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GRENFELL TOWER - FINANCIAL HELP FOR SURVIVORS AND RELATIVES

Survivors of the fire in Grenfell Tower in Kensington lost everything except the clothes they slept in. They lost not just their clothes and...

Tuesday, 30 June 2015

FIND GOOD FINANCIAL ADVICE

UPDATE 1 MAY 2017

THIS BLOGPOST WILL SHORTLY BE UPDATED. CHECK BACK SOON.

How do I find a good financial adviser? It's a question I am often asked. And there is no easy answer. Especially if you do not have a lot of money.  

My first question is do you need financial advice? Unless you have a big lump-sum (tens of thousands of pounds or more) or a lot of surplus income to invest (many hundreds of pounds a month) you probably don't need financial advice and probably will not want to pay the fees good advisers charge. See free financial advice below for other services that can help you.  

But if you do want regulated financial advice - and many people thinking of exercising their new pension freedoms are desperate for advice - then here is my guide. 

You must pass financial advisers through three filters.

Filter One
Only ever use an Independent Financial Adviser. This filter has been weakened and confused by the changes the FCA and, before it, the FSA have made. Under the simple polarisation regime introduced in 1988 there were two sorts of financial advice. Independent and Tied. Or Good and Bad. Tied advisers in banks were not advisers in any true sense of the word as they could not by law recommend the best product from another bank even if they knew about it. And the evidence of mis-selling has borne out their inadequacy.

Then in June 2005, the FSA added a middle ground of ‘multi-tied’ advisers. Some claimed they were as good as independent. After all, they said, how could independents really know all there was to know about thousands of products? In reality, they said, IFAs also had a panel of those they knew and trusted. It was all nonsense of course. Multi-tied advisers were compromised by their status which allowed collusion with product providers on commission and special deals, distorting the market in favour of everyone except the consumer.

Then after years of discussion the Retail Distribution Review reintroduced polarisation from 31 December 2012 into independent and restricted. It also, following my advice over many years, ended the conflict of interest between advisers and their customers by scrapping commission payments. Financial firm or products were now banned from paying commission to the adviser who recommended them. 

But ‘restricted’ was itself further polarised into two groups. 
  • As you would expect, one group comprised firms which did not look across the whole market. They remained tied or multi-tied to individual providers. And some did deals to get providers to pay to be on their list of favoured suppliers. Money that looked, smelt, and sounded very like sales driven commission.
  • The other group was less expected. They were firms that specialised in just one or a few areas. For example, a firm that specialised in annuities, knew everything about annuities from the whole of the annuity market, but did not advise on investments or pensions could not call itself 'independent'. It was called ‘restricted’. 
This confusion between useless firms that simply sell products from a few providers and genuine specialists who know all there is to know about one type of product is not really in the consumer's interest. Not least because those two groups do not have separate names. They are officially all just 'restricted' - though that is a term hardly any of them uses. 

So by quite reasonably filtering out the restricteds who are tied or multi-tied you also lose the whole-of-market specialists as well. They may be good financial advisers. But I still reject them. Don’t blame me. Tell the FCA to change its daft rules.

Filter Two 
Only ever use an IFA who is a chartered or certified financial planner. This brings you down to the best qualified 4500 - one in five or so – of independent advisers who are beyond what is called QCF Level 6. So they have put a lot of effort into being the good guys and the chances of a bad guy (or gal) remaining in there is tiny.

Again, lots of good advisers will be rejected by Filter Two. Sorry. Get the qualifications.

Filter Three 
Only use a financial planner who you can pay in pounds. Never choose one who wants to charge you a percentage of your money. You earned, made, or inherited it. Only HMRC is entitled to a percentage of it. 

Percentage fees are a hangover from the days of commission. If you cannot afford the fee in pounds you probably do not need financial advice. 

You should also pay upfront from your non-invested resources rather than out of your invested money. One drawback of that approach is that a fee taken out of your pension fund comes from money which has already had income tax relief. So ultimately that fee costs you less than if you paid it out of your taxed income. It is all part of the massive taxpayer subsidies for the financial services industry (relief from VAT costs £4.5 billion a year). They should be stopped of course. But until they are, if you must, pay in tax-subsidised pounds from your pension fund. But ideally - and with all other investments - pay in pounds out of your non-invested resources. That way you see the money you are paying and can ask yourself – is it worth it? And never pay a percentage of your fund. Ever.


These three filters will take you a long way towards finding good, safe, but often expensive, financial advice. I apologise to the good, safe, and perhaps cheaper advisers it filters out. They can get themselves through my three filters by becoming independent or getting financial planning qualifications. 

Web research
Find your initial list of financial advisers using one of two websites 
  • www.unbiased.co.uk Each entry says clearly under the name of the firm if they are independent or 'restricted whole of market'. At the top of the list there may be an adviser who has paid for an advertising box - it has a coloured background and 'AD BETA' in small letters in the top right hand corner. After that advisers are listed for their relevance. Those with the most details and facilities on the site have paid more for that but the fee does not affect their position in the listing. You can tick specialities to help find the kind of adviser you want. And you can specify certain qualifications too.
  • www.vouchedfor.co.uk only lists IFAs and you can then filter out the non-planners. 
Neither service lists all financial advisers. They have to pay to be on the lists and not all think it is worth it. With both there are ways of paying to get a better position. There are other lists but they are generally not as useful.

Free financial advice 
If you want financial advice outside the regulated professionals, then try the free and Government approved Money Advice Service whose website is very good on a whole range of money issues, some of which many financial advisers will know little or nothing about. Although there are plans to scrap it, that will not happen for some time. Or you may want to consider paying £1 a month for the Which? Money Helpline.

If you have pension questions then the Pensions Advisory Service offers an excellent website and a helpful helpline on 0300 123 1047. The service is free and approved by the Government.

Specific advice about the new pension freedoms can be found at the Government's Pension Wise website. Or you can call 0300 330 1001 to book an appointment for one-to-one telephone advice, or a face-to-face interview at a nearby Citizen's Advice office.  

Footnote
Only the term 'independent financial advice' is regulated. Anyone can call themselves a 'financial adviser', an 'investment manager', or a 'property specialist'. And they do. Those terms are meaningless. If an adviser does not use the word 'independent' or does not say simply say 'yes' when you ask if they are independent, then they are not. Avoid them. And always ask for a FCA number and check it out on the Financial Services Register. Sadly - and madly - the register does not say if the adviser is independent or restricted.

Paul Lewis
11 September 2016
Vs. 1.25

This piece is expanded from an article I originally wrote for Money Marketing which bizarrely has someone else's by-line on it! 

RINGING THE CHANGES

From Wednesday 1 July 2015 you are not charged for making a call to any number beginning 0800 or 0808. Despite the fact that these numbers are called Freephone, before the change a call to 0800 or 0808 could be very expensive indeed if made from a mobile phone or some landlines. 

From 1 July 2015 new Ofcom rules mean that all calls from any provider to 0800 or 0808 will cost the caller nothing. That is not to say they will be free to the receiver. The firm offering the number will still pay for the call. To avoid that cost many firms are expected to replace 0800 with 03 numbers. They are charged the same as 01 and 02 numbers and are included in many monthly inclusive ‘bundles’ so effectively cost the caller nothing anyway. 

Other firms will move 0800 numbers to 084 or 087 numbers. The charges for those are also being changed from 1 July so that the cost to the caller will be made clearer - though not necessarily cheaper. 

In future, the charge will be in two parts

  • Your phone provider will make what is called an ‘access charge’. That will be a per minute charge for all numbers that begin 084, 087, 09 or 118 which will be stated on every bill. 
  • The number you are calling will also make a per minute ‘service charge’ for the call. That will be stated in every advert or written communication about the service. If it is not then report them to the Advertising Standards Authority. 

Phone providers have now announced their access charges which vary from 5p to 44p a minute. For landlines TalkTalk charges 5p a minute, BT 9.58p, VirginMedia 10.25p, and EE 11p. Charges from mobiles are much higher. TalkTalk mobile charges 20p a minute. Vodafone 23p until 10 August when it will rise to 45p, O2 25p, Virgin 36p, and EE 44p a minute.

The service charges will vary but are capped at 7p a minute for 084 numbers and at 13p a minute for 087 numbers. 118 calls are not capped but will be much more expensive. And 09 numbers can charge up to £3.60 per minute and a single call can cost at least £6. 09 offers ‘specialist services’ including horoscopes, advice, and sex lines.

Some financial firms which are still offering 084 and 087 numbers must tell you from 1 July what the service charge will be in any published material that refers to them. You may find that substituting a '3' for the '8' will get your though at normal call rates.

Complexity
Ofcom tells me that it expects some mobile providers to muddy the transparent waters of the new simpler prices. Or, as they might put it, engage in imaginative competitive deals. The providers making the higher access charges are expected to offer customers the choice of paying an extra fee to access 084 or 087 numbers with no service charge. EE has already announced an 084 and 087 add-on. By paying an extra £3 a month you get up to 300 minutes of calls to 084 and 087 numbers at no extra charge. 

BT is joining in the complexification by continuing to include 0845 and 0870 numbers it its inclusive bundles so they will be free for the hours the bundle covers. But beware – other 084 and 087 numbers are not included in that deal. 

The freephone changes do not apply to 0500 numbers which may still be expensive to call. They will be phased out in 2017.

More details on all the changes at UK Calling Info  

Paul Lewis
1 July 2015
vs. 1.1

Friday, 19 June 2015

WAGE RISES TO BOOST TRIPLE LOCK

Average earnings rose by 2.7% compared with a year ago. The figure – provisional and for the three months February to April 2015 – was published this week. I'm sure many of you are shouting 'mine didn't' or 'pay frozen for three years' or 'barely 1% in my case'. But that is not the topic. The rise in the official measure of average pay above 2.5% has big implications for the triple lock.

The triple lock, you will recall, raises the basic state pension each April by prices, earnings, or 2.5% whichever is the highest. Prices are now (since 2012) measured by the Consumer Prices Index (CPI) and earnings are measured using the average earnings figure published each month which this month reached 2.7%. 

The CPI used is the one for September – which is published mid-October. 

The average earnings figure uses the measure for the whole economy, seasonally adjusted, taken from May to July, and compared with the same three months a year earlier. It is the figure for total pay (which includes bonuses) and waits for the revised estimate which is published a month after the provisional figure. That final figure is officially the statistic KAC3 for May to July (revised). It is also published mid-October. 

If the figure published four months from now is above 2.5% then it will be inserted in the triple lock calculations instead of the 2.5% floor. So the fact that statistic KAC3 February to April (provisional) is 2.7% is highly significant. Not least because if we look back at the revised figures over the last twelve months and project them forward in a straight line, then KAC3 revised for May to July is projected to be 3.5%. If that turns out to be the true figure it will be good news for pensioners and bad news for the Chancellor.

The Office for Budget responsibility had estimated that the rise in average pay for 2015/16 would be 2.3% and CPI would be 0.2%. That meant the triple lock to fix the state pension next April would use 2.5% leading to a basic pension of £118.85 a week. But if the earnings rise is 3.5% then that would be the figure used instead of 2.5%. If so the basic state pension would rise from its present £115.95 not to £118.85 but by another £1.15 a week to £120.00. The extra cost of that extra rise for 13 million pensioners will be around £700 million in 2016/17. And each year after that the costs will grow as that amount is itself uprated. Over the parliament it could add £4 billion to the cost of the state pension.

The extra cost does not stop there. It also affects the starting level of the single tier state pension due from April which would have to be £1.15 higher than the £154.10 which a 2.5% rise implies. And that figure of £155.25 would then set the benchmark for the future because the triple lock – under present plans – applies to all new pensions from April 2016 paid up to that single tier amount.


In my April blog Triple Lock to Continue I estimated that the extra cost of using the triple lock rather than CPI to uprate the state pension was at least £12 billion and could be up to £17 billion over the current parliament (see http://paullewismoney.blogspot.co.uk/2015/04/triple-lock-to-continue.html). If wage growth is higher than the official predictions – and this month’s data indicates it might be – then the extra cost of the triple lock will be even higher.

This blogpost is an based on my Money Box newsletter 19 June 2015. Subscribe here 

19 June 2015
Vs. 1.00

Friday, 12 June 2015

WHERE HAVE ALL THE BANK FINES GONE?

Almost every week a bank or firm – even an individual – is fined millions of pounds for cheating someone or other. In the last few weeks Barclays was fined £284m over rigging foreign exchange markets and Lloyds £117m over failing to pay the right redress to customers it had already conned by mis-selling them  PPI. 

So who gets this fine money?

It’s a question I am often asked. And the short answer is George Osborne or, as he is officially known – the Consolidated Fund!

In the past, fines by the regulator were small – a few thousands of pounds – and the money was used to offset some of the costs of regulation. But from April 2012 that changed. Seeing the large number of substantial fines coming through for banks that had cheated the markets by rigging LIBOR interest rates the Government decided that it would follow the US Treasury and keep the money itself – after the costs of enforcement (around £45 million a year) had been deducted by the regulator – the Financial Conduct Authority.

Initially the Government sweetened the pill of snaffling this money by dedicating the fines to good causes. The first announcement in October 2012 allocated £35 million of the LIBOR fines to ‘support Britain’s armed forces community’. A year later, in his 2013 Autumn Statement, George Osborne announced he would “make a further £100 million of LIBOR fines available to our brilliant military charities and extend support to those who care for the work of our police, fire and ambulance services.”

The money has partly been used to pay for rehabilitation of injured soldiers. The fines for cheating on the Forex markets are earmarked for the NHS. And before the election the Conservatives promised to use a £227 million fine imposed on Deutsche Bank to fund 50,000 apprenticeships. All things which you may think the Government would be paying for anyway.

Now the Government has told Money Marketing – which tried to track the money down – that the fines are collected centrally and “the Treasury then allocates it to relevant departments.” So it seems it will in future mainly be used to fund general Government spending.

The amounts that are now being raised are eye-watering. In 2014 alone fines totalled £1.4 billion, mainly from the big banks over foreign exchange and LIBOR fixing. And so far this year another £814 million has been clocked up for similar transgressions.


These are tempting sums for any Chancellor, especially one who is committed to begin the process of reducing the £1.5 trillion national debt before the end of this Parliament.

This piece was first published in the Money Box newsletter 11 June 2015. Subscribe here