Latest articles on The Money Debate

How did we end up with retired people without repayment vehicles for their interest-only mortgages

October 10th, 2013

In the last few weeks, we have seen an alarming piece of research about mortgages and the elderly yet I have heard very little from the financial services industry. It may be somebody else’s problem but is that because of a failure of regulation.

A report by the Personal Finance Research Centre and the International Longevity Centre UK suggests that one third of the over 70s with mortgages have interest only mortgages with no repayment vehicle.

Four in ten of the oldest mortgaged households have at least one interest-only mortgage without a linked investment to repay the loan, compared with six per cent among the under 55s – a reflection of changing times and changing policies.

There are other results in this survey that suggest a failure of the mortgage industry or a failure of a banking system for allowing people to keep remortgaging into higher debt which at best saw borrowers marking time on these loans, when they should have been getting ..read more

RDR’s slow motion impact on consumer confidence

August 7th, 2013

The RDR is already having impact on consumer confidence, according to a Cofunds’ adviser poll though while the headline figure shows 57% of advisers saying it is improving or will improve confidence, it all feels a little bit slow moving.

Cofunds asked 404 financial advisers – so statistically significant – how long they expect it to take for consumer confidence to change following the introduction of RDR. Sixteen per cent of respondents believe confidence has improved, 4 per cent expect to see an improvement this year, 13 per cent after a year, 12 per cent after two years and 12 per cent expect it to take more than three years. Meanwhile 42 per cent believe that RDR will have no impact on consumer confidence.

There is also an encouraging response to the new way of charging – which Cofunds describes as fees.

Thirty per cent of respondents to the same poll said their clients have reacted positively to the transition, while 57 per ..read more

Pay rise or not, why don’t MPs have to have their pension with Nest or is it not good enough for the likes of them?

July 11th, 2013

Intriguing that in the MPs’ salary debate, a move to a career average system from a final salary one, is seen as something MPs would concede in return for more money. That sounds okay but it also involves them contributing substantially less (teachers take note). Anyway I made the following argument today wearing a journalistic hat for a consumer audience on Mindful Money. I suggested that since MPs are currently debating pension legislation which will see most people in DC of some form, that perhaps they should be in DC too.

Having mulled this a little further and given the news about the lifting of Nest restrictions and the fact the OFT is now worrying away at AE pensions set up under commission, perhaps MPs should automatically be entered into Nest, and quite obviously with no advice attached unless they were prepared to pay for it.

The ultimate in alignment of interests between elected and electorate. And it could be in return ..read more

Does retail financial services need a shake up in the approved persons regime?

July 9th, 2013

This may go without saying but the move to abolish the approved persons regime has come about because of the behaviour of senior banking staff and the inability of the FSA/FCA to come down on them like the proverbial ton of bricks.

Not a bad initiative you might say, recommended by the Parliamentary banking commission, with a senior persons regime requiring a high degree of responsibility with lower level staff to be licensed. The chairman of the FCA John Griffith-Jones, reported in Money Marketing, says he sees no reason why the regime should not apply across the market.

But although the Money Debate hasn’t made up its mind, we do need to ask if the change is necessary, appropriate and proportional when it comes to advisers. In fact, do IFAs and others in this neck of the woods have a view whether the approved persons regime has worked. (It does seem most people make it through which may be a bad sign). But ..read more

Friday thoughts – Out of date portfolio theory/ Pension fight pen / China’s misselling risk

June 21st, 2013

Chris Gilchrist has slated modern portfolio theory in Money Marketing this week because it can’t cope with financial crises which is, obviously, a slight problem at the moment. But it is the following point which catches our eye at the Money Debate.

“I regard it as unfortunate that the exam creators at the CII and elsewhere continue to regard MPT as holy writ. More than 10 years of increasingly sceptical academic commentary has yet to make it into the exam syllabus.”

Er quite. But isn’t it time the CII justified itself? If the papers are behind the curve or worse just propounding something that is wrong, then surely it is time to adapt things or if not to explain why not. “Theory used as basis of much investment advice is out of date” is not a great headline for the sector. Last thing it needs in fact. Views welcome.

At the Money Debate we can’t help but refer readers to a rather fiery pensions argument ..read more

How can the FCA become smaller if its remit keeps getting bigger?

June 19th, 2013

The Parliamentary Commission on Banking Standards wants a slimmer FCA focusing on the big issues. Here’s the relevant quote.

“A strategic aim of the FCA should be to become a smaller, more focused organisation. The commission recommends the FCA replicate the Bank of England’s stated intention for the PRA to operate at a lower cost than its equivalent part of the FSA, excluding what is required to fund new responsibilities. The FCA should set appropriate timescales for implementation of this recommendation.”

But short of dumping the RDR what exactly, can the FCA do to achieve this focus?

One can look to history of course, to see how focus was lost. In the run up to the banking crisis, I heard countless IFAs say that FSA was looking in the wrong places. The advisers said it was the bigger players and usually the banks where things were going wrong. I suspect a lot of these comments were referring to the industrial scale fast-tracked lending, ..read more

Amid the direct to consumer headlines is this a genuine USP from Standard Life?

June 14th, 2013

Standard Life gave a briefing this week about its platform plans at its wee offices in the Gherkin in the City of London. The Money Debate attended. Among other things, it has announced a D to C platform which made a few headlines this afternoon. This has traditionally been a tricky move for insurers with IFAs worrying about losing clients to a business partner which is also a rival. Standard may have come up with the perfect way to sugar the pill. Certainly from what it said this week, it will harness its  asset gathering operation through things such as auto-enrolment, try and use that to encourage other investing, and when customers have enough assets to need advice they plan to refer them on to advisers who use the platform.There will be some details to be thrashed out of course. No doubt Standard will want to ensure the advisers it refers business to, don’t suddenly shift the assets to Transact ..read more

Is the burden shifting from consumers on non-disclosure?

June 10th, 2013

The Financial Conduct Authority’s first quarterly consultation paper is making some small adjustments to the language around consumer disclosure when they take out insurance. The FCA says this is actually bringing ICOB into line with the Consumer Insurance Act 2012. The regulator says it is also bringing its policy into line with FOS and what is established as industry good practice.

But this feels like a shift, albeit a relatively subtle one. This is one key paragraph. ‘The Act replaces the duty on the consumer to volunteer information material to the insurer’s decision with a duty to take reasonable care not to make a misrepresentation during pre-contract negotiations.”

Here is another section – “Whether or not a consumer has taken reasonable care not to make a misrepresentation is to be determined in the light of all relevant circumstance. For example, the type of consumer insurance contract in question and its target market, any relevant explanatory material or publicity produced or authorised by ..read more

Sorry Mr Jones but clean share prices are surely only the fourth or fifth most important thing for investors

June 4th, 2013

Yesterday the Money Debate received a little press release from Edward Jones which says that clean pricing is probably the most prominent issue in retail fund provision and the hottest topic for retail clients.

Okay, it does says probably, but surely the most important thing happening to investors is what is happening to markets. Perhaps nobody knows, what to do about their bond market exposure if returns look certain to be negative, whether they are diversified adequately including considering that bond issue again, whether their attitude to risk matches what they think they are investing in and, er, well, maybe then clean share classes and transparency.

Still one must say it is fascinating to watch stock brokers make a huge play for the fund market with a very different ways of pricing. There will certainly be a bit of price war. That is great news for the execution only, bargain-hunting veteran investor. However the Money Debate still wonders what it means for ..read more

If our system of advice can’t help with interest-only shortfalls then what is it for?

May 8th, 2013

This blog has occasionally raised concerns that the post-RDR advice sector could become increasingly irrelevant in public debates as it retreats to advising Upper Middle Britain.

Is there now a chance it could become irrelevant for something that is much more than a debate but also a public advice challenge – the interest only mortgages shortfalls facing 1.3 million borrowers. It is certainly a significant litmus test.

Of course, the issue can be overblown. While there is not necessarily a need to panic, there is a need for advice. But any consideration of the various options – moving to repayment, creating a savings and investment plan, down-sizing – would be better done with financial advice than without.

However the dynamics of the market may not lend themselves to allowing advisers to do much about it. In a world with more flexible regulations, advisers might set up bespoke workshops to help people consider their options. With more flexible regulations, mutual funds or even structured ..read more

Is there enough ‘advice infrastructure’ to deal with interest only problem?

May 3rd, 2013

Ernst & Young is predicting there will be 20,000 advisers by the end of this year down by another 3,000 from the current 23,000. This does not include the bank sales advice retreat. It is only a prediction but it should be in the right ball park.

1.3 million interest-only mortgage borrowers may be facing a shortfall when they come to pay off the capital sum.The average gap may be around £70,000.

Now the interest only mortgage issue isn’t a scandal nor even a crisis yet. But it is a big concern particularly in parts of the North where prices have fallen a lot and property downsizing options are very limited.

All things being equal, one might suggest the best way to deal with this would be to direct as many of these borrowers to proper advisers. Unbiased.co.uk is doing valiant work to do just that. But will there be enough advisers? Twenty thousand advisers – makes about 65 shortfall sufferers for each ..read more

Simplified advice call isn’t self serving from Tory peers

May 1st, 2013

When Lord Flight talks about simplified advice he is genuine in trying to find ways to convince more people to save and invest. Some advisers on the comment boards see some sort of pro-bank plot, maybe with the Money Advice Service involved, but I really doubt that. Whether simplified advice would be offered through the banks or even through insurers or platforms or tacked on to an IFA, it is surely a reasonable goal to work towards. We certainly don’t want to see some sort of ‘reprieve’ from the RDR so that banks and insurers can rehire all their old sales forces. In fact, any suggestion that the RDR would allow something called primary advice without ombudsman recourse was dropped years ago. But surely it is possible to devise a very simple suite for those simplified advisers to sell. It would require some disclaimers and possibly something close to a basic approved kitemarked list with FCA approval or at least ..read more

Does Hargreaves Lansdown’s success mask a UK Isa crisis?

April 30th, 2013

Hargreaves Lansdown’s boss Ian Gorham gave a presentation to journalists this morning with two fairly big pieces of news (covered here by me) for Mindful Money. The first was an announcement that HL is working on bringing down the minimum investment at which it will offer advice from about £50,000 to £20,000 and the second that Gorham wants a cap put on the charges that insurers can levy on transfers saying 6 per cent of a portfolio is phenomenally high. And so it is.

Both are big news of course especially the reduced minimum which could be a game changer. If HL can make it work maybe others can too. It is certainly the first time I have heard that the advice gap might just have narrowed a little. It seems to be driven by the fact that some people simply won’t self select.

The second issue on transfers is very interesting too. HL may be the biggest consumer platform, but platforms ..read more

Wrong advice on signing away employment rights

April 26th, 2013

It was a little strange this week that the Government got through its beazer scheme to encourage employees to sign away employment rights in return for CGT free shares in their employers as the Guardian reported.

It looks like the concession which got the plans through Parliament was a promise that the employees concerned would have access to free, independent legal advice.

Not being a lawyer, I still wonder what this legal advice would be. Like this – the law says you can do this. (Well unless there is a constitutional clash with other laws, in which case employees will need to seek the advice of the Supreme Court.)

Surely it should have been financial advice. As in… Well it is quite difficult to put a value on those employment and redundancy rights, but they certainly have some value in protecting your income a little.

This is compared with a shareholding in your firm which does, to an extent, double up your potential liability. ..read more

Will a growing need and demand for advice be filled by IFAs or will it come too late?

July 25th, 2013

Advisers are being bombarded with statistics and calculations predicting further declines in their numbers from consultancies and academics, but also, sometimes from the other direction with suggestions that numbers might grow from Zurich, that more people will seek advice from Axa and that we need more advisers from Standard Life.

Most of these predictions are based on taking a long hard look at the numbers but sometimes coming up with well researched, sincerely believed and very different conclusions. Advisers themselves may feel a little steadier. They may look at their own business and see that things are actually going okay with a little help from the stock market, the housing market (in some parts) and now even the economy though it ain’t boom time just yet. Even adviser charging has not proved too much of a challenge (for those firms that have survived of course) and they may hopefully manage to deal with the probable end of trail too in 2016.

For ..read more