Jeff Salway: Less mis-selling may mean more mis-buying
AN 80-YEAR-OLD fed up of watching her savings dwindle asks her bank how she can get more income from her money without risking any losses. The bank talks her into taking out an investment bond that ties her money up for five years and exposes her to investment risk. Mis-selling or mis-buying? The former, clearly.
You take out a mortgage and the lender insists that you have to take out a payment protection insurance policy or it won’t advance the loan. Again, clear mis-selling.
You’re a private investor and decide that absolute return funds, which promise growth regardless of market conditions, are just what you need. Still you make a loss. Mis-selling? No. Some of the funds may be little more than marketing gimmicks but, crude as this example may be, it’s a case of mis-buying.
Mis-selling scandals have been headline stories for more than 20 years, yet mis-buying is also rife – and it’s going to get bigger, as one of several unintended consequences of imminent reforms to financial advice.
The ban on commission payments to advisers selling investment-related products is the centrepiece of rules coming into force in three months’ time under the Retail Distribution Review (RDR).
The change will signal the end for unscrupulous and poorly qualified advisers who have been governed more by commission payments than by the needs of their clients. However, it will also cause the demise of many good, well-qualified advisers with insufficient clients willing to pay fees for advice.
In other words, while the quality of advice should improve, boosting trust in the process, fewer people will have access to that advice.
The RDR has been years coming, amid countless consultations and enough hot air from financial advisers to power Scotland. Yet the commission ban remains a source of real anxiety and may merely give the regulator new headaches.
Where will the clients of advisers leaving the industry – or moving upmarket – go next, for example? Many will opt for the DIY approach and find to their cost that advice they’d been paying for, no matter how, was a pretty good investment after all.
The days of commission-driven mis-selling by advisers may be numbered, but its demise will result in more mis-buying, with similarly damaging consequences.
Get moving to beat price rises
IF YOU’VE signed up for a fixed energy tariff over the past couple of years you’ve probably saved yourself a fair amount of money. The self-congratulatory pat on the back has been earned, but those savings could be at risk if you haven’t made a note of when your deal ends.
That happens today for thousands of Scottish households who took out fixed rate deals when prices were rising last year. They escaped the price hikes of late 2011, but there may yet be a sting in the tail, because when those deals come to an end, suppliers tend to move customers on to their more expensive standard tariff.
Your energy bills could rise by up to 30 per cent if you fail to secure another deal when your fixed rate comes to an end, according to TheEnergyShop.com.
Six fixed rate tariffs expire today, and another couple tomorrow. Take ScottishPower’s Direct October 2012 deal, for example (a promotion investigated by Ofgem for being potentially misleading). The deal ends today and TheEnergyShop claims that households shifted on to the supplier’s standard tariff face a potential price rise of 29 per cent, or £299 a year, based on average usage.
Other tariffs expiring are the British Gas Price Cap 2012, with a potential 8 per cent increase for the average user moving to its standard rate, and the EDF Online Saver 10 (20 per cent rise).
Savings providers have ruthlessly exploited consumer apathy by loading savings offers with introductory bonus rates, safe in the knowledge that only a minority will move their money when the rate drops.
Energy suppliers are mining a similar seam. Don’t let them get away with it: check which tariff you’re on.
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