William Kay: Financial education may become compulsory for all consumers

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The Independent Online

In the continuing absence of even the meanest gesture by the Government - it didn't rate a single mention in last week's non-Budget - John Tiner of the Financial Services Authority (FSA) is airing a radical new plan to improve financial education.

In the continuing absence of even the meanest gesture by the Government - it didn't rate a single mention in last week's non-Budget - John Tiner of the Financial Services Authority (FSA) is airing a radical new plan to improve financial education. He is proposing that every regulated business, from multi-national bank to one-man financial adviser, should be put under an obligation to educate their customers.

This, as I understand it, goes well beyond the existing requirement to ensure that customers understand products they sign up to. The details have yet to be worked out, let alone approved by Mr Tiner's financial capability steering group, but the consequences could be far-reaching.

The toughest problem will be to measure how far an individual has been brought up to speed financially. Are we all to sit exams? Or will we have to get an attendance book stamped, verifying that we have put in the requisite number of hours learning the difference between a eurobond and a gilt?

But it appears that Mr Tiner, the FSA's chief executive, is prepared to consider letting regulated companies discharge this obligation with a flourish of the cheque book. They may be allowed to outsource what they will probably see as a time-consuming chore to the likes of ProShare or the Personal Finance Education Group, two charities financed by the Government and industry.

It is not hard to see that this will transform overnight the business of selling financial services, creating and destroying thousands of jobs in the process. An army of trained teachers will be needed, but many small firms may be driven to the wall by yet another cost that will produce extra revenue only slowly as consumers gather confidence.

It shouldn't need stressing, but it does, that this is all entirely separate from the question of building financial education into schools, which is where Gordon Brown, the Chancellor, and Charles Clarke, the Education Secretary, need to allocate substantial funds. This newspaper is calling for the establishment of a personal finance GCSE to create the necessary focus.

Meanwhile, the message from the FSA and the Office of Fair Trading this week is to look out for yourself. The OFT decided against setting up a licensing system for estate agents, something their own trade body was calling for. Cowboy estate agents will still be roaming the range, corralled only by OFT pleas for greater competition and more self-regulation - something which has long ago been abandoned in virtually every other corner of the financial services industry.

And the FSA is liberalising the sale of collective investments offered by unit trusts and open-ended investment companies. Professionals and experts will be allowed to invest in funds using options, futures contracts, hedging techniques and heavy borrowing. You can safely bet that non-professionals will clamour to get in on what they will see as the magic circle, if only through funds managed for them. Other funds will be allowed to give investors less information.

As Michael Folger, the FSA's director of conduct of business standards, put it: "Prescription [is being] pruned back sharply." Providers of these collective investments, and advisers recommending them, will still be open to mis-selling charges, but that may be too little, too late for some investors.

* With-profit endowments suffered a crippling blow this week with the publication of an analysis by Money Management magazine showing that many policyholders are being paid thousands of pounds less on maturing policies than if they had surrendered them a year ago. And the mutuals need not be smug: some of them are guilty, too.

This smashes the standard advice to hold these policies to maturity if possible, because the terminal bonus would always outweigh the attraction of cashing in early and paying a penalty.

A vintage use of the Zulu principle

A senior City figure told me this week how his wife is making up to £2,000 a week tax-free and, he claimed, risk-free. She deals in wine.

This activity is not regulated and profits from it are not subject to capital gains tax, as it is regarded as a consumer good. But it does require deep knowledge, good contacts and access to a network of dealers.

The skill harks back to the Zulu principle, first enunciated by the one-time whiz kid, Jim Slater. He pointed out that if you were to read one book on Zulus you would immediately know more about that tribe than 99.9 per cent of the rest of the world. And, in an imperfect market, knowledge is power.

Similarly, my friend's wife knows all there is to know about the vintages of one or two vineyards. She also keeps up to date with what is in demand or is coming on to the market. Insider dealing in shares is a criminal offence but in this market it is legal, so it can be useful to know what features are about to appear in influential wine magazines. And this lady rarely takes delivery of the wine: it is almost entirely bought and sold on the phone or by e-mail.

The Inland Revenue deems regular trading profits liable to income tax, but her husband's ample earnings are an explanation for their comfortable lifestyle. So nothing is declared.

w.kay@independent.co.uk

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