 6th by PWC.

Cutting Through The Red Tape

PWC are reported to have found that the typical UK SME now spends 267 hours a year complying with tax rules. A decrease of 54 hours over the eight year period that was reviewed, representing a 17% improvement. They also found that the average medium sized firm pays a tax rate of 44.7% on profits.

The Top Twenty Tax Systems

For those of you that like lists, the top twenty are as follows:

United Arab Emirates
Qatar
Saudi Arabia
Hong Kong
Singapore
Ireland
Bahrain
Canada
Kiribati
Oman
Kuwait
Mauritius
Denmark
Luxembourg
Malaysia
UK
Kazakhstan
Switzerland
Norway
Seychelles

Of course, entrepreneurs seek solutions to all manner of problems when it comes to running a business. A common trait amongst successful entrepreneurs is that they collaborate creatively and take responsibility for their actions. These are precisely the sort of people I work with.

The Best Tax Systems In The WorldDominic2023-12-01T12:23:09+00:00

Tax Evasion or Avoidance

HMRC Under Pressure?

Imagine, just for a moment, that you work for the Government. You are under pressure to improve the economy and come up with the antidote to its ailing problems. You know that despite what we all may hope for, the current system is overstretched. We are spending more than we earn. The options appear stark – spend less or earn more, ideally both. However as a Government you take the lead on encouraging enterprise – hoping that some new ideas and businesses last long enough to generate jobs and wealth. Tax is the only method of earning – unless you opt for making State owned assets available for private hire outright ownership.

HMRC investigating 41,000 tax avoidance schemes

Now you learn that HMRC are investigating around 41,000 unresolved cases of possible tax evasion, currently regarded as tax avoidance strategies until a court finds in favour of the HMRC. By the way, this is worth £10bn. In the 2010/11 tax year alone, it is estimated that £5bn of the £32bn tax shortfall is due to tax avoidance schemes. Let me remind you that tax avoidance is legal, tax evasion is not. There is a blurring between the two where some very clever people design some clever investment products that attempt to exploit loopholes in tax avoidance rules, working on the assumption that this is not tax evasion. We have all heard of the higher profile celebrity cases.

Smoke and mirrors

You are a minister (or aid/adviser) seeking to produce the tool that seems to elude everyone else, you are probably thinking that this looks like a potential goldmine. The sums look good – just get HMRC to resolve the cases and collect £10bn. You know however, that the law makes tax avoidance legal.

Avoiding Allowed

You may have gathered that I am somewhat suspicious that the confusion between avoidance and evasion by members of Parliament and within the media. This seems to have taken a direction into guilty until proven innocent. Let me be clear – tax avoidance is use of the current rules, set down by Parliament in order to help individuals and businesses arrange their affairs in such a way as to minimise tax payments. This includes use of ISAs, pensions, capital gains tax allowances, the personal allowance and so on. We all have these tools at our disposal, covered by the same law.

Spot the difference

Certainly schemes that break the law need to be closed – or those that deliberately muck around with the rules to the point that you cannot determine black from white. This is tax evasion – the same as not declaring income. However it seems to me that in an attempt to appear tough and “on the side of the masses” there is currently a groundswell of rhetoric that if applied would drive a horse and carriage through the very laws that give us all our basic right to arrange our affairs as we like. So be wary of politicians and journalists that seem to blur the line between evasion and avoidance, they do so at our peril and at their self-promotion.

Tax Evasion or AvoidanceDominic2023-12-01T12:23:09+00:00

Pension tax relief cut – rumours and gossip

Rumours: Pension Tax Relief Cut

The pensions industry is always awash with rumour. Today, we returned to the tried and tested rumour of higher rate tax relief being scrapped or reduced on pension contributions. This obviously would mean that the Government will save tax by not providing the relief (quick example – £10,000 investment = £8,000 cost to basic rate taxpayer, £2,000 paid by the HMRC automatically. Higher rate taxpayers reclaim another 20% (£2,000 in this instance) via self-assessment tax returns). So of course there is an obvious “saving”. However this is the social politics of envy and nothing more. Pension contributions have already been restricted to £50,000 per tax year and the Lifetime Allowance has been reduced to £1.5m. Today’s gossip (and that is all it is) suggests that Mr Osborne will be tempted to cut the annual allowance from £50,000 to £40,000 or even £30,000. Alternatively he may simply ban higher rate tax relief.

Coincidence?

I’m known for being fairly suspicious of my “industry” and given that there will be a ban on commission at the end of the year, I cannot help but think that hurrying higher rate taxpayers to make large lump sum payments into pensions, earning some advisers a large commission, may not be a timing coincidence.

Pensions have little going for them

Pensions have very little going for them other than tax relief. Automatic Enrolment (AE) has begun for large firms and will eventually mean that everyone is pretty much forced to save into a pension. It seems very odd that we know that Britain does not save enough, yet we constantly elect politicians that lack the courage or wisdom to do anything about our longer-term problems, which I believe will make the cuts, spending reviews and credit crunch look like a time of bounty unless people start taking their own finances seriously.

Taxing our way to the death

Yesterday I attended an excellent talk entitled “Debt, austerity and growth – where’s the money?” and the analogy was made that attempting to increase taxes whilst stimulating growth doesn’t work. The Winston Churchill quote was cited:

“We contend that for a nation to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle”. Sir Winston Churchill (1874-1965)

As I have said before a fair tax is a single rate of tax that everyone pays. It should not be tiered, it should not differ depending on income or the source of income. Fairness is the same treatment. Unfortunately our politicians and most of the media and public seem to confuse this with wealth reallocation.

Pension tax relief cut – rumours and gossipDominic2023-12-01T12:23:08+00:00

Assumptions and Black Swans

Assumption is the mother of chaos

I was reminded last night that sometimes what you get depends entirely upon your perspective. I was at a “gig” (I loathe the word) for one of my favoured bands – Athlete. A nice bunch of guys from London who had a few big hits and keep at their music. I was treated to tickets to hear them in Wimbledon, which was a bit confusing because Wimbledon is not known for its music venues in London, so assumptions were made, that suggested a small intimate event.. perhaps for up to 100 people. Not beyond the realm of reason as this happens quite regularly. However this assumption was somewhat off the mark. One presumably made by the venue manger and tour manager as well.

Wrong time and place

Sadly expectations were not met, though I dare say that the first 50 people to arrive had a great time. Unfortunately, as nice as the venue was, it was not suitable for the event and the 500+ people that showed up. It would have been pretty good for 50. This wasn’t Athlete’s fault and I have to admit that I felt rather sorry for them as many people got fed up and left or expressed their frustration at them rather than the venue. The venue was/is tiny, there wasn’t enough room for everyone. The shape of the venue made it impossible even for someone of my height (6’2″) to see them or hear anything other than the bass – no I couldn’t even hear the apologies for the recognised mis-selected venue. Disappointment all round, hopefully something good may still come from this.

We all make mistakes, but do we learn from them?

I’m reminded though that there is a time and place for everything. How many people in a venue, how many clients can be served, cared for and looked after. Sometimes we bite off more than we can chew and sometimes the environment means we should pack up and reschedule. Knowing when to quit is as important as knowing when you aren’t up to the task. This is an experience that the BBC are facing today as well. Enormous organisations are hard to manage, but then – so are smaller ones. Similarly with our own money, we make choices, people tend to spend what they have rather than managing it properly or planning spending. We are all faced with management tasks, some we get right, others we get wrong. Sometimes we need to take note and change behaviours. This means learning from mistakes and forming new (better) habits. This is not a luxury, we all make mistakes and all need to be afforded the opportunity to learn from them and correct them where we can. Someone that is a fan – or on your side, will give you a second chance, perhaps a third and fourth (maybe more) but barring all but the most patient of people there is a limit to our “forgiveness” if actions to remedy and resolution are not taken. The Banks still seem unable to learn this basic lesson. It seems certain politicians have the same problem. As for small firms like mine or a great band like Athlete, well we simply have to learn, try harder and make sure that we don’t over promise and under-deliver… much like my new i-phone that is still unusable. The question is, is the mistake an out of character rare event (a black swan) or it is merely representative of a wider problem?

Assumptions and Black SwansDominic2023-12-01T12:23:07+00:00

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