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Independent view

In one of the most significant weeks we have seen in politics for quite some time, intense focus was directed on the issues of corporate governance and personal debt.

It was not just the BBC which made the headlines, rather than presenting them, but we also saw the major life offices explaining their position with regard to the long-running issue of endowments.

Irrespective of the rights or wrongs of university top-up fees, there is no doubt that those who go into higher education will be paying considerably more in future and we have already seen the impact on the present generation of students since the original introduction of tuition fees.

Some of the situations we come across are extremely disturbing and the attitudes of some of the interviewees on the recent Hey Big Spender programme on debt counselling highlighted why debt is such an issue for society.

As ever, it is the emotions of greed and fear that come to the fore, whether you are a saver, borrower or involved in the financial services industry. If the equilibrium between these emotions is correctly balanced, then most should be satisfied. However, it is where there is an imbalance that the arguments start in our increasingly litigious society.

There is no doubt that misselling of endowments has taken place but there is another side to the equation, which is the need to acquire a home at the cheapest possible price. It is all too easy to forget the impact that very high interest rates have on affordability. For some of those who are now making complaints, the endowment route offered the chance to buy a property for the absolute minimal outlay, which was why such numbers of policies were sold.

Indeed, that is why some policies were written by individuals to run beyond their retirement date, without a second thought to the eventual outcome. The burden of proof now rests between parties to decide if anyone is at fault. Little is said about using the very significant reduction in interest rates to supplement savings and offset the effect of lower investment returns.

We currently have the same situation with Scarps. Is it better to fall off an escarpment or down a precipice, one wonders? It is all very well conducting an investigation after the event but why was more time not spent by providers, intermediaries and investors in deciding how suitable this style of contract actually was? For many, they will now prove to be a triumph of marketing over substance.

It was obvious as early as 1995 that guaranteed income bonds would not work. If you put your money under a mattress, the interest rate is not so good but at least you have control and nobody is taking out any charges.

It is disturbing when a fund manager openly raises concern that investors are being persuaded to place money into funds that are being promoted on the grounds of past performance at a time when the market is likely to deplete capital values. It is this cynicism that creates a lack of confidence and makes the job of advising clients properly that much harder.

It also does nothing to hold back the compensation culture. This culture at best brings about an increase in workload but more likely ends up with significant costs through compensation payments, as I am sure we will all find out from Financial Services Compensation Scheme in due course.

While some have gone over the edge of the precipice, now is the time to move back to more established grounds and rebalance the equilibrium between greed and fear.

Nicholas Conyers is a director of Pearson Jones


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