The government has announced plans to tighten up mortgage lending suggesting that the UK mortgage market is in disarray because of "bad lending". I can't let this one go by without comment.
The UK had it's "Mortgage Armageddon" in 1991/2 after the last property slump. Almost none of UK lenders has had a serious problem with any of its mortgages since. The recent global problems started with American mortgages which had been securitised, i.e, packaged up and sold on to other investors and banks around the world. This is a procedure that has been carried out for years and years, however the Americans had lots of "sub prime" loans in with the rest, meaning mortgages that had been lent to people with insufficient income to repay them when US interest rates went up sharply in the early 2000's.
For the UK Government to suggest we need to tighten up control in this country is pure political posturing, distracting people from the real truth, that in 1988 the government started on a course which was to lead the country to the brink of ruin, namely to remove the Bank of England from it's position of properly supervising the banking world.
The UK mortgage business has the potential to help lift this country out of recession and to help bring the property market back up. Years of experience following on from the mistakes of the 1990's has led to a resilient, responsible mortgage lending industry which should be allowed to do it's job.
Monday, October 19, 2009
Saturday, September 05, 2009
Economics for the Non-Economist
Economists, it's been said, come up with a practical idea and then see if it will work in theory! The fact is, most of economics is theory because money, and financial behaviour do not follow logical paths and so predicting what may or may not happen is really the province of clairvoyants rather than financial experts.
What we do know is that money is finite, there's only so much of it. The present British socialist government has spent every penny of the reserves we had when they took over from their predecessors over ten years ago now in what was billed with great trumpetting as "The dawn of a new era", of "New Labour", as they tried to brighten up their image. True, the old style Labour Party had become unelectable simply because so many of the population had become part of the share-owning democracy and traditional socialism had been discredited in Eastern Europe, the old USSR and China.
Yet what actually happened is an irresponsible and theory-driven social experiment went disastrously wrong. Now, with the country so heavily in debt it has been calculated it will take over 35 years to put it right, the government is talking about "Setting aside money" for this and that. I've asked in my blog before, set aside from where? This is like a bankrupt company saying they've set aside money for a Christmas party!
As a full-time qualified financial specialist I know that socialism has never worked anywhere in the world. I'd like to see Britain led by people who understand how money works, that realise freedom means fewer laws not more and who understand investment means money IN not money OUT (that's why it's called IN-vestment!) and who can establish our place again on the world stage as a nation to be respected rather than one to be ridiculed.
What we do know is that money is finite, there's only so much of it. The present British socialist government has spent every penny of the reserves we had when they took over from their predecessors over ten years ago now in what was billed with great trumpetting as "The dawn of a new era", of "New Labour", as they tried to brighten up their image. True, the old style Labour Party had become unelectable simply because so many of the population had become part of the share-owning democracy and traditional socialism had been discredited in Eastern Europe, the old USSR and China.
Yet what actually happened is an irresponsible and theory-driven social experiment went disastrously wrong. Now, with the country so heavily in debt it has been calculated it will take over 35 years to put it right, the government is talking about "Setting aside money" for this and that. I've asked in my blog before, set aside from where? This is like a bankrupt company saying they've set aside money for a Christmas party!
As a full-time qualified financial specialist I know that socialism has never worked anywhere in the world. I'd like to see Britain led by people who understand how money works, that realise freedom means fewer laws not more and who understand investment means money IN not money OUT (that's why it's called IN-vestment!) and who can establish our place again on the world stage as a nation to be respected rather than one to be ridiculed.
Saturday, August 15, 2009
The Cost of Financial Advice
Over the last few years there has been a sustained effort by the UK Financial Services Authority (FSA) to force independent financial advisers to stop charging by way of commission and charge explicit fees instead. I believe this is a flawed approach and fails to address the key issue, can your financial adviser be trusted? When we trust someone we don't mind how they earn their money. So what's the problem with fees?
Firstly, financial advisers usually come from a background in insurance. Indeed, insurance is still the bedrock on which all other financial planning should be built. When it was first invented insurance was supposed ensure that "The losses of the few can be borne by the many". Until recently this has also applied to the cost of advice, in that the cost is spread among the many so that the few may receive advice, as and when they need it, irrespective of their ability to pay for it. This was achieved by building the cost of advice into the products.
In the "Me first" society which seems to pervade all aspects of western life some people feel it is unfair that they should be paying for advice for others via a product charge especially if they feel they don't need advice themselves. So some well-meaning intellectuals who could afford advice (even if they think they don't need it) decided to push for stripping these charges out of products and forcing advisers to charge their clients directly, as and when advice is required. Quite typically and in my personal experience, these affluent intellectuals have also been the very people who feel they will never need advice. They fit the "Me first" society model very well.
There are several problems with this. First and foremost, many people are in particular need of advice when they can least afford it, on the birth of a child, buying a new home, death of a loved-one, serious illness or financial failure. How are these people supposed to obtain advice under the "Me first" system?
Secondly, most of these "Me first" intellectuals who advocate the "Fee only" system have no idea of the actual cost of advice and significantly underestimate the true cost. In my own business for example, the income I generate for my advisory business has to pay three other people as well as me, fund the space we use, meet our significant regulatory fees and charges along with the normal expenses of running the business. So I need to generate around £233 per hour every hour of the working day to do this. VAT is added to this (sales tax) making £268 an hour. A typical client meeting takes around 90 minutes and involves a further 60 minutes follow-up work and 45 minutes preparation making just 3 hours 50 minutes; a cost of £1,030. And this assumes one could do fee-earning work every hour of the working day. In reality this is not possible and so pushes up the cost significantly. So would a typical client be prepared to pay £1,030 or more to receive advice about investing (say) £20,000? I doubt it.
Many areas of financial advice take significantly more than the 3-4 hours mentioned above, and the amount f time is not necessarily anything to do with the amount of money involved. I estimate that using a time-based system the average cost of advice for a typical transaction would be £3,000. Then there is the additional cost of continuing monitoring and reporting to the client, typically around £1,000 a year.
A system where the cost of advice for everyone is factored into the products is much fairer as long as advisers can be trusted to provide all the follow-up advice without further charge. I fear that the bank-dominated FSA will never accept this argument, not because it is flawed but because they have no way of delivering the service of a Trusted Financial Adviser, something only a career professional can offer, looking after clients virtually from cradle to grave.
Firstly, financial advisers usually come from a background in insurance. Indeed, insurance is still the bedrock on which all other financial planning should be built. When it was first invented insurance was supposed ensure that "The losses of the few can be borne by the many". Until recently this has also applied to the cost of advice, in that the cost is spread among the many so that the few may receive advice, as and when they need it, irrespective of their ability to pay for it. This was achieved by building the cost of advice into the products.
In the "Me first" society which seems to pervade all aspects of western life some people feel it is unfair that they should be paying for advice for others via a product charge especially if they feel they don't need advice themselves. So some well-meaning intellectuals who could afford advice (even if they think they don't need it) decided to push for stripping these charges out of products and forcing advisers to charge their clients directly, as and when advice is required. Quite typically and in my personal experience, these affluent intellectuals have also been the very people who feel they will never need advice. They fit the "Me first" society model very well.
There are several problems with this. First and foremost, many people are in particular need of advice when they can least afford it, on the birth of a child, buying a new home, death of a loved-one, serious illness or financial failure. How are these people supposed to obtain advice under the "Me first" system?
Secondly, most of these "Me first" intellectuals who advocate the "Fee only" system have no idea of the actual cost of advice and significantly underestimate the true cost. In my own business for example, the income I generate for my advisory business has to pay three other people as well as me, fund the space we use, meet our significant regulatory fees and charges along with the normal expenses of running the business. So I need to generate around £233 per hour every hour of the working day to do this. VAT is added to this (sales tax) making £268 an hour. A typical client meeting takes around 90 minutes and involves a further 60 minutes follow-up work and 45 minutes preparation making just 3 hours 50 minutes; a cost of £1,030. And this assumes one could do fee-earning work every hour of the working day. In reality this is not possible and so pushes up the cost significantly. So would a typical client be prepared to pay £1,030 or more to receive advice about investing (say) £20,000? I doubt it.
Many areas of financial advice take significantly more than the 3-4 hours mentioned above, and the amount f time is not necessarily anything to do with the amount of money involved. I estimate that using a time-based system the average cost of advice for a typical transaction would be £3,000. Then there is the additional cost of continuing monitoring and reporting to the client, typically around £1,000 a year.
A system where the cost of advice for everyone is factored into the products is much fairer as long as advisers can be trusted to provide all the follow-up advice without further charge. I fear that the bank-dominated FSA will never accept this argument, not because it is flawed but because they have no way of delivering the service of a Trusted Financial Adviser, something only a career professional can offer, looking after clients virtually from cradle to grave.
Tuesday, August 04, 2009
Frustrating day! (One of many in the life of an IFA)
Sometimes I wonder whether the UK's gone mad with the crazy excesses of health and safety regulations. Along with this goes an exaggerated fear of compensation claims so that many businesses have stopped offering to do anything for anyone, paralysed with fear of litigation.
In my own world we have a whole room full of people who spend their time scrutinising the advice I give and the letters we write, looking for the slightest possibility that someone might complain, or worse, seek compensation for mis-selling. In my experience the bulk of actual complaints stem from clients or customers feeling they've been ignored, made to feel unimportant or unappreciated. The absolute worst mistake we can make in dealing with the personal finances of an individual is to fail to listen to them.
My retired IFA friend Tony Gordon who by any measure was truly successful and well-liked by his clients, says that people do business not because they understand, they do business because they feel understood. So listening to people and understanding them is far more important than making sure they understand me. Why? because when I understand them they "feel understood" and that means they trust me. It's psychology and it's fact.
In my business this translates into some incredibly frustrating discussions with our compliance people about the advice given to clients and how we document this. Today for example I finally managed to achieve a victory of common sense over bureaucracy by getting a piece of advice agreed by our well-meaning "Business Prevention Unit" as we affectionately call it. Many advisers would have given up weeks ago. Indeed, it was nine weeks ago that I met the 87 yr old mother of a client I'd known for 27 years.
I've been advising elderly people for over 25 years, starting with my own mother, my godmother and many others in between. I'm told that it's the fact I take so much trouble to listen to them, to understand what they want and why they want it, that they feel they want to trust me to help them. On this occasion my client, a chartered accountant and tax adviser, had discussed her mother's situation over the previous eight years and then in a day-long meeting in June.
I introduced a specialist solicitor to the elderly lady as his services would also be required, then all four of us, the elderly lady, my client, the solicitor and I met together. I also met the two carers who were looking after my client's elderly mother.
The fact this meeting took place 180 miles from my office, and that the clients had decided to employ my services rather than anyone nearer goes someway to illustrate the confidence the clients have in my advice.
A few hours later the way ahead had been agreed. Everyone happy, we celebrated over a cup of tea.
You can imagine the frustration I, along with my assistant felt when we had to spend the last 8 weeks satisfying someone in our compliance department that the advice we had so painstakingly agreed was indeed the best course of action for the clients. Best by whose definition? I have absolutely no doubt that had I been advising the man in the "BPU", my advice would have been very different, however I wasn't advising him I was advising someone he has never met and is nothing like him.
The matter was finally settled, although I know the additional stress placed on my elderly client and her daughter was not appreciated and they have already told me that it wasn't worth the extra time taken to treble-check the advice.
I'll say no more other than that the one person who ultimately knows what is best for the patient is usually the doctor, not the NHS and in this case, in the world of financial health I'm the doctor!
In my own world we have a whole room full of people who spend their time scrutinising the advice I give and the letters we write, looking for the slightest possibility that someone might complain, or worse, seek compensation for mis-selling. In my experience the bulk of actual complaints stem from clients or customers feeling they've been ignored, made to feel unimportant or unappreciated. The absolute worst mistake we can make in dealing with the personal finances of an individual is to fail to listen to them.
My retired IFA friend Tony Gordon who by any measure was truly successful and well-liked by his clients, says that people do business not because they understand, they do business because they feel understood. So listening to people and understanding them is far more important than making sure they understand me. Why? because when I understand them they "feel understood" and that means they trust me. It's psychology and it's fact.
In my business this translates into some incredibly frustrating discussions with our compliance people about the advice given to clients and how we document this. Today for example I finally managed to achieve a victory of common sense over bureaucracy by getting a piece of advice agreed by our well-meaning "Business Prevention Unit" as we affectionately call it. Many advisers would have given up weeks ago. Indeed, it was nine weeks ago that I met the 87 yr old mother of a client I'd known for 27 years.
I've been advising elderly people for over 25 years, starting with my own mother, my godmother and many others in between. I'm told that it's the fact I take so much trouble to listen to them, to understand what they want and why they want it, that they feel they want to trust me to help them. On this occasion my client, a chartered accountant and tax adviser, had discussed her mother's situation over the previous eight years and then in a day-long meeting in June.
I introduced a specialist solicitor to the elderly lady as his services would also be required, then all four of us, the elderly lady, my client, the solicitor and I met together. I also met the two carers who were looking after my client's elderly mother.
The fact this meeting took place 180 miles from my office, and that the clients had decided to employ my services rather than anyone nearer goes someway to illustrate the confidence the clients have in my advice.
A few hours later the way ahead had been agreed. Everyone happy, we celebrated over a cup of tea.
You can imagine the frustration I, along with my assistant felt when we had to spend the last 8 weeks satisfying someone in our compliance department that the advice we had so painstakingly agreed was indeed the best course of action for the clients. Best by whose definition? I have absolutely no doubt that had I been advising the man in the "BPU", my advice would have been very different, however I wasn't advising him I was advising someone he has never met and is nothing like him.
The matter was finally settled, although I know the additional stress placed on my elderly client and her daughter was not appreciated and they have already told me that it wasn't worth the extra time taken to treble-check the advice.
I'll say no more other than that the one person who ultimately knows what is best for the patient is usually the doctor, not the NHS and in this case, in the world of financial health I'm the doctor!
Monday, August 03, 2009
Stock Market Rally - as predicted
The recent rally in the UK stock market shows that there are some excellent investments around. It's rather odd the way the news programmes are reporting banks making a profit again. Surely this is exactly what we want, or else how are they going to recover from the past losses?
It's interesting that the government-controlled banks are still making losses, mainly because they have been forced to cease profitable activities and concentrate solely on the domestic lending business which is not profitable!
There are plenty of business opportunities for any companies that can adapt and change to meet the demands of the present economic situation. A rally in the stock market is good news for you and me because it filters through into pension funds, equity ISAs, the employees of the companies concerned and the government who will be getting some tax too.
So let's hope there's more good news on the investment front as this will signal an overall improvement in the situation here in the UK. The US market has been rallying for a while now, proving that entrepreneurs, not governments, are the people who get the nation going after a slump.
It's interesting that the government-controlled banks are still making losses, mainly because they have been forced to cease profitable activities and concentrate solely on the domestic lending business which is not profitable!
There are plenty of business opportunities for any companies that can adapt and change to meet the demands of the present economic situation. A rally in the stock market is good news for you and me because it filters through into pension funds, equity ISAs, the employees of the companies concerned and the government who will be getting some tax too.
So let's hope there's more good news on the investment front as this will signal an overall improvement in the situation here in the UK. The US market has been rallying for a while now, proving that entrepreneurs, not governments, are the people who get the nation going after a slump.
Saturday, August 01, 2009
Mortage rates - why are they so high?
I just thought I'd spend a moment reflecting on this issue since it seems to have occupied lots of media space lately.
Well,people actually think a 5% mortgage is pretty cheap if they compare with a few years back when 9% or more was the norm.In fact in 1989 my mortgage cost me 16% so that's it in a nutshell.The fact the Bank of England makes money available to the banks at 0.5% is nothing to do with it. So the bank makes 4.5% profit!
Until thye borrowers refuse to borrow (which is unlikely) the banks will have the upper hand.
Well,people actually think a 5% mortgage is pretty cheap if they compare with a few years back when 9% or more was the norm.In fact in 1989 my mortgage cost me 16% so that's it in a nutshell.The fact the Bank of England makes money available to the banks at 0.5% is nothing to do with it. So the bank makes 4.5% profit!
Until thye borrowers refuse to borrow (which is unlikely) the banks will have the upper hand.
Saturday, July 25, 2009
The former UK Chancellor fails basic economics
Gordon Brown visited Wales this week to announce the electrification of the Great Western Railway, from Paddington to Swansea. How, one wonders, will this be paid for? Wait for it... a glimpse of this man's delusional state...
"We've set aside £150 Million for this"
Set aside? From where? The entire UK is bankrupt and borrowing heavily from the public. An almost inconceivable amount of debt now has to be repaid. No one yet knows how much our taxes will increase to pay for what's already happened. We're told the NHS, schools and roads will suffer as a result, so where does this incompetent bungler expect to find the pile of money from which to "Set aside" the requisite £150m. Oh, and given the massive over-budget spending on the Welsh Assembly and almost any other government project you can think of, the chances are £150 million will only electrify the line as far as Reading!
Oh... and we are going to put live, 500v electric cables inside the wet, leaking Severn tunnel are we?
The sooner we have an election the better!
"We've set aside £150 Million for this"
Set aside? From where? The entire UK is bankrupt and borrowing heavily from the public. An almost inconceivable amount of debt now has to be repaid. No one yet knows how much our taxes will increase to pay for what's already happened. We're told the NHS, schools and roads will suffer as a result, so where does this incompetent bungler expect to find the pile of money from which to "Set aside" the requisite £150m. Oh, and given the massive over-budget spending on the Welsh Assembly and almost any other government project you can think of, the chances are £150 million will only electrify the line as far as Reading!
Oh... and we are going to put live, 500v electric cables inside the wet, leaking Severn tunnel are we?
The sooner we have an election the better!
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