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We need simplicity rather than spinning around in circles

One day quite recently, I found myself daydreaming and reminiscing about how we played tops in our school playground. We would draw a ring in the dirt, place a stick in the middle, wrap a cord around our spinning tops,take aim and let fly.

The one who failed to dislodge the stick from the circle had to place his top in the ring and we all had a whack at it with our tops.

The tops had metal spikes and the result was that the top in the ring wound up a sorry sight by the time we’ had all had a go at it. Rough eh?Cruel? Wouldn’t be allowed these days. Isn’t allowed these days. Too dangerous. Compensation claim material!But, just thinking about the top got me thinking about its shape. A pyramid – but inverted, with the bulk of its weight at the top being supported by a slim spike at the bottom and generating so much energy and fun. Instead of a wide base with a point at the top that simply sits there, inert. We have a lively object that was vibrant, and alive for as long as the momentum could be maintained to keep it going.

That got me thinking about our industry. Instead of having a finely tuned focal point that could support vibrant and fast moving commercial activity, we have a pyramid. A flat, huge base, populated by a non-active, non-productive mass, growing in dimension as the apex gradually melts down int a sloppy mess.

We are continually being herded, corralled, hobbled and cajoled by politicians, gung-ho columnists wielding venomous pens and sad consumer watchdogs jaded from too many years of playing follow my leader.

But did we really need the plethora of rules and regulations that continue to grow exponentially with every new Government initiative to reduce red tape?Most of our problems have derived from basic criminal activity and bungled interventions by well-intentioned Governments. I remember the IOS, Norton-Warburgh, and UDT. problems of the late 1960s and early 1970s and they were all down to sharp practice, plain robbery, bad management, and lack of control by the DTI.

The Government-led interventions in encouraging contracting out, transfers to personal pensions and the raiding of pension funds have been responsible for huge losses for which they have yet to hold their hands up.

Our product providers are no angels either. Inventive as ever, their backroom nerds continue to devise ever more ingenious schemes to outwit the taxman and defy financial gravity, often to the detriment of innocent investors and credulous intermediaries.Yes, we too get bamboozled from time to time.

If all investment products had to be submitted to technical scrutiny and appraised for their sound financial structure, we might get less incidents such as precipice bonds. For that matter, despite numerous failures in that genre of product, they and their derivatives continue to appear on the market. Why? What happened to good old genuine guaranteed products that meant what they said?What of the other problems? Maybe I am being naive here, but simplicity is what is called for. Take away the opportunity for blatant criminal activity and you might just reduce crime. For instance, if no one handled client money, all business would be arranged by intermediaries and payment made direct to product providers.

On completion, either fees or commission would be paid by the client or the product provider to the middleman / agent/adviser. The scope for misuse of client funds disappears overnight.By-products? Greater efficiency, less interest charges, lower costs!Back to product design. It is no part of Government, nor has it ever been, to design financial products, the exception being National Savings. The Treasury continue to have an impact on interest rates through Government borrowing and the Government Actuary’s Department but products emanating from the dungeons of Whitehall have only ever resulted in tilting the financial balance to the detriment of consumers and taxpayers alike – contracting out, stakeholder, S2P and Sandler suites.

Will it happen? Will we simplify money handling? Will we scrutinise product design? Will deluded Treasury mandarins stop trying to reinvent the financial wheel? Will we be rid of the compensation culture?Less Government is the cry of every aspiring opposition party until they get in. Then we see the pendulum swing from excess to excess until they lose the baton to their opponents. All that happens is that the ruling party gets so out of touch and arrogant that they lose rather than win the confidence of the country.

There’s hope for you yet, Michael Howard.

Buck Lopez IFA,
East Sussex


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