Easter Bank Holiday – Banks to receive forgiveness?

As we approach Easter and a Bank Holiday Monday – you cannot have failed to notice that the Banks have been in the news again this week, notably the problems in Cyprus and the re-opening of their banking system today. There was also the news from the Bank of England, which essentially told Britain’s banks to hold larger sums on deposit to improve their capital adequacy by a few £billion. This is likely to delay the return of the largely nationalised banks into the private sector and the main players will all seek to raise funds – either from selling off bits of their businesses or raising money through share/bond issues. The concern is that this will also lead to further tightening of lending criteria.

Today’s news is that what was once Abbey National, Alliance & Leicester and a few others (now Santander) have closed their investment advice services, well to the majority of the public anyhow. Today they announced 724 jobs culled leaving a team of 150 to support Santander investment customers UK-wide. We knew this was coming as they had to suspend their advice services due to having identified that their staff and systems were not ready for RDR (see the previous post). In addition they have some ongoing problems about bad advice to resolve with the FSA.

Life for the Banks continues to be pretty difficult, but few have much sympathy for them given the years of overcharging and mis-selling (not that this was exclusively the domain of Banks). However, we need a good banking system to help the economics of our society to function. I would like to see retail banks help people manage their finances better, do the basic stuff well, not constantly attempt to sell anything they can from roadside recovery to VIP airport services. As for attracting new customers? well we know that the average person is more likely to get divorced than leave their bank, so why on earth are millions spent sponsoring sporting events… particularly when this is really the taxpayers money? So as it is Easter, I wonder if we are collectively ready to forgive the Banks and permit them to have a resurrection experience?

The office will be closed for Good Friday and reopening on Tuesday 2nd April. Have a happy Easter.

Dominic Thomas: Solomons IFA

Easter Bank Holiday – Banks to receive forgiveness?Dominic2023-12-01T12:23:31+00:00

Public Rip Off

RIP off Britain – Retail Investment Products, Advisers, Clients Rest In Peace?

Those of you that occasionally read my blog or any of the financial press will be aware that since 31st December 2012 financial services in Britain underwent a major reshuffle (RDR). This was intended (correctly in my opinion) to raise the standards of advisers (thereby leading to better advice) and also ensure that they were not biased in their advice. This was meant to be so that the UK consumer would get a better, clearer understanding of financial products and financial advice in general. Sadly, it is my opinion (admittedly only 3 months into the new regime) that this has failed.

I would be one of the first to agree with the FSA that product and provider bias was rife. In my opinion, the only way to address this was to charge the same irrespective of the product or provider – which I did from the very day I set up Solomons way back in the last century (1999). So this has been perfectly possible for a long time. This meant that as the adviser the product selection was based on what the product could do, not on how much I would be paid. Sensible I thought (as did/do clients). However this still relies on products being arranged, sometimes this is not sensible or necessary and smacks of selling products, not necessarily doing proper financial planning. Hence why I charge fees for service and advice.

Sadly there were relatively few advisers operating in such a way and even fewer doing proper financial planning. I estimate that perhaps 90% were “old world” up until around 2010 when many of them really did have to begin to address their own business model. So “RDR” was going to be a significant challenge to many advisers. After all, how does one change a business where a £200 a month pension earns commission of £1500, but has clients without £1500 to pay a fee to set up a pension for £200 a month. To say that a few advisers had not done their own sums would be a considerable understatement.

Sadly, the regulation which came from a well-intended place has become hugely complex. We all knew the numbers of advisers would reduce. Today the regulator admitted that more had gone than they expected (20%) and if you went to a Bank, there are now 44% fewer bank advisers (and falling, as most Banks cannot offer a cost-effective service). Add in to the mix, VAT on fees, fund managers using the opportunity to increase their charges and pour blame on RDR, fewer more qualified advisers and basic economics tells you that supply and demand have altered. Less supply, greater demand = higher costs. Add in higher regulatory costs and processes designed to prove good practice and avoid getting into trouble with the regulator, a smaller market of advisers… then costs for IT, compliance, consulting and any bright idea have all increased way above the rate of inflation. Chuck in what is tantamount to blood money – a share of the compensation bill for firms that failed to serve their clients and went bust (or the product did) for millions to be shared across a smaller number of firms and you get a sense of the “pressures” that advisers are now under (which is why we have little choice but to employ compliance firms that advise, but don’t actually take responsibility). Hence adviser fees have risen and for some people, it is the first time that they have ever paid their adviser a fee.

So, at this point in March 2013, I see little evidence to disprove my belief that more people are being ripped off than before. Fewer people will get advice, many will resort to DIY advice, which I can understand, but invariably has very poor results that make investing more expensive not less (check out Dalbar.com). The new rules, for some reason best known to the regulator, only apply to retail investment products, not all financial planning products. It is still possible for advisers to earn commission from protection products such as life assurance, income protection and critical illness cover – and yes the premium will dictate how much commission is paid, which still (strangely) varies between companies. Oh and if I agree to provide Fund Management group XYZ with £xm this year I can get a better deal… you what? (no I don’t). So if I seem a little pithy today, what with the end of the tax year rapidly approaching and a tonne of new papers for clients to sign to simply top up an existing pension or ISA, please excuse my cynicism, but I fail to see how clients have benefited from this, which is surely what any decent adviser will be thinking and having to explain. Mind you there will be plenty out there fudging the difference between an IFA and a restricted adviser (the only two permitted forms in a binary choice of really representing you, or partly representing you). Still, its no joke that on 1st April (April fool’s day) the FSA changes its name to the FCA… and we all have to reprint our stationery.

Dominic Thomas: Solomons IFA

Public Rip OffDominic2023-12-01T12:23:30+00:00

IFA of the Year

IFA of the Year 2013

Last week I attended a financial services award ceremony at a very posh address in London, which would include, amongst other things, award for IFA of the year. These awards have been going on for many years and are generally put on by the financial press to recognise achievement. Perhaps you have some thoughts on award ceremonies? I certainly have mine and was interested to see what really goes on. In all my time as an adviser (now 22 years) it was the first time I had attended such a “ceremony” (which is short-hand for drinks, comedy act, hand out some gongs, food, more gongs, drink, dance…). I have no problem with some fun and the evening itself, I had a good time, thanks to the company of others, but left early as I had a busy schedule the next day.

I was surprised to learn about some of the winners, much of which were advertising awards (well, it is a press event, where advertising pays the bills)… I hadn’t even seen many of the short-listed or “winning” adverts. That then prompted the question about the awards in general. I learned before the event that you have to enter yourself to win and not many do. So precisely what credibility such awards hold is somewhat questionable. So I wondered, does having a logo that says you are “IFA of the Year” 2013 make a difference to existing clients or potential ones? I genuinely don’t know the answer, hence I’m asking you for your thoughts. I am always a little perplexed by these things as I tend to think that unless someone wins one every year, then presumably their standards have fallen behind the next winner. I’m certainly fairly reluctant to put myself forward, because, well.. it seems a little narcissistic. So, is this a PR stunt of worth to you? would it make a difference?… is your GP “GP of the Year”? or your Accountant? Don’t misunderstand me, I’m not suggesting that these things have no value, I’m simply questioning what value. After all, surely most good financial planning is only likely to be shown to be of great success (or otherwise) over the long-term… perhaps even after death.

Dominic Thomas: Solomons IFA

IFA of the YearDominic2023-12-01T12:23:30+00:00

Tax Year 2012-13 Ending

The 2012/13 tax year is nearly at an end. Time is running out. HMRC essentially operate a world of “use it or lose it”. For most people this means ensuring that you have maximised your pension allowances (£50,000 is the maximum permitted in the tax year, subject to a plethora of qualifying rules – aren’t we all thankful for pension “simplification”). These days pretty much the only advantage of a “pension” is the tax relief – which is applied at your highest rate of tax. Thereafter, have you used your ISA allowance, all £11,280 of it? capital gains tax allowances? and a heap of others for those with more sophisticated planning.

Most people give money to charity, so do remember that this attracts tax relief in a similar way to pensions. Also you are able to use your annual giving allowance of £3,000 per person (the giver) moving money from within your estate to those that you want to benefit, a very basic form of inheritance tax planning – it can certainly become much more complex based upon the size of the IHT problem that you expect.

There are other forms of allowances, but please treat these with caution and remember the adage “fools rush in where angels fear to tread”. I was on the train on Saturday evening, coming back from a very good performance of “The Judas Kiss” when the couple next to me started discussing their financial planning rather loudly ( I really wasn’t trying to listen). The subject of their conversations was about VCTs (Venture Capital Trusts) and the tax relief available. They had clearly not attended the same meeting as one was describing how the VCT worked to the other. Their “adviser” had not charged for his “advice” (not permitted nowadays) and I was rather concerned about their understanding of the risk involved and the lack of compensation coverage if or when things go wrong. The FSA would suggest that only around 3% of all investors are likely to find this sort of investment suitable (3% of investors, not 3% of the population). Of course some VCTs can be a great solution, others require you to be more of an expert than a Dragon in the Den. Please be aware that there will always be someone willing to discuss a “guaranteed winner” to an unsuspecting person. When it comes to investing, there is no such thing as a guarantee, despite what it may say on the tin. Be warned – and sadly I have to say that the information on the MAS website fails to adequately convey the degree of risk with a VCT. You can lose all of your money. It is not called venture capital for nothing!

We will be closed for Easter (Good Friday is this Friday!). We re-open on Tuesday 2nd April and I can assure you that despite every good effort, attempting to make a tax-year end payment by Friday 5th April will create some significant stress if you leave it late.

Dominic

Tax Year 2012-13 EndingDominic2023-12-01T12:23:29+00:00

Tax Reclaim

For those of you that are higher rate taxpayers, remember that you need to reclaim your higher rate tax relief via your tax return. HMRC do not provide you with an indefinite amount of time to get this sorted. In practice anyone with higher rate relief claims must reclaim the 2008/09 year by 5th April 2013. So make sure you do! In general, you only have 4 years to make a claim.

Tax ReclaimDominic2023-12-01T12:23:29+00:00

Rip off Britain – the end is nigh?

Today the FSA launched a consultation paper about rip off Britain, sorry I mean, how to regulate credit companies. By credit companies, I mean those that offer money to you and I. That includes those wonderfully cheery puppets and reworked versions of old familiar tunes to bombard us with the opportunity to borrow. The Government have finally drawn up some headline principles (Lord knows why it takes politicians so long to do anything that really matters) and put this into the safe hands of the FSA (not to be confused with Food Standards Agency).

So the FSA has outlined its initial thoughts and guidance in CP13/7 a consultation paper. You really ought to read this if you have the vaguest concern about the easy credit that is available at 1000%. Mind you, I’m guessing if you are like most people, the small-print is often overlooked (its small right?). You always read the small-print… except for those wretched 1000 pages from a well known online music rental company that you thought you were buying music from (and many others) as you tick that, well.. yes you did read the terms and conditions..but you didn’t. CP13/7 has 201 pages – good luck. Designed to be thorough or off-putting… you decide.

So why is this important? well first of all because people that lend money need regulating. This is and always will be, the most obvious form of exploitation in Britain – providing people that cannot afford something with ability to spread payments that feels less painful, but is invariably 2 or 4+ times the original price. This is the most basic financial planning building blocks – yet our politicians, think tank experts all believe that borrowing is the way to get us out of recession. Paying off debt is the opposite of what Government wants us to do personally, but precisely what they want us to do with public finances. Spot the irony?

Ok, we don’t want a nanny State, well I don’t, but I would like a society that enables people to borrow money sensibly and not at exorbitant rates of interest, and yes provided by institutions that are accountable rather than the local mob and bully. Sadly, when people get into money problems it isn’t very easy to get out of them and the numbers are continuing to go in the wrong direction for those that are in the deep stuff. This then comes back in two forms – more assistance from the State and more money owed, never to be repaid to businesses of all sizes, threatening viability and so the cycle continues. At some point, someone has to be told a truth. No. But a cold reality is not enough without a proper plan and strategy to recover. Obvious lessons from AA or any addiction teach us this (we have to alter belief and behaviour, which is more complex). This is of course precisely what the public finances have been grappling with, not just here but also in Europe and, well everywhere. Whilst we might want to blame “the bankers” (without really understanding what that means) actually this is the result of not living within our means and this is precisely why having a financial plan is not just “nice to have” but frankly pretty vital. So I was fairly amazed to learn that most financial advisers still don’t do any proper financial planning for their clients (that means cash-flow planning). I will guess that few will offer thoughts to the FSA and this will be yet another missed opportunity. Rip off Britain (well parts of it) will probably continue to thrive…unless you and I take some action…over to you.

Rip off Britain – the end is nigh?Dominic2023-12-01T12:23:28+00:00