Comment – A Matter of Trust

I tuned in last night to Channel 4’s ‘Do you trust your Bank?’ In case you didn’t see it, the programme focussed on the recent activities of some of our high street banks that have recently come to light.

We were acquainted with the story of a recently retired couple who had downsized their main residence and purchased a mobile home in which to spend their retired years, depositing the released equity from the sale of their former home into their bank.

They then explained how they were approached by their bank with a view to invest the proceeds to provide an income. Unfortunately, markets turned against them and their investment fell in value. Clearly this was not what they were expecting.

Safe Investment?

At this point, I would add that there is no such thing as a safe place to put your money. All money whether held in cash or investments has some risk. Your return for the risk you take is the investment return or interest rate you receive. Cash deposits in a bank may be protected by the Financial Services Compensation Scheme on insolvency of the bank up to £85,000 per banking group, but that doesn’t mean there isn’t a risk. Inflation risk is difficult to overcome when saving in cash. As we can see, cash diminishes over time in real terms, after allowing for inflation.

Why Invest?

So the reason for investing in the first place is to try and improve on returns from cash, but of course that is not guaranteed. If we could achieve everything from a financial planning point of view from cash, then we needn’t bother to invest at all, but for most of us, we can’t because cash doesn’t earn us enough!

Conclusion

What struck me was when the retired lady mentioned that ‘we aren’t gamblers’. This concerns me because investing is not gambling, yet in the eyes of this lady, that’s exactly what she thought investing was.

Clearly from these short scenes it was obvious to me that:

1. The couple did not understand what investment was and what it wasn’t. It was clear that they were not at the point in their understanding with money that they knew what they were getting into.
2. The bank had simply sold them a product which on the face of it appeared unsuitable.

Of course, the programme focussed on the bank’s actions and how this had eroded the trust of the people concerned.

Who do Banks make profits for?

Banks are run for the benefit of their shareholders first and their customers second, not the other way around. Banks are under pressure to deliver profits to shareholders. Among other things, their retail branches (your friendly high street bank) is set stiff targets which are set by senior management for their ‘advisers’ to achieve. So guess what? If you were an adviser and your livelihood was dependent on selling so much per day, what would you do?

This is something that I come across time and time again in my dealings with clients. Thankfully, in this instance, a local Independent Financial Adviser (IFA) helped the couple recover their lost money.

Financial Advice – It’s Your Choice

This got me thinking why oh why do people go to banks for financial advice, when surely they know they are being sold to?

Unfortunately, this isn’t necessarily good news for me as an IFA because people could be tempted to tar all in financial services with the same brush.

I’m going to disagree with you if you are thinking we operate anything like a bank salesforce!

The Future

The banks have identified that they can’t make enough money out of advising you so some have withdrawn their bank sales forces including HSBC, RBS and Barclays.

Their reason is in light of the FSA’s Retail Distribution Review which comes into effect next January.

The main aim is to:

• Raise professional standards.
• Increase the qualification level for those giving advice.
• Remove commission on investment advice.
• Ensure that independent financial advisers operate to a new higher level of independence.
• Ensure that clients and consumers agree the cost of advice before proceeding.

This latter point is vitally important because without consumers seeing value in what advisers do, they are unlikely to want to pay for their services. The irony is that for many years consumers have been paying for advice via commission but many think that they have been advised for free.

Our Approach

We offer a professional and personable approach:

1. We’re interested in you and your objectives – how will you deal with the many priorities placed upon you?
2.  Our core priority is to help you set your sails and establish a clear financial plan.
3.  Products are the last consideration but are the tools to get the job done, not the reason for our existence in the first place.

Sure, we charge for our services, because without that we wouldn’t exist for your benefit, but these costs are agreed at outset.

So please don’t be tempted to judge us by the actions of the banks.

For a fresh approach to financial planning that centres around you, please contact us on 01626 833225 to make a no obligation appointment.

Please note that the above commentary does not constitute financial advice. Loughtons is not responsible for the content of external websites.