Final Days For Final Salary

A recent report conducted by Watson Wyatt suggests that about half of employers with final salary schemes expect to close them within the next 3 years, with only 2% of such schemes remaining open to new members.

The big public sector schemes such as local Government, Teachers and NHS Pension Scheme are gradually evolving, restricting new membership, but are unlikely to be closed to existing members due to the political fall-out that would inevitably follow. Businesses in the private sector are plainly running for the door. Regrettably little can be done to turn this around - King Canute comes to mind – the days of the final salary scheme in the private sector are certainly numbered, as for those within the public sector, at some point, there is likely to be a significant battle on this one, but none of the political parties have the appetite for the inevitably sanguine chaos that would occur. Public sector schemes will live to fight another day, but for how much longer is anyone’s guess. Mine is in about 19 years (2028).

Survey Says… UK not saving for retirement

A recent survey of 9,000 consumers across Europe found that 72% of Britons surveyed do not hold any pension savings. The survey suggests that this is therefore higher than the global average (69%).

For those that know me, you will be aware of my scepticism of surveys and statistics in general. My first question would probably be – who was surveyed? Followed by “when?” Whilst I would certainly concede that the UK is not saving enough – most data would indicate this, such surveys are prone to error and I am rarely convinced about the reliability of responses from those surveyed. I would not wish to dismiss the survey out of hand, but I would certainly warn against making too many assertions from the results.

It is fairly clear that very few people that I meet are saving “enough”. Even the term “enough” is somewhat spurious… few people budget, so it is reasonable to assume that they would not have a clear idea of what enough would be in retirement. The pension industry is full of unhelpful jargon and the reality is that few people are up to speed with what they have in pensions or what they need. This is where good planning is required.

Banking Roundup

The FSCS (Financial Services Compensation Scheme) has announced that the industry (which includes IFAs) will be asked to stump up £406m as their initial contribution towards the cost of bank defaults in 2008. The key word being initial. The FSCS paid claims of nearly £21bn from October 2008 until March 2009, this compares to a total of £1bn paid in claims since the scheme was set up in 2001.

Santander, one of the few Banks to be relatively unscathed from the credit crunch recently announced half-year profits of £790m, an increase of around 41%. The Bank recently “acquired” Abbey, Alliance & Leicester and Bradford & Bingley. The theme seems to be an alphabetical collection of UK Banks… next beginning with the letter C?

Barclays meanwhile have announced an increase in profits of around 8% for the first half of 2009 to £2.98bn. It is also interesting to note that they have increased their number of mortgage accounts by around 40,000. HSBC announced half-year profits of £2.98bn, largely due to the growing profitability of its Investment Banking operations. It remains the 3rd largest Bank in the world. Northern Rock on the other hand, continue to push borrowers away once a fixed or discounted rate mortgage has come to a natural end. The result being a reported loss of £724m, compared to a smaller loss for the same period last year of £585m. However, there are indications that the UK taxpayer is being repaid as the level of indebtedness to the Government reduced to £8.9bn. RBS announced profits of £15m, which are of course tiny in comparison to the other banks, the vast majority of profit was also generated from Investment Banking activities with high street style banking services continuing to suffer. Lloyds announced a £4bn loss, most of which it claimed was the result of taking over HBOS (Halifax Bank of Scotland).

So what does all this mean? In short the Banks continue to struggle; most of the good news generated by them is a result of Investment Bank activities. The high street banking sector remains in the doldrums. This is the part of Banking that most of us are familiar with. In practice, small businesses continue to struggle, High street banks are very reluctant to lend or even retain current levels of commercial and consumer borrowing. Their own continued pressure is likely to be passed to branch and regional managers who will be closely monitoring credit arrangements. So be warned.

Place Your Bets

I was fortunate enough to attend the Goodwood horse racing festival last week. I confess that I am a horse racing virgin and had never placed a bet in my life. I had an enjoyable day off with a few colleagues. Having confessed my inexperience at a very early stage I was shown the ropes and the logic behind betting odds was explained. It was a salutary reminder of what many people feel about the investment world, full of jargon and the unenviable task of finding the right adviser and the right investments.

The task of selecting the right horse, involved viewing the horses, their form guide and reading the event guide and if so desired, the relevant newspaper. I regret that on a table of 10 people, only one person picked a winner from the 6 races… you guessed it - that was me (twice!). This was a good case of beginners luck and whilst I went with a small budget, I ended the day with a smaller one.

It was fascinating to hear the excuses given about the jockey not doing the right thing, the horse being boxed in, a suggestion that perhaps the race was not entirely fair. Everyone was wise after the event, yet willing to take yet another punt on the next race. I am sure that the professionals or experienced horse racing crowd could demonstrate added advantage from their knowledge, but I could not help feeling that there was a significant degree of luck involved.

My suspicions about gambling (for me) were confirmed – I really shouldn’t. I also should not attempt to guess the outcome of things I know very little about. I am heartened by the fact that whilst selecting investment funds is no “walk in the park” I do have considerably more expertise and find it very different from gambling. Gamblers can lose a fortune, in the funds that I select, certainly the value can depreciate, but I never place someone in the position of being able to lose all their money. The rules of the game are completely different, ones with which I am thankfully very familiar.

Some give up before they begin

You may not be aware that there is a drive by the FSA to get IFAs to charge fees properly and move away from old style commissions. The reason for this being that most bad advice has occurred by advisers selling products in order to be paid and some products and insurance companies can pay far more than another for exactly the same thing.

As I set the firm up on a fee basis 10 years ago, we still seem to be ahead of the majority of IFAs who still seem to operate on commission terms and have business models that rely upon high upfront remuneration. I have sympathy for those that are trying to change to something more like our model – where I believe our clients (customers if you are the FSA) are treated fairly. The journey is long and in our 10 years to date I have never found a short-cut that was worth pursuing.

The industry press has been covering the proposed changes for significant time now. In this weeks Money Marketing quotes Gareth Marr as saying “Large networks and nationals have business models that are so based on commission that the cost of converting will decimate their economic model and lead to a wipeout of the IFA community”.

I fully accept that the change will be difficult, but I have spent the last 10 years building a firm that treats clients fairly and ethically. We charge fees and for sure, not everyone can afford our services. It has been a long hard slog to grow the business . However just because something is difficult does not mean that it shouldn’t be attempted. We aren’t talking about going to the Moon, we’re talking about a fairer way to charge clients.

For sure the implications for the industry are significant. For starters, how to attract and retain staff is an issue. All our staff are employed and at present salaries have very little connection to personal targets as our emphasis is on service, which we live or die by.

The world is changing, a sense of ethics is long overdue in many aspects of commerce. We all know that the key word is “sustainable” yet we seem unable as a society to fully embrace the implications which I heard recenlty described as “creative destruction” a rethinking of not just how business is transacted, but why.

Selestia becomes Skandia

Clients with Selestia ISAs, Unit Trusts, Pensions or Bonds will be aware that Selestia is a part of Skandia (owned by Old Mutual since February 2006). Our clients will be aware that we have referred to Selestia as Skandia Selestia for best part of the last 2 years. On August 10th the name will finally revert to simply “Skandia” as one of the final parts of the merger completes. I am hopeful that this will avoid further confusion.

The Skandia Selestia platform launched in August 2007 accurately under the brand name Selestia Investment Solutions, with effect from 10th August this will be renamed Skandia Investment Solutions.

Old Mutual had £265bn under management by the end of 2008. Skandia had assets of £26.4bn at the end of June 2009.

Identity Theft & Bank Fraud

I have been asked about insurance that is being offered by Credit Card companies and Banks who offer insurance against ID theft. I have to admit that this is not a question that I have been asked before and I have started to do some research.

May I suggest that you read the information provided by Bank safe online. They have produced a helpful website with some good tips about how to reduce the chances of becoming a victim of financial fraud. Have a look at the http://www.banksafeonline.org.uk/documents/PersonalSecurityPlan2008.pdf.pdf which is quite a thorough document and have some useful information and contact numbers at the back.

As it is now the holiday season, vigilance with passports, foreign currency and various banking cards is perhaps more important at this time of the year. I would certainly not allow your card out of your sight when paying a bill and frankly if you are on holiday and in possession of a camera (perhaps on your mobile) it may not be a bad idea to ensure you have a photo of the person taking your payment, or at least the establishment. Digital images tend to also date time stamp the image, which may be helpful too. Of course this may seem a little paranoid or even rude to us British, but given the level of financial crime and the utter chaos that it can create for victims, it is worth going the extra mile.

As for the special insurance, I’m yet to be persuaded that this is worthwhile if you have taken all sensible precautions and report loss, theft or fraud quickly. I also suggest that you review the official identity theft site.