I am sure you won’t remember but back in March this year, in this very column, I suggested that the public were so muddled with their understanding of financial matters that untold number of mortgages were being arranged without any sort of repayment strategy in place.
I said then that I thought most people did not understand the difference between a repayment mortgage and an interest- only version. It is all such gobbledegook to them that all they care about and understand is that they can own a property. Any more than that goes right over their heads or is diluted in the ensuing miasma that is the house-buying process.
Fortunately, for me, I can be this blunt because we don’t arrange mortgages, so I can put my size 11s in without comeback. What I am suggesting is that the lack of public education runs deep in our society and, I assume, across all product classes. So it’s not surprising we have huge numbers of people misbuying products. Interest-only mortgages are just one example of non-advisable financial madness that is spreading unchecked in full sight of those people who should, and who are indeed paid an awful lot of money to, spot it.
An easy analogy is the Farepak scandal now unfolding. I must admit I did not spot this one coming but that is not part of my brief in life. However, people at the FSA are employed to do exactly this. Why are we regulating some types of retailers and yet ignoring ones like Christmas clubs, doorstep loan sharks and internet phishing scams to name just a few. Mortgage transactions with no visible means of repaying such a huge financial undertaking is so clear in its malignant future threat, I confidently predict (again) it will turn out to be the undoing of the FSA.
The trouble is, this undoing seems to be a death by a thousand cuts. We have one crisis after another and yet the FSA seems to come away from each predicament smelling of roses. Nothing seems to stick when it comes to the blame game. We are now in a situation where the FSA has cottoned on to this and acted accordingly.
Their latest initiative is the idea of high-level principles with intangible notions such as treating customers fairly. In other words, anything that will enable the FSA to blame everyone else rather than take the rap itself when something (else) goes wrong. Something like contracting out of Serps for example. Quite why this hasn’t been put through the mill, with industry-wide reviews, never ceases to amaze me. It is clear to everyone that millions of hapless souls are probably much worse off now than when they started. That is if you use the FSA opening assumption that the world will stay the same and that what goes up, stays up – or should that be down?
As a slight aside, I recently read that the Consumers Association (Which? magazine to everyone else) were not interested in the idea of poor performance. They were just keen to make sure that people were not being mis-sold to. Well if that were the case there are an awful lot of Serps sales we could rake over and nitpick to death. Never mind that the value of Serps is being eroded by later retirement dates and lower values. And that contracted out personal pension plans are flexible and can have tax free cash. That does not seem to matter. What will come of this though is just another gravy train for claims companies.
Let me confidently predict, therefore, that the claims chasing firms are warming up as I write, finding ways of proving all kinds of malpractice in our ranks. They surely have a rich seam of income if allowed to proceed in a similar manner to the endowment review. It will be easy to show a sale was non-compliant and that the client is likely to be worse off. They will concoct procedures and wordings that anyone can use to skew memories and fabricate miraculous new-found expertise.
It is exactly this kind of narrow-minded thinking by our regulator that is decimating consumer and adviser confidence alike. They are all easy to spot as incipient financial disasters, yet the regulator lets them burgeon out of control, unchecked and readily blamed on someone else.
Tom Kean is compliance officer director at The Analysts.