What’s the next financial scandal? Let’s stop it in its tracks

The next scandal will be the lack of independent financial advice caused by the disastrous Retail Distribution Review (RDR) rule changes started by the FSA. It is no longer financially viable for IFAs to advice on, for instance, pensions in many cases. There will be a generation with less or poorer pension provision.

As a recent short series in the Money Box slot on Radio 4 explained, the financial consumer is paying for the City is myriad ways, including 16 different ways to take money out of your ISA. David Pitt Watson, who analysed pensions in the UK and Holland, concluded that after contributing to a pension over a working life time a Dutch pensioner will be 50% better off than his UK counterpart because of the charges, fees, commissions and margins which are creamed off by the institutions here. High time Which?, if it wants to claim to be a consumer champion, started serious campaigning on this – the press won’t, because it relies on financial advertising.

Although we might want, or might even expect, that financial organisations will reward loyalty with consistent rates, be they of interest on savings or fees for insurance, the rates and fees are published and visible, giving us the opportunity to look around for alternatives. Thus I cannot see that such matters can ever become a scandal.

The opportunity for scandals is where the vendor has information we do not, or which we are not able to access. For example the likelihood of successful claims on PPI and CPI insurance and the overall profitability of the product – which is another measure of the fairness to the customer.

Some travel insurances have unexpected limitations in the small print, which few of us are able to assess. Even here though, organisations like Which? provide ‘Best Buy’ lists based on proper assessment of the small print, so again we do have some opportunities for making informed choices.

( A similar comment might be possible regarding claiming on Health insurance. )

Returning to investments, I think the real ‘fun’ will be seen in/by 2016, when all renewal commission is banned and the operating costs of investment companies, like Henderson and fund management platforms like Funds Network from Fidelity and Vantage from Hargreaves Lansdown have to be explicitly shown and paid for! The costs we pay will then become all too visible for some (expensive) brokers and fund managers, but at least we the customer will at last have the information on which to make better decisions.

My vote goes to Legal Expenses Insurance. Yet another financial product that pretends to offer much and delivers little if anything. Even buying Which? recommended home insurance from a trusted brand offers no guarantee that you won’t be ripped off. After the insurer declined my claim I discovered they had concealed material information supporting it. The FOS upheld my complaint but try getting the insurer or their solicitors to explain their conduct. A wall of silence! There you go Which?, the consumer champion, get your teeth into this one.

The amounts of compensation required to give customers proper redress are truly staggering. Because the profits made out of mis-selling have been spent [on bonuses, corporate headquarters, and excessive dividends, etc] the money for the refunds is coming out of provisions made from reserves and from operating surpluses. Reserves must be replenished. Financial institutions have to remain profitable [nobody would use a bank that wasn’t] and shareholders [mainly pension funds] have to have their dividends. In a contest between the the customer, the employees, and cost savings as the source of compensation, my money is on the customer having to cough up yet again.