Editor’s comment of the week
What is the right lender response on counting pension contributions towards mortgage affordability? If a lender focuses on current discretionary income only and counts pensions as non-discretionary, this is seen as penalising pension savers. Alternatively, they could give savers extra credit for being prudent money managers by counting pension contributions as discretionary. Or is there some middle way? This is generally my preferred option, and Santander seems to have had a go at this, but in a way that seems to have delivered an illogical and randomly unfair result and still attracts the same criticisms from both sides of the argument. Given that current expenditure is only a snapshot in time that becomes less relevant as circumstances change, and that mortgage repayments tend to reduce as a proportion of income, how about a solution that acknowledges none of this is an exact science anyway? If lenders were to include only 50 per cent of contributions as committed expenditure, although not necessarily accurate for either side, it would be a workable solution that is fair to all.
There appear to be four separate issues here:
1. What the regulator allows
2. How firms wish to underwrite their loans
3. What advisers think is fair
4. What the politicians want to be seen to be done
Some interpretation is clearly required in the first. However, lenders that claim pensions must be taken into account are probably hiding behind the rules as an excuse for a decision they want to make anyway. It is up to the lender who they lend to and why. Advisers can think what they like but it is not their money being lent.
As for politicians, they just want their constituents off their backs.
The regulator has clearly created rules purporting to control the underwriting process. It shouldn’t be surprised by the results. The FCA wants firms to consider ‘conduct risk’, but what about ‘regulation risk’? Oh, yes, it’s less urgent when you’re not accountable.
Comment related to article: Nic Cicutti: Kids deserve better than this financial education mess
I agree with Nic – here is an opportunity for the Money Advice Service to do something sensible with the millions it gets. However, we also need to realise there is enormous pressure on schools in respect of time in the curriculum and, of course, getting up the league tables. Financial education does not help in either area.
Financial education is fundamentally the responsibility of the parents. They control the child’s access to money, they are able to open the child’s first bank account, they can explain why the cutesy characters on payday loan adverts are not to be trusted.
Not all children are lucky enough to have financially literate parents, and it is right that we should try to educate the rest. However, there is only so much you can do. Most teachers I have known are the last people I would trust to tell kids how to manage their finances.
Comment related to article: Ian McKenna: How clients will manage their money in the future
MoneyHub, with its bottom-up approach, is ahead of some of the other solutions being marketed to advisers. Having said that, not even MoneyHub would say it has a 100 per cent adviser-ready solution right now. Adviser platform integration is coming but is not comprehensive yet. The likes of Voyant have nothing to worry about for a while. And they have a few bugs that they need to fix before I roll this out to clients.
This stuff is really exciting because it moves the conversation even more away from product and towards the stuff that clients value – their goals.
The next few months will be crucial to see whether the likes of MoneyHub/ Sammedia/Intelliflo can deliver the complete package to advisers and their clients. All three are working from different starting points and it will be interesting to see which approach works best.
To think the retail financial services industry will somehow be unaffected by technological innovation is naïve. Yes, of course some travel agents remain, but it is a fraction of the number that were on the high street 10 or 15 years ago.
Blockbusters, Woolworths, Kodak and so many others were also naysayers. Advisers who think they can charge 50 or 100 basis points to sell investment funds, Isas and pensions over the next five or 10 years may struggle.
Forward-thinking advice firms will blend the best of technology and personal services to a small group of clients who value the comprehensive, modern approach.