Simon Read: If you want some financial advice, don't go to the bank
Saturday 29 January 2011
Barclays announced this week that it is to stop offering customers financial advice in branches. That's bad news for the 1,000 or so members of staff who may lose their jobs as a result, but it's without doubt good news for consumers. Why? Because banks have long since been the wrong place to turn to for decent financial advice.
The high-street institutions are guilty of trading on their respectable reputations to flog often unsuitable financial products to unsuspecting customers. That's not just my view. The number of fines slapped on banks by the City Watchdog for mis-selling products shows they have been guilty of pushing people into the wrong savings or investment schemes.
The rot set in at the banks back in the 1980s when there was a rush to become so-called "bancassurers", offering a one-stop retail financial shop to customers. Such nonsense was all about making money and nothing to do with providing a service. The problem has got worse ever since with bank staff being moved away from offering traditional help and advice towards flogging customers lucrative insurance and investment plans.
But for many people the expectation has remained that they could trust the banks for decent advice, even though that was no longer the case. With all of the high street banks claiming to offer financial advice and offering different levels of help, that misunderstanding has continued. But, frankly, unless an adviser sits down with you and talks through your hopes and ambitions, they have no way of knowing what kind of savings scheme or investment plan is right for you.
The suspicion is that bank-based advisers simply recommend whichever scheme offers them most commission. That will change in 2013 when commission-based advice will be outlawed by the financial authorities. That will mean banks – and others – will no longer be able to offer a half-baked service: if they claim to offer financial advice it will have to be fee-based and, therefore, worth the money.
Barclays says that offering financial advice is no longer "commercially viable" in branches. In future, if the proposals go ahead, the bank's customers asking for financial advice will be referred to the moneymadeclear.org.uk website or to IFA Promotions, which will put them in touch with an independent financial adviser.
The move is likely to mean that many people will end up with better quality advice. But it may also lead to an advice gap, if people feel they can't afford to pay the fees an adviser demands. The bottom line for those that don't want to pay for advice in the future is that you'll have to become informed enough to make your own financial decisions. Barclays says its recently launched Investor Zone educational website can help, but there are a lot of other financial websites out there that offer similar information.
But the simple danger of making your own decisions is that you may miss a crucial factor. Tax, for instance, can play a crucial part of financial planning but is hugely difficult to comprehend. For that reason tracking down decent independent financial advice is likely to remain crucial.
Spending more than you earn is a sure way to financial disaster, but more than one in five people is doing just that at the moment, according to research from the Co-op and Shelter. The average shortfall is £165 a month, which may not sound all that much but can clearly lead to debt disaster if it continues. Meanwhile, Shelter recently reported that more than 2 million people are now turning to their credit cards to pay their rent or mortgage.
The concept of financial advice often focuses on pensions or investment planning. But those in financial trouble also need financial advice, albeit of a totally different kind. The Co-op points out that people in trouble are cutting back by reducing their home insurance. Reducing cover to its cheapest level will always be a mistake if you ever need to claim. Budget cover will have lots of exclusions and raising the excess – the amount you agree to pay of any claim – can make it impossible to get any money back on smaller claims.
Instead of cutting back on what can be important essentials, it's a better idea to budget properly and look for ways to increase your income. If you really are in financial hardship you may even be in line for a charitable grant or benefits. Find out at the charity website www.turn2us.org.uk.
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