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Checks and balances

Ringing tills in January spell trouble for IFAs as frivolous spending habits lessen client appetite for financial products

Retailers may have had it tough during the recession but their plight is nothing compared to the uphill struggle advisers have faced in these difficult times.

Research by Bright Grey has revealed that since Christmas, high street tills have been ringing in the good times as shoppers have put money woes to the back of their minds and gone on a £5bn spending spree in the January sales.

This level of spending raises a number of concerns. And most importantly for advisers, it flags up the challenges they will face in 2010, such as how they can persuade clients to pay for protection products and make this one of their priorities.

The seduction of the sales shows shoppers do not act rationally, buying items they think are bargains at the time but later regret. In fact, our research has revealed that the lure of a reduced price tag entices people to waste money to the tune of £1.8bn on clothes that do not fit or gadgets that are never used. That is a staggering waste.

The danger of over-spending in the current climate is clear and with the job market uncertain, many people could easily stretch themselves too far and land themselves in real trouble.

Some 54 per cent of the shoppers we questioned said they spend spontaneously, with only 21 per cent researching prices and shopping online for the best deal. Impulsive buys often turn out to be more expensive than could have been bought on the internet, or in fact not actually needed in the first place.

What is worrying is that advisers are in direct competition with the high street in that non-essential and frivolous spending will ultimately limit clients’ appetite for further spending on financial products.

Spending habits are influenced by a powerful consumer movement mapped out over the course of the year. The annual cycle of January sales, Valentine’s Day, Easter, Mothering Sunday, Halloween and Christmas are all designed to pressure consumers into buying things they do not really need and spending more money than they can afford.

The job of the IFA is to act as an antidote. An adviser must be able to inject a sense of perspective, ensure clients are alert to the dangers of spending beyond their means, encouraging them to plan and prioritise what is important to them and what they can and cannot do without.

This never-ending consumer calendar plays on people’s desires and dreams, and I am not saying there is anything wrong with aspiration. I am not for a moment suggesting people should not enjoy spending money or that they should curtail their spending entirely. What I am proposing is a more reasonable balance that takes into consideration the current economic climate and its possible effect on future personal and family finances.

The message we are trying to get across is that everyone can still enjoy the sales, but there should be a limit to the spending. Rather than blowing everything they have and more, consumers could show a little restraint. By putting some of the money saved towards a protection policy they will have a financial foundation in place.

So if the worst does happen and they are unable to work, clients will be able to maintain their current lifestyle, and that includes continuing to enjoy the January sales.

Roger Edwards is proposition director at Bright Grey

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