Barclays to cease Financial Advice

Barclays financial advisers have today been told that the Bank will no longer be providing financial advice and that their roles will therefore be ending. The reason given by Barclays is that the business of in-person financial planning is not viable. This is in the context of some very bad press and very hefty fine and the industry changes (RDR) being introduced. As a result Barclays will move to an execution-only online service (in other words, D-I-Y finances online).

Whilst many IFAs have long criticised the low quality of advice from Banks and few will be genuinely sorry to see them leave stage right, this does mark a signficant development. In essence, when a massive multinational cannot make sufficient profit and therefore run a sustainable business, this does prompt questions about the way in which financial advisers are being asked (told) to operate.

The sad truth is that those lacking wealth and financial security are the ones most needing to build a future for themselves that means that they are not reliant upon the State benefits. Something that we all probably agree is a key objective. Ironically just as product costs are being more closely scrutinised and reduced, the result is that fewer and fewer people can actually afford decent advice and there will be far fewer providing any from 2013.

That'll be £93million sir...

Last week I blogged about the FSCS decsion to split a £93m bill amongst IFAs, well today my invoice arrived. I did my very best to contain the desire to sound like Victor Meldrew - to no avail though. Mind you, it wasn't just me that was somewhat taken aback by the second invoice in 6 months a number of others have too. The reaction was priceless. See what some of them had to say with their respsonses to this contained within the Money Marketing (FT trade press) article.

Caught out by Chinese Money Laundering

At the weekend I ordered a takeaway chinese meal and paid by cheque. I was contacted yesterday by a very embarrassed young man, asking if I would be able to supply a second cheque as he had accidently put his clothes containing my cheque and several others through the wash. He popped over to collect the new cheque and presented me with my mangled, faded original one.

I have to admit that I don't quite know where this sits with the FSA and European Union regarding money laundering, as often the law is open to interpretation and our friends in Europe speak several different languages, I am hereby making it known that although this is not the sort of money laundering that the FSA mean, just in case, I have disclosed the incident to anyone that may be concerned. Yes this is a bit of a gaff - not a big one, unlike the amusing FATF GAFI that is the genuine name for the Financial Action Task Force. There's something of a Peter Sellers movie in this I'm sure of it.

Blog Revamp

My blog has been tweaked, revamped and refreshed. Let me know what you think.

Ghost or Deadman Walking?

I wonder if you have seen the latest AVIVA TV advert for life assurance. For once, an insurer has not pulled any punches on the traditionally off-limits subject of death...or at least the impact of it upon a family.

Paul Whitehouse (Harry Enfield's chum) plays the ghost of a father that has since departed, only obvious at the end of the piece. I don't have any advantage in promoting AVIVA - its a decent advert and I reckon a pat on the back to their marketing team on this one. Not everyone has life assurance, fewer still have a Will, fewer still have an Enduring Power of Attorney... all rather important for anyone that has anyone else financially dependant upon them.

Here's the advert. What do you think?

Another Big Mess

Let me be very clear. I do not like being ripped off any more than anyone else. It seems to me though that there is a sense in which compensation should be paid if the rip off was deliberate or just plain negligent, not simply because a risk that was known didn't work out as hoped.

The FSCS who seem to be spending a reasonable sum advertising and encouraging people to complain are expected to annouce a £93m levy for 2011 to IFAs shortly - according to Money Marketing. That is money that my firm and many others collectively have to stump up to cover the cost of firms that have... shall we say.. got it wrong.

£93,000,000!

There is no opportunity for IFAs to contest this - we basically just have to roll over and cough up our share of £93,000,000. It makes no difference how good our firm is, the bill is simply split - like "going Dutch".

The obvious conclusion - much of our fees actually go towards covering the cost of compensating people that have been poorly advised by lesser advisers, reducing our own profit and threatning the sustainability of our own business. This makes little sense, but there it is. Any suggestions?

Social media is not what it seems

I came across this 30 minute video in which Douglas Rushkoff discusses some alternative views about marketing and the rise of social media marketing. Provocative, insightful and to the point. Thanks to think tank company Peter, Sarah & Friends for bringing this to my attention...via Twitter. I hope that this is of value to those of you that work within any organization, particularly with a marketing interest.

The Consumer Experience

Last night I watched Mary Portas swing into action in Channel 4's new series "Secret Shopper". her assessment of customer service in the high street is pretty much spot on...in that there isn't much. I don't consider myself that unusual when it comes to shopping - and generally wouldn't need advising not to part with my money if I wasn't happy and tend to only go to shops where I think I have fair chance of being treated fairly...or better still treated well.

Of course it got me thinking about my own business. Can I say that we provide a truly unique service that is always brilliant? well I'd like to think so, but I know that this is never going to be 100% of experiences. I do believe that we treat people fairly and I enjoy the company of my clients and over time we become close. However, there is always more that could be done (or at least that's my mindset). I have limited time and resources, but Mary's changing room idea in her programme was great - I could do with something as revolutionary for my own firm and our services. OK, we invest in IT and I am expecting to annouce more improvements for clients shortly, but... we need something altogether more RADICAL with ENERGY.

So, I am hereby welcoming fantastic, knock-out ideas to make the experience of financial planning (all those data entries, reports, charts etc) rather more... enjoyable. I'm not naive enough to think that financial planning is "sexy" - we all know it isn''t, we also all know that it is important, yet most people do not behave as though it is. Something needs to change - for the nation, not just my firm, else we are destined to become a nation of overspenders that end up dependant upon the State... the bank of you and me.

Mary, if you read this - you are inspiring, but if I have one criticism - it would be not to have a go at the boss infront of the staff. Chris George, the CEO of Pilot took a very large bite into humble pie and I think this would have been better said to him alone. I don't think many of us would have coped better than he did in the circumstances - on camera.

Rising interest rates? soaring inflation? Don't Panic?

Today I went along to one of the better market briefing seminars (there are a great many of them as you may expect). The media have been screaming about rising levels of inflation and how we are all due to face "soaring interest rates"... at least that was the headline I saw last night on the way home. The media are very much like the character "Corporal Jones" from Dad's Army... "Don't Panic!" being his regular cry, whilst doing precisely that.

Step up some sensible Fund Managers, with some reasoned logic and plenty of experience in the form of INVESCO Perpetual and the scene surveyed looks a little different. Yes there may be further bumps in the road - Neil Woodford thinks the UK recovery needs another 2 years. Markets though, are generally undervalued. Inflation... well yes it's there, but the devil is in the detail and they don't seem to be expecting any sudden shocks or dramatic rises... interest rates may tick up a little, but not much...the US are currently terrified of deflation which is far harder to pull an economy out of (ask the Japanese). As for the Eurozone crisis? There are some undervalued Spanish stocks - just because they are Spanish (!) and caught up in the sovereign debt crisis - the general view seemed to be that most of the problems with sovereign debt have been priced into the market and there is little real chance of Germany leaving the Euro as this would be self-defeating with a high Deutschemark making German goods expensive... yes it's likely that Irish and Portuguese debt may need to be re-worked and eveyone might take a "haircut" but in the worst scenario a capital loss of 10% was suggested... which in terms of investment speak is small compared to any normal investment market.

Full marks to INVESCO Perpetual for another very good commentary, some common sense (I hope) - which in summary is: steady as she goes, keep to the course and expect the odd bump now and then, but any long-term investor is currently buying at fairly underpriced values. Of course by the time we next convene it may all have changed - such is the joy of financial markets and the crystal ball gazing... sorry I mean economic forecasting.

Money for Nothing...Dire Straits

I have been in a fairly acerbic mood today having spent time ploughing through the quality end of my trade press online and in the traditional paper format. I was struck by a couple of stories that reminded me that a number of the people "in charge" or at least in positions of power seem to have grown up in the 1980's and have somehow connected the Dire Straights hit "Money for Nothing" with their general raison d'etre.

First my goat was wrangled by Euroblundersrus having read an article in Money Marketing suggesting that Countries bailing out those, wait for it (technical term)... bankrupt nations should not be paid their agreed level of interest, but be doing it out of the goodness of neighbourlyness. Well, we're not talking about lending a bag or sugar or fixing a leaking drainpipe... but bailing out nations that have messed up their public services and promised money that they don't have. So to suggest that the risk of doing this is not rewarded is plainly a failure to understand risk or business or money...which is a little bit of a short-coming if you are working in the European Parliament presumably to encourage nations to act responsibly and in manner that is not delusional.

Secondly I read another article suggesting that people (that's you AND ME) do not understand that Absolute Return funds can go down as well as up. I know its a complex subject, but even Dell Boy knew that nothing goes up forever and that there are risks in everything. Yet we are being told that the term is misleading people...well is it? if you see a fund called an Absolute Return Fund.. do you assume it can only go up? Perhaps I'm wrong on this.. but the sort of people I advise are not covered in velcro and fuzzy felt,only coming to life when a puppeteer is around.

The world doesn't give us all that we would like it to. We won't always get what we want. Good times come and go, but there are inescapable life truths that are, well... inescapable.. money is not free, even if we are in dire straights.

Please Sir, can I have some Gartmore

Henderson Global Investors continued its quest in buying up investment houses experiencing problems - perhaps making them experts in the field. This time it is Gartmore that they have agreed terms with - much to the relief of Gartmore share owners and staff. Henderson have a reasonably hefty punch with assets under management at £61.6bn by the end of 2010.

This is good news for investors in Gartmore - it remains to be seen if this is good news for investors in Gartmore funds.

How 2010 looked in the end

The January Market Report is now available (data to the end of 2010). FTSE All Share up 10.9% all the indexes worth knowing about today are here.

10 ways to spot a financial con

Imagine the horror of learning that your life savings of £1.4m had turned into £14,000. That you had been fooled by a financial trickster who ran a Ponzi scheme that saw you unwittingly place all of your life savings with a guy that you trusted, that seemed to be doing the right things and making the right noises. Today you know that he was found guilty and will be serving time in prison, but this does not feel like justice.

As a financial planner, I am always interested in these stories. I am left wondering, why is it that clients trust me - apart from Terence Freeman's obvious deceipt, how can a client tell if I am actually any different?

There are tell-tale signs - the most important being that I am regulated which means that I am a registered individual with the FSA as is my firm. As such I have to take out professional indemnity insurance in the event of a claim for bad advice (all adviser firms have to have this). Like most industry-wide regulators the FSA has flaws. However, it is a watchdog with teeth - issuing fines to firms in 2010 of £85m (a record). The FSA are there to ensure that rules are upheld, that practices are improved and that the standard of advice is lifted ever higher. All good stuff.

However these people seemingly ignored or did not understand that someone not regulated by the FSA is automatically malpracticing if acting as an "adviser". So There are two points to make here - firstly that people still have a poor understanding of the financial services industry and regulation. Secondly, that the lure of high returns means that some people stop asking questions.

This a story as old as time itself - human nature will tend to overlook or ignore the "how" if the magic works. A Ponzi scheme is the equivalent of financial illusion. It appears that returns are going upwards (despite every piece of economic news) - in practice all that happens is that the newer investors are receiving income or growth from the money that new investors put into the scheme (unknowingly). In steps Mr Maddof and now Mr Freeman all in the footsteps of Charles Ponzi who set up the first enormous scheme in the US in the 1920's - though obviously not the first financial scam.

I have to admit that I really don't know quite how people make decisions that lead them to forget the basic truths that they know. I leave to those that know better than me about how people think - the psychology of money is something that Dr Maria Nemeth has spent most of her adult life studying and now teaches or coaches financial advisers to help their clients to focus on what is truly important. She has some very valuable insights that advisers would be very well advised to consider.

In terms of spotting a financial con, here are some questions to ask yourself.

1.If it sounds too good to be true, it probably isn't true.

2. Is the company regulated?

3. What is it that appeals about the investment being offered?

4. How do the historic returns compare with the relevant market?

5. Is the data evidence reliable?

6. Who audits the fund?

7. How do they do what they do?

8. How come they are able to reproduce results that no one else can with consistency?

9. Who do the financial valuations / statements come from? can they be verified?

10. Are you being pressured into investing?

Most people take years to to build up their wealth and I am intrigued as to what makes them hand it all over to someone promising something that in reality we all know is not possible - otherwise everyone would be doing the same thing.

The list could go on... but actually things like the "advisers" qualifications and employment history are probably not that helpful. Just because someone has managed millions for a large Bank does not make them good at it or trustworthy - does it?

Here is the golden rule: whoever has the gold makes the rules

Click shows flaws in RDR

Today, Money Marketing report that award winning Click, an online "execution only" protection broker is closing its general insurance arm with a loss of 80 jobs. On the face of it this is no big deal to most of us - obviously sad for the 80 that have lost their jobs. However there is a bigger issue here.

In essence Click provided an option to consumers - to sort out life assurance and loans. All of it without any advice. Marketed oddly as a free of charge service (to find the cheapest providers from a limited range). Frankly I'm surprised that this terminology is really still used. We all know that people don't work for free and that commission pays the bill. Anyway as a firm regulated by the FSA to sell life assurance, critical illness mortgage and income protection they provided an option for the DIY minded and less affluent consumer.

The fact that the company has had to close is concerning. The most obvious point to make is that the numbers were presumably all wrong and perhaps not well managed (I am not privy to the information of Click Financial Ltd, though accounting details would presumably be lodged at Companies House). I admit commenting with such little information is dangerous and I have no intention to harm Click. What occurs to me is that the business was presumably not valued properly - whilst commission may appear to offer significant rewards for sales, the business model and assumptions would seem to have been wrong. A free lunch does cost someone. Utlimately people do not wake up and decide to buy life assurance, its one of those things that needs to be highlighted and explained.

Why am I bothering with this? well in short, with the FSA pressing ahead with RDR, the main thrust of which is to provide fee-based advice which means that the "best advisers" (remaining) will be charging fees, the rest will either have to leave the industry of offer a service similar to that of Click. The main reason that most advisers are struggling to adapt to RDR requirements is failing to know how and what to charge. If you have been telling people that your service is free it is pretty difficult to place a price of free other than £0.

Advisers need to quickly get a good understanding of how much the work that they do is worth. (as do their clients). This will presumably have some relation to complexity, time, experience and the amounts involved. This is not normal territory for many of them, for a significant number (I hope not most) their business is response driven - something arrives by post or email and the adviser responds. The classic squeeky wheel gets the oil. This has nothing to do with service.

The closure of Click ought to be a warning to the FSA that the most obvious unintended consequence of RDR is that most people will be left to get advice from a Bank where there seems little real service proposition, more of a "buy as I think of it" approach. Banks provide statements and marketing leaftlets and little else (yes even the Gold card "services" are plainly hapless). The one advantage is that Banks are easier to regulate and fine (assuming that they don't become insolvent) which would make life easier for the FSA - who have an unenviable job policing the system.

As someone that has operated on a proper fee system since forming my company in 1999 you would be forgiven for thinking that I believe that fees is the only way. I don't and it isn't. The issue is that people get good advice and that this is not swayed by a system that creates bias in the advice (different commission for different products from different companies). Many people cannot afford fees for even a basic level of service, yet invariably these are the people that most need good financial counsel - to help them become financially independent of the State.

RDR must be re-thought otherwise we are creating a rod for our own back where those without get even less and rely on the State even more and it would appear that these sums are not sustainable. Much like a business model that doesn't work because the number are wrong.

Britain on track...for going bust

According to research conducted by Dr Eamonn Butler of the Adam Smith Institute, Britain is headed for doom at some point between 2019 and 2032 by his best estimate. Citing that our Government is actually doing relatively little to remedy this and still writing cheques on the backs of a workforce that may well have entirely lost its faith in politicians, our welfare system and public services all cost far too much and need a serious overhaul.

One has to take the Adam Smith Institute pretty seriously these days and the article doesn't make good reading. Mind you the problem would be solved with some "once a generation" nasty events - such as plague and war to reduce the number of pensioners and curtail life expectancy rates significantly. I do hope that my cynicism is very misplaced!

Cynicism aside, this would lead to a downgrade of UK Gilts in general which has historially been a safehaven for investors. This is the time of year that many people attempt predictions about the future - frankly this is at best educated guessing, at worst fortune telling. Neither really have a place in the armoury of a good financial planner. But if pressed, I'm expecting house prices to continue to fall - in my view they have a long way to drop yet. Most people simply are not moving rather than realising the losses. I would also expect interest rates to rise perhaps by 1.5% over the next 12 months. Inflationary pressures would seem to be driving this - not helped by increased indirect taxes (VAT). Inflation tends to help equity markets - perhaps creating a false sense of "good feeling".

If Butler is right, one might expect many Europeans (and others) that have come to Britain as economic migrants, to seek an alternative home - but for our comparatively generous welfare system - which we know will be altered. So if I was to play along with Butler, one might expect an exodus from UK which would both help the UK (reduced costs) and hinder it (reduced cheap labour and perhaps further property price reductions).

The truth is that NOBODY knows what the future holds. It is very easy to forget this when reading predictions about the future that are doomsday like. We are able to address these issues in the UK and we are all fortunate enough to live in a country that offers the opportunity for most of us to create our own future, admittedly some have a better start than others on this. As you may have observed I am somewhat sceptical about predictions, much can change in life. I have not yet come across any econmoist that consistently gets any "predictions" right. We would do well to observe the rather hapless success enjoyed by the weather predictions.

The short facts are obvious - don't rely on the State, sort your own finances out and get your own "house in order", have a plan, review it and make adjustments. Don't spend more than you earn and build liquidity.

Any questions?

Tax Overhauls

The Government continue to press ahead with a review of taxes, which are certainly in need of simplification. One of our least favoured taxes is inheritance tax - which has been reduced for many in recent years with the introduction of a double nil-rate band for couples and a reasonable increase in the nil rate band itself (currently £325,000). However, combined with clever tax planning and falling property prices IHT does not raise a huge amount of tax and the current climate may well lead to changes. Personally I suspect that this is likely to be a case of smoke and mirrors - why get rid of a tax that does at least raise money? in practice it will probably appear to reduce by alterations to the nil rate band or rules themselves - but I wouldn't bet your house on a change that means you end up inheriting more!

There are various tools available to reduce the impact of IHT, but please watch out for schemes that seem to do it all. The reality is often very different - most people need to retain control of their capital, which would contravene most IHT "plans" and HMRC guidance. Gifting the money or spending it are the two most basic and straight-forward ways to reduce your IHT. Not always possible, but many schemes that promise much tend to deliver little and are regularly reviewed by HMRC. This is not the time to hope that HMRC will adopt a "light touch".