Financial Humour ?

[net-traveller]

May raise a smile ??

 

http://www.fool.co.uk/news/your-money/2008/04/04/what-financial-abbreviations-really-mean.aspx?source=ioowfeml0040008

 

;-)

[CliveH]

Especially like the FSA one - in light of the Northern Rock debacle (and previously Equitable Life) - very apt.

 

One that always made me laugh was the old predecessor to the FSA - which (in part) was called FIMBRA - which I think was Finance Intermediaries, Mortgage Brokers, Regulatory Authority.

 

But the funny version was "F**k It, My Brokers Run Away! (lol)

 

 

On a more serious point - re AMC - Annual Management Charges the figs quoted in the link truly are laughable - maximum is usually 1.5% on something like a property fund - average AMC should be circa 0.75% - if anyone is paying more they should look around for a better deal.

(!)

[GJH]

CliveH - 2008-04-08 9:52 AM

On a more serious point - re AMC - Annual Management Charges the figs quoted in the link truly are laughable - maximum is usually 1.5% on something like a property fund - average AMC should be circa 0.75% - if anyone is paying more they should look around for a better deal.

(!)

Yes, the rates quoted on the LSE web site 0.75% to 1.75% are rather less than those on the joke site.

 

CliveH - 2008-04-08 9:52 AM

Especially like the FSA one - in light of the Northern Rock debacle (and previously Equitable Life) - very apt.

Maybe they should have included: NR - Negative Responsibility :-D

 

Graham

[CliveH]

I believe the history of regulation in the UK is a farce worthy of Brian Rix (that dates me I am sure!) Firstly we have the Government (Maggie Thatcher) unravelling not just the rules on pension that needed to be unravelled (those that allowed a firm to “freeze” a pension pot of someone who left that company for example) but all the other safe guards as well. Who remembers those adverts from the Government “Throw of the chains of your pension” was the message!

 

So the likes of Allied Crowbar, Shabby Life and Guardian Royal Rip Off had a field day!

 

We all knew there would be tears – and there was.

 

So we then had FIMBRA for Brokers and LAUTRO for the likes of the man from the Pru.

 

But the mortgage lenders managed to convince the powers that be that buying a house was not a financial transaction and so did not need to be regulated.

 

We all went --- “WHAT!!!!!”

 

But that is what happened.

 

Then FIMBRA & LAUTRO went and we had the PIA (Personal Investment Authority) that still did not regulate mortgages because it was the Personal INVESTMENT Authority. So we had the bizarre situation of someone wanting to put £100 in an Equity ISA had to have a full financial health check, their attitude to risk assessed and noted as well as a 10 page report outlining all the pros and cons. Nothing wrong with that I must add.

 

But it was a bit galling to see the Banks and Building Societies flogging Endowment Mortgages with hardly a single bit of paper being given to the client outlining what they are buying at all!

 

Thankfully we have the FSA now that is trying to do the job correctly – but it is run by ex bankers who as the Northern Rock debacle shows are somehow unable to take action against banks whilst making the small IFA jump though all sorts of hoops. We all new that NR was going out on a limb! – so why could the FSA not see that – unless they did not want to?

 

And this against the latest FOS (Financial Ombudsman Service) data that says that it only receives circa 14% of its total complaints about IFA’s and only 3% of that 14% are complaints that are then upheld. This despite the fact that about 68% of all financial products are distributed via IFA’s.

 

The remaining 32% is distributed mainly via the High Street Banks but in marked contrast to the IFA complaints at only 14%, the vast majority of the FOS’s complaints workload is from the High Street Bank distribution channel.

 

So why is it then that the FSA who is tasked with protecting the consumer, is making such a hash of regulating the banks that distribute about a 1/3 of all financial plans but account for a hugely disproportionate number of complaints upheld by the FOS?

 

The FSA had NR down as “SAFE”!!!! – and were only monitoring it every 3 years.

 

Bizarre!

 

OK – soap box is back in the cupboard – off to walk the dogs.

(lol)

[GJH]

CliveH - 2008-04-08 11:15 AM

 

The FSA had NR down as “SAFE”!!!! – and were only monitoring it every 3 years.

Points taken, Clive - but at least the FSA has had the courage to stand up and admit its faults.

 

If we didn't have irresponsible managements like the people who got NR into trouble - and the other cases you mentioned - we wouldn't need the FSA or anything like it.

 

Graham

[Guest Tracker]

GJH - 2008-04-08 12:52 PM

If we didn't have irresponsible managements like the people who got NR into trouble - and the other cases you mentioned - we wouldn't need the FSA or anything like it.

Graham

 

 

Oh yes we would - because no matter how diligent any management is there is a need for independent verification to prevent employees acting in their own best interests and not the customer's.

 

The best way so far found to achieve this is by financial penalties and the power to revoke a salesman's license to sell so that he could lose his ticket to his income in the financial industry if he transgresses badly enough.

 

When I worked for the Pru I always did my best for the customer but I am aware of several ex colleagues that only ever sold the products that paid the highest commission.

 

These antics would show up in the sales analysis data before long and the offenders were often either retrained (given a bollocking), re-assigned (given non selling jobs), or fired, depending on the depth of their breaches of trust.

 

Without naming some familiar names, not all companies had these procedures in place.

[CliveH]

Agrteed Tracker

 

But even the Pru gave up on its sales force in the end as it was expensive and IFA's were giving the Pru more business than its sales force generated and they did not have the expence of employing us anyway!

 

To be fair to the FSA, for all its faults, it is far better than anything we have had before. It just need to concentrate on what is really important - not what it sees as being Politically Correct.

 

The worst misselling case we ever came accross?

 

Allied Dunbar targetting Nurses and Ambulance guys to come out of the NHS Pension Scheme - and I quote " because it is an 80th scheme and therefore not that good".

 

As IFA's we represented and helped hundreds clients with complaints against Allied Dunbar (Guardian Royal Exchange was another in this area) where every single one that complained was reinstated back into the NHSPS. But of course by that time the salesman had long gone having taken a large %'age of every ones transfer value.

 

We did it Pro Bono but the goodwill it generated is still effective to us as a firm today.

 

Thank God those bad old Allied Crowbar days are over!

 

[GJH]

Tracker - 2008-04-08 1:08 PM

Oh yes we would - because no matter how diligent any management is there is a need for independent verification to prevent employees acting in their own best interests and not the customer's.

OK, I'll concede that.

 

Tracker - 2008-04-08 1:08 PM

The best way so far found to achieve this is by financial penalties and the power to revoke a salesman's license to sell so that he could lose his ticket to his income in the financial industry if he transgresses badly enough.

Agreed. That way the IFA who convinced my son & daughter-in-law to buy an endowment mortgage and screwed up other aspects of buying their first house for them could have been dealt with appropriately.

 

Graham

[Guest Tracker]

In their day and sold correctly there was nowt wrong with endowment mortgages and I know many people who benefited handsomely from one - me included.

 

That said you did need to understand how they worked and the limitations of so called 'low cost' endowments for investment.

 

A low cost endowment was principally for life cover and only partly for investment to keep the cost down initially. It was a perfect example of a ready made ongoing sales opportunity because as mortgages progressed and people became better off it was tailor made to return every few years and convert a bit more temporary life cover into with profits endowment to both ensure there was enough to cover the debt and to hopefully provide the potential for some cash left over.

 

The wheel fell off due to vastly over estimated future maturity guestimates and indeed at the Pru we lost a lot of endowment business due to not being prepared to just pick a telephone number quote out of the sky and present it as the best possible maturity figure.

 

These contracts were often not explained properly by the people selling them and even if they were the policyholders were very understandably so caught up in the excitement of buying a home that they often didn't listen, didn't really care and didn't really understand.

 

The wheel again fell off when these same sales people had often moved on to a different company, or were under such pressure for new business that they failed to return, and with no continuity of service the policyholders never did get a return call to re explain and clarify just what the policy would and would not do and get the opportunity to review their needs and ambitions.

 

So when bonuses fell and the media sniffed a sensationalism brewing many policyholders quickly jumped on the band wagon with the media and claimed that their policy had been mis-sold.

 

Without doubt it had in many cases but in a lot more cases the lowest cost of initial repayments was needed by the customer and the end result of policy maturity was never really an issue as long as the mortgage was obtained and the home purchased.

 

The final wheel fell off when the bonus rates fell with the stock market collapse of around 2000 and insurance companies began to considerably down grade their maturity forecasts.

 

Everyone knew that bonus rates could not go on climbing for ever and after many many years of going up eventually the inevitable happened - they went down.

 

I had left the Pru by then and my full endowment had very handsomely matured prior to the stock market crash and after that time I lost interest and lost track of what happened next.

 

Maybe endowment mortgages did not turn out to be a good long term investment after 1999 but most were sold in good faith by honest people who were unable to predict the future any more than the folk selling PEPs and unit trusts at that time.

 

I am perhaps sticking my head above the parapet here - we will soon know -but that's just my own personal point of view.

 

No doubt others will see it differently - specially as I have been out of the insurance industry since 1992 and things have changed a lot in the intervening years most of which I am unable to comment about.

 

 

[GJH]

Tracker - 2008-04-08 3:37 PM

 

In their day and sold correctly there was nowt wrong with endowment mortgages and I know many people who benefited handsomely from one - me included.

No argument with that - I was just thinking of one specific case which happened in 1994.

 

Graham

[CliveH]

To be fair Endowment mortgages only really made sense when you had the benefit of Life Assurance Premium Relief (LAPR) and Mortgage Interest Relief At Source. (MIRAS)

 

These were two now long dead tax allowances that made the Endowment Mortgage far more tax efficient.

 

If you had a Repayment Mortgage after a while you started to pay back the capital and when you did that you started to loose the benefit of MIRAS because the tax relief was only on the Interest that you paid.

 

In contrast an Endowment Mortgage was far more tax efficient because you only paid back the interest on the loan and you got full MIRAS relief on the whole payment. This coupled with the admittedly larger Endowment Premiums that provided Live Cover and a lump sum that "Usually" paid back the mortgage loan AND gave the prospect of a cash surplus - all with premiums that whilst large - attracted tax relief under LAPR.

 

In my professional opinion - as soon as LAPR and MIRAS was scrapped - Endowment Mortgages should have gone the same way!

 

 

One thing I will ask of Graham - did your son & daughter in law get their advice from an adviser that was based within an Estate Agent?

 

I ask because one other facet of the wondrous regulation consumers have suffered from is that most Estate Agents back in 1994 used to call themselves "Independent Estate Agents" - BUT - and it is a big BUT! - the mortgage adviser they would wheel in when someone needed a mortgage was often a tied agent to a Bank or one of the Insurance companies.

 

The two main guilty party’s here were Lloyds TSB and Royal & Sun Alliance.

 

The "pinks" (our trade papers - pink in colour like the FT) where full of it at the time because Mystery Shopper exercises were consistently showing that these tied agent salespeople only able to offer one providers endowment were telling customers that they were "Independent" by referring to the "Independent" that actually referred to the status of the Estate agent - NOT the adviser.

 

And do remember - the only reason why this could happen was because the Mortgage lenders managed to convince the powers that be that buying a house was not a financial matter and so the whole process was not regulated by the then regulator the PIA.

 

Absolute bloody madness - but that is/was the power the big Banks and Insurance Companies can exert.

 

Thank goodness the FSA (for all its faults) put its foot down and now regulate everything. The only downside to that is that some are saying the FSA has too much on its plate.

 

Personally I do not think that is the case - I think it needs to employ people with Financial Services backgrounds rather than simply giving a semi-retirement position to ex-banking staff.

 

Graham - I would be interested in exactly how you son/daughter were mis-advised and by whom?

 

[CliveH]

I should add that Tracker is correct re the 1990's - we had inflation in double figures and Endowment Growth Rates of 20 % per annum were not unusual.

 

As Tracker says - many people did very very well out of endowments - Standard Life was the 25 year mortgage "King" and if you had one of their endowments you did very well.

 

But our getting control of inflation plus poor investment performance and the withdrawal of MIRAS and LAPR meant that the Endowment Mortgage SHOULD have been phased out. But is was not because the commission on an endowment was huge and the lenders often insisted that homebuyers went that route or they did not get the loan.

 

And frankly some will sign up for anything to secure the house they want (the house of their dreams!) and the unscrupulous played on that and well as driving a coach and horses through the regulations because their bosses had pulled the wool over the eyes of the then regulators.

 

Interestingly - it is said that NR would not have been allowed to do what it did if it was still regulated by the old DTI - but the DTI only looked at how the Banks/Insurers were run - NOT how and if they sold ethically.

 

It's and Equitable Life Henry.

 

[GJH]

CliveH - 2008-04-08 5:50 PM

 

One thing I will ask of Graham - did your son & daughter in law get their advice from an adviser that was based within an Estate Agent?

I can't remember after all this time Clive. The mortgage was with the Halifax, before the merger with the Leeds (which we had been with for years and where I advised my son to go).

 

The main thing I remember is the hassle and the time off work I had to take to sort out final paperwork (again can't remember details) when the adviser was no longer interested. Then, to cap it all, some months later after they had been burgled they found that the insurance policy they had asked for didn't include contents because the adviser hadn't completed the paperwork properly.

 

Maybe it's a family thing - the insurance broker who helped us get our first mortgage donkeys years ago ended up in jail for loan sharking :-D

 

Graham

[Guest Tracker]

Thanks for reminding me about LAPR Clive. I had forgotten! I well remember the budget that abolished LAPR, 1984(ish) I think, and having a new policy bonanza that evening!

 

It also marked the beginning of the end for life assurance based savings for millions of people. And where did all the money go that might otherwise have been saved and invested by both Joe Public and Life Company Ltd? Why - it got spent in the consumer 'must have' boom and thus began the long downward trend of savings and investment in the UK

 

After that our attention was drawn toward personal pension linked mortgages for those that qualified, mainly self employed, although I was never personally convinced that linking a house purchase to a pension scheme was such a clever idea in the longer term as there are far too many possible pitfalls.

 

You are quite right Clive and when LAPR ended the case for endowment mortgages was weakened to the point that, with the benefit of hindsight, should have made them obsolete. Too many vested interests for that to happen though!

 

I can't remember when MIRAS ended, was it 2000?, but I do now recall thinking at the time that really was the end of the long suffering endowment mortgage and we were glad we no longer had either an endowment or a mortgage!

[Mel B]

We had four endowments running, 3 smaller ones that we'd 'collected' as we sold and bought our first 3 houses and our largest endowment for when we bought our current home where we doubled our original mortgage from £28,000 to £56,000 - that was back in 1993! Whilst the 3 smaller ones haven't performed too badly, the last one was an absolute disaster, no way was it going to reach the required amount. This is what spurred us into action some 3-4 years ago. I approached the lender and complained of mis-selling, they decided it was fine ... no surprise there then. I then tried again sometime later said we were out of the time limit ... except that they'd forgotten that I'd originally raised it around a year earlier, during the period when we did qualify to 'complain'. This made quite a difference as the rules had changed and they were now having to actively check up on complaints and couldn't just dismiss them out of hand as they had done the first time.

 

Upon comments by us to the effect that we would quite happily refer the matter to the Ombudsman as we were clearly within our rights to pursue this with them, they decided to do a full investigation and after what was a fairly straightforward procedure where I had to supply my 'evidence' as to why I though we had been mis-sold the endowment policy and complete their comprehensive but quite understandable forms etc a nice chap from the company got in touch. He explained that although he worked for them he was totally independent in the sense that any assessments he made were available for scrutiny by the Ombudsman and, as the Ombudsman in most cases found for the customer, any reasonable doubt would be given to us, there was therefore no point in them trying to fudge the issue as, if we were not happy, we could easily get them hauled over the coals and any fine would be much greater than anything they had to pay out.

 

Anyway, back to the plot, I eventually heard back from the chap to find that we had been found to have been mis-sold the policy in all but one category but as the vast majority supported our claim of mis-selling, they paid out! We got a good few thousand pounds out of them.

 

This whole exercise actually did us a very big favour! No, seriously!!! We had also cashed in our 'unproductive' endowment policy and got over £10,000 back from it. Whilst deciding what to do with it, I suggested we could look at buying a 'buy to let' property and using the money as a deposit. After much looking around, we eventually bought a new bungalow at an exception price ... even the company MD thought we'd got it a real bargain as it was well underpriced!

 

We have been renting it out for the last 2 years and it just about breaks even, however, the actual value of it has gone up by at least 30% (conservative estimate of around £30,000) and has more than made up for the lost value from the endowment but, and much more significantly, it has made us think about our future and spurred us on to our decision to leave work early, sell our current home and move into the new bungalow ourselves. Had the problem with the endowment not existed I doubt if we would ever have considered this so I can quite happily say that I am ecstatic that it went pear-shaped! :-D

[CliveH]

Graham mate - for goodness sake go to the Aifa website nest time! - Sounds like you took advice from the Mitchell brothers!

 

And you touch on another (another!!!!) pet hate of mine and that is how large High Street firms remunerate their advisers - it is usually on the up front commission only - no "trail commission" is allowed to be taken or if it is then the firm keeps it not the adviser.

 

The result? - Once you have been "advised" you are of absolutely no interest whatsoever to that salesman - he is tasked to do the same to someone else.

 

In contrast we run our whole business on recurrent annual fees/commission. This means that our clients get lower initial charges and pay us for our ongoing service. AND if we do not provide a good service - they can swap the servicing to another IFA who will as pleased to receive the annual income as we would be disappointed to loose it.

 

And again I agree Tracker – Personal Pension linked mortgages were an idea that should have been quietly strangled at birth.

 

Another funny thing we came across years ago was the old Midland Bank (Now HSBC of course) who had the audacity to try to recommend a pension linked Mortgage to one of our clients and so the client referred the Midland bank recommendation to us for our professional opinion. We could hardly believe it!

 

As the chap was in a good Company pension scheme with his employer and therefore ineligible for a personal pension plan, the Midland Bank saleslady recommended a pension linked mortgage via a Midland bank Free Standing AVC!

 

The obvious problem being that there was no tax free cash from a Free Standing AVC – it was designed to produce annuity income only. So where was the cash coming from to pay off the mortgage loan???

 

We rang the Midland Bank lady adviser and she actually asked if we were absolutely sure of this as her Bank Manager Boss was “doing this quite a lot”.

 

I still wonder if he is the cause of the high number of Bank Assurance claims that the FOS has to deal with!!

 

[colin]

When it comes to bank in house financial advisors my experience has been 'don't believe a word they tell you', I have no problem with them telling me to invest in one of their own acounts, but I expect that advice to be the best for me, but instead it's whatever they get best commission on, in one case this resulted in me reporting one to his head office for repeatedly atempting to get me to make an illegal investment for a trust fund, aparently acording to the reply I recieved it was all a big misunderstanding, BULLSH1T.

[GJH]

CliveH - 2008-04-08 8:44 PM

 

Graham mate - for goodness sake go to the Aifa website nest time! - Sounds like you took advice from the Mitchell brothers!

As mentioned Clive, the case I quoted was 1994 - not many Internet sites around at the time. As I also said, my advice was ignored and the IFA's was taken (as opposed to me taking advice) - I then had to get involved to try to clear up the mess. If they had done what I said at the time they would never have ended up in the mess they did - but happily recovered from now.

 

Graham

[CliveH]

 

 

Hi Graham

 

I am trying to confirm this but as you say it is way back in 1994 - But my recollection was that Halifax had a tie up with Standard life - so if your kids saw an adviser "in-house" with Halifax - the adviser was not an IFA but a tied agent.

 

Big difference

 

Abbey National had a tie up with Friends Provident and as I said earlier some Life Offices - of which Royal & Sun Alliance was one of the biggest players targeted the Estate Agents.

 

So if you went for mortgage advice to any one of these outlets - you came away with a single Life Offices Endowment not because it was best for you but because it was best for the salesman.

 

And all because the Lenders managed to convince the "powers that be" that buying a house was not a "financial transaction" - total b*ll*cks as we all know now.

 

Thankfully now all clients must be given a "Terms of Business" that outlines in no uncertain terms exactly what the status of the advice given is - Independent or Tied.

 

[GJH]

CliveH - 2008-04-09 7:39 AM

 

Hi Graham

 

I am trying to confirm this but as you say it is way back in 1994 - But my recollection was that Halifax had a tie up with Standard life - so if your kids saw an adviser "in-house" with Halifax - the adviser was not an IFA but a tied agent.

 

Big difference

Certainly a big difference. As I say, I can't remember the detail - but the impression was certainly given that the adviser was independent.

 

CliveH - 2008-04-09 7:39 AM

Thankfully now all clients must be given a "Terms of Business" that outlines in no uncertain terms exactly what the status of the advice given is - Independent or Tied.

Perhaps the most important initial advice to anyone is to make sure you get these terms and know what service(s) you will receive.

 

Graham

[CliveH]

Agreed and the FSA website is the place to start - every adviser is registered and details of their "Permissions" - i.e. what they are authorised to deal with is logged against their name. Plus there is a listing of any sanctions applied against that adviser

 

Have a look at

 

http://www.fsa.gov.uk/

 

and click on "Register" and you can simply put in the name of the individual or the firm and up comes all the details.

 

Why more people do not do this I do not know!!!

 

 

 

But then I do not know why some people believe they have won a Lottery on Nigeria that they never entered? (lol)

 

 

 

I do not want to bleat on about how we do things but when clients visit us for the first time we go onto the FSA website and show them what is logged on the FSA website about us. We find this helps our clients understand how we work and what we do enormously.

 

The FSA has a "Treating Customers Fairly" objective that I think all IFA's support even if some of us wrily think that if we did not do this then we would have gone out of business long ago! - But the FSA's idea is to try to ensure that all advisers accross the country work to the very highest standards. This means we analyse what we do and compare it to a set of standards laid down by the FSA.

 

This has got to be a good thing if it means that customers can get similar high standards from any firm, anywhere in the UK.

 

Also the basic information the Government has supplied via the FSA website for those that need financial advice is staggeringly good.

 

I would certainly recommend that everyone uses it. Daft if you don’t!

 

[Mel B]

.25% cut in the interest rate today, ooooooo am I happy we have a tracker and not a fixed rate mortgage! :-D

 

Seriously though, I really do feel for those people who signed up to what they thought were good rate fixed rate mortgages last year and are now literally paying the price. :-(

[CliveH]

Our mortgage chap is not having any problems remortgaging people who have existing loans with good LTV.

 

Sadly FTB'ers and being hit hard. As are those with poor credit scores and large amounts on the plastic.

 

As for Trackers - yes they work well when the rates are coming down - but they track up when the rates go up as well!

 

We got an excellent two year fixed rate last December that in the hindsight of now is a trully excellent deal.

 

The issue is what do we do in two years time!!!!!! - but quite frankly if we have not got this mess sorted within the next year or so then I think I will give up - buy a MH, sell the caravan, rent the house out and bugger off to Portugal for a few months!!!

 

Even if our mortgage payments doubled, the rental would still easily pay it with a chunk left over every month - and if people cannot get mortgages - more will need to rent.

 

Always liked Portugal. (lol) (lol)