Julian Knight: Financial advice gap has become a chasm
New commission rules have left low and middle-income individuals out in the cold when it comes to expert guidance
Sunday 13 January 2013
I have come across the first case of someone I know being flummoxed for financial advice following the ban on commission that came into force in the new year. This individual, who has an above-average salary, but by no means a fortune, is finding it nigh on impossible to get advised on an investment ISA worth about £10,000.
An independent financial adviser, who has been used by members of his family in the past, is not interested in his custom as it is a small scale transaction and the cost of doing a thorough financial fact find would be "prohibitive".
This is typical of IFAS who are trying to morph into wealth managers to capture the lesser-spotted beast, the high-net-worth individual. As for this man's bank they have recently fired their advisers. Meanwhile, the government's Money Advice Service when it comes to investment choice it's totally useless as it's couched in such huge caveats that it's blandness personified.
So where does this man go for unbiased advice? The answer is they have a chat with me but I'm not allowed to give advice as such. There isn't so much an advice gap as a chasm. There is some potentially fantastic long-term customers that are going to waste.
Package fees rise
Why anyone would go for a fee paying "packaged" current account bemuses me. You get no better service than the non-fee paying customer but with some low rent insurance products thrown in.
Perhaps, as with my bank, you get a separate area to sit in and more counter staff but like a car dealer you should ask yourself who is paying for all these unnecessary add-ons? Look in the mirror.
Most galling is when you see people in debt difficulty with these accounts, there is an expense that could be eliminated immediately. And once the banks have you signed up they have almost carte blanche to ramp up the fees. Take the Clydesdale for instance which has just upped its monthly current account fee from £12.50 to £13.50 – that's about 8 per cent and I bet your salary hasn't risen by that much this year.
Of course, you don't get any better service for this and in fact the costs after the initial opening are very low for the bank so it's pure profiteering from the Clydesdale – which cast your mind back has in the past pursued it's mortgage customers for debts caused by its own maladministration.
The Clydesdale or Clotsdale as I dubbed it after this debacle is clearly not following the maxim of its parent company in Australia which is "More give less take".
Backdoor tax grab
I loathe self-assessment time. I'm sure I'm not alone and the Government's Child Benefit changes discussed on the next page mean hundreds of thousands of people are going to have to fill out self-assessment forms for the first time.
Many of these will be public sector workers – some of whom it is surprising to see are in the top 10 per cent of taxpayers but there you go. These people hadn't filed in the past because their entire income was derived from PAYE therefore they paid their taxes automatically.
However, with the need to fill in self-assessment forms the Government can expect to scope a tidy sum from the savings accounts of these individuals. Any interest earned that is not in an individual savings account will be taxable at the higher rate rather than the basic rate which is automatically deducted from banks and building societies.
Extra jobs are not a bonus
Normally, the news that 1,000 extra jobs have been created in financial services would be very welcome news indeed, a sign of success you'd think. This time around though the 1,000 are at the Financial Ombudsman Service and the only reason they are being brought in is that financial institutions are continuing to drag their feet over the many thousands of complaints that flood in each month. The jobs drive reflects the continued failings of the financial services industry, instead of hiring perhaps the regulator ought to up its fining regime.
In the scheme of things the £4bn drawn down from the £80bn available through the Bank of England's Funding for Lending is tiny.
But what it has done is give banks the confidence – along with a potentially softer line on the level of reserves they hold being adopted behind the scenes by regulators – to shun savings once more. As a result, savings rates are falling and introductory bonuses, as I report on page 92, are being shelved. On the upside rates are continuing to fall on mortgages and just as I think they can't go any lower they do just that. Yet another occasion where savers are losing out to bolster borrowers. In the long run we will all be poorer for this.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
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