There are times when I feel quite despairing. The regulator has had an initial go at reviewing the effectiveness of RDR, the new world that was meant to result in better advice, greater clarity and fewer problems. It would be fair to say that there is a wide range of views on the wisdom and merit of RDR as is has been “delivered”. My own opinions aside, the regulator is concerned that investors (that’s you) do not understand percentages. Now call me whatever you like, but if an investor does not understand basic maths, then they really have no place investing their hard earned money. I’m not talking about complex percentages, such as how to put in plain English the interest charged by payday loan companies that the new Archbishop of Canterbury is attempting to address, nothing as complex as that. I’m talking about working out what 1% is. Yes calculating what 1% (one per cent) is. The regulator does not believe that investors can do this simple sum of moving decimal points two to the left. One per cent of £100,000 is £1,000 (just to be clear).
Now, if things are really as bad as this, then surely the entire education and financial system has failed miserably. Little wonder that politicians do not understand the difference between deficit and debt or how to spot a rip off and how to work out the budget for their own department, rather making the expenses scandal look more like a haphazard attempt at a maths problem. Surely we are all rather brighter than the regulator seems to be suggesting.
So here’s a test, which is bigger?
- 1% of £200,000
However, the truth is not that this is really about your ability to do sums, but about the framing of information. In fairness to the regulator, this is actually about fees that advisers charge. Its will cost you £2000 sounds different from saying it will cost you 1% of your £200,000. A cynic might suggest that there is an agenda here, but given that many things in life work on a percentage, income tax, capital gains tax, inheritance tax, annual management charges, dividend tax, bonuses, stamp duty, tips, inflation, gdp, interest rates, loan-to-value, electoral majority, and a gazillion other examples one wonders why this really is made into such a “big deal”. This in the context of an investment world that seems obsessed with stochastic modelling and probability… which are far more complex terms to grapple with, let alone the mathematics of standard deviation and the normal distribution curve. I wonder what percentage will be used to assess whether RDR has been a good thing, in terms of how many more people seek advice and how many are removed from reliance upon the State….
Dominic Thomas: Solomons IFA