The FSA needs to find a better way to oversee advisers

So, here we are safely in the RDR era. But how does the landscape look? Is the terrain as widely different as predicted by a few media naysayers?

I think not as I believe the financial advisory world is now a better place to be in and its reputation with the public will continue to improve. covering professional standards, charging, description of services and independence and restricted offerings. This will be done in three cycles beginning later this month. It will publish its findings after each cycle.

If advisory firms are not on track after the third cycle, action will be taken thereby filling the regulators purse and forcing RDR improvements to be undertaken by the firm.

All findings will be used to form a post-implementation review of the RDR. To me, this exercise sounds like a great deal of time intensive work to be undertaken by the Financial Services Authority.

Where will the time come from as it morphs itself into the Financial Conduct Authority, costing millions of pounds to change the name of the regulator across literature, business cards, advertisements and other expensively produced items?

My last IFA inspection visit took three bright young people employed by the then regulator more than three days to inspect my IFA business. We were a small firm with two RIs. Thankfully we were found to be satisfactory. This is one reason why I now help firms with regulatory issues.

It takes millions of pounds to thoroughly inspect advisory firms. Would it not be better for clients to feed back on their experience with financial advisers on a website similar to Trip Advisor from which the FSA can then follow up? For after all, some of the most experienced financial advisers, especially IFAs receive only circa 1 per cent of all FOS complaints. The FSA may be wasting its time inspecting many quality firms or will need to ‘nick pick’ to justify the huge cost of visiting firms.

The independent versus restricted debate continues but at last the banks have disclosed their charging structures.

HSBC is charging £950 upfront for those with assets of less than £75,000 which will cover the majority of the investing public. As HSBC is offering a restricted product range people may better be served seeing an IFA who will offer a more personal service, whole of market advice and will charge a similar upfront fee with the first meeting free. It is so much more conducive to receive financial advice at your work place, home, or in a social environment than making an appointment at a bank branch which can result in waiting in a banking hall full of people.

The bank advice could then be geared towards product sales as HSBC pay a bonus to high performing financial advisers.

Description of service is fairly straightforward with most of the information already on websites which will be checked out by clients before making an appointment. This is where clever market positioning is needed by those who offer the services to ensure the benefits of tax, inheritance and trust planning is understood.

The nirvana of being financially secure and debt free in both in sickness and health is, and always will be, about financial planning – not product sales. I wish the RDR was more about focused on highlighting the benefits of financial planning.

http://www.moneymarketing.co.uk/adviser-news/kim-north-the-fsa-needs-to-find-a-better-way-to-oversee-advisers/1064226.article

Budget packed with surprises?

The Chancellor is under serious pressure to produce a growth Budget on 21 March. But where will the money come from for tax cuts for entrepreneurs and businesses generally, not to mention other good causes? Increased borrowing is probably not the answer, if Mr Osborne has been influenced by Moody’s shot over his bows when the ratings agency recently designated a negative outlook for the UK economy.

One answer, according to commentators, would be to raid the higher rate tax relief on pension contributions – there have been several stories to that effect in the Financial Times and elsewhere. Of course, this has been threatened many times in the past. But this time could be different.

For a start there are people in the Coalition Government – the Lib Dems – who favour the policy. And discussions about the possibility of abolishing higher rate tax relief have been reported as taking place at the highest levels. The practicalities have been an inhibiting factor in the past, but now the legislators know exactly how to do it from their recent experience under the previous occupants of Downing Street. What’s more, it would look as if we really were ‘all in it together.’

Of course, there would be a lot of squealing – and quite right too. Yet what is the alternative political home for those who don’t like the idea? It is unlikely that most would be tempted into voting for Mr Miliband. David Cameron and George Osborne can blame Clegg and co. And there’s no getting away from the fact that it would raise billions.

So the Budget really could contain some major surprises this year – and pensions tax relief might only be one of them.

Source ” http://www.taxbriefs.co.uk/ngen_public/article.asp?id=0&did=0&aid=162&st=&oaid=0

Labour claims state pension reform has been “sunk”

The Government says it remains committed to its state pension reforms despite industry concern that public sector pension settlements threaten the proposals and Labour claims the Treasury has “sunk” the plans.

In April last year, pensions minister Steve Webb unveiled a green paper outlining proposals to bring an end to state pension means-testing and offering a higher state pension of around £140 at today’s prices by either introducing a single-tier state pension or accelerating plans to flat-rate the state second pension
Labour Shadow pensions minister Gregg McClymont (pictured) says Webb’s plans to reform the basic state pension may have been vetoed by the Chancellor due to the costs. He says: “State pension reform was the Government’s flagship pension policy. It appears it may have been sunk by the Treasury.”

Writing in Money Marketing this week, Hargreaves Lansdown head of pensions research Tom McPhail says public sector pension disputes will be making the Government nervous about state pension reform.

He says: “It is possible the Treasury is getting cold feet about the knock-on effect reform of the state pension would have on negotiations with the public sector unions over their final-salary schemes.

“The end of contracting out would mean an increase in NI rates for the five million public sector workers who are currently contracted out through their final-salary schemes.

“It is a safe assumption they would react very badly to being asked to pay 1.4 per cent in NI on top of the 3 per cent increase in member contributions which the current Treasury-led reforms of public sector pensions have demanded.”

Saga director general Ros Altmann says: “Any delay is likely to be linked to the public sector pensions issue but Webb and Work and Pensions Secretary Iain Duncan Smith are still committed to getting this reform through.”

Institute of Directors senior pensions policy adviser Malcolm Small says: “The issue of contracting out is a difficult one for both the Treasury and the DWP, particularly in relation to public sector workers, but there will be many more winners out of this than there will be losers.”

A Department for Work and Pensions spokeswoman says: “We will be bringing forward further proposals on a simpler and fairer state pension in due course.”

Source “http://www.moneymarketing.co.uk/pensions/labour-claims-state-pension-reform-has-been-sunk/1044201.article

Politicians move to battle debt crisis

Markets in the Far East fell last night and the FTSE 100 fell this morning as politicians continue to battle the debt crisis.

In the Far East markets reacted badly to news of America’s downgrade with Japan’s Nikkei 225 falling 2.18 per cent to 9098 by close while in China the Shanghei Composite index fell 3.77 per cent to  2527.

The FTSE 100 fluctuated this morning and by 10am had fallen 0.76 per cent to 5207. This follows a fall of nearly 10 per cent last week.

Over the weekend, Standard & Poor’s announced it had downgraded America’s credit rating for the first time, from AAA to AA+, due to concerns about the way American politicians are responding to the escalating debt crisis. In Europe, the European Central Bank is to purchase Euro member state bonds in an attempt to allay debt concerns.

Latest news on the debt crisis:

* The Telegraph reports that Bank of England governor Mervyn King is expected to reduce the UK’s target range for growth.
* In an interview with The Sunday Times, Business Secretary Vince Cable warned that Britain could face a double-dip recession but rejected comparisons with the 2008 credit crisis.
* The European Central Bank has announced it is purchase Euro member state bonds in an effort to halt financial market contagion as markets opened this morning. A statement from the ECB, released yesterday, welcomed deficit cutting measures taken by Italy and Spain and welcomed a statement from France and Germany which pledged that the European Financial Stability Fund would take over paying for the purchases when it is fully up and running. The move is seen as a watershed moment because until now the ECB has maintained that responsibility for dealing with the Euro crisis rests with National Governments.
* Italy brought forward a pledge to balance the country’s budget from 2013 to 2014 to enable the move. Interest on Italy’s 10 year bonds reached 6.08 per cent on Friday, after hitting 6.4 per cent, the highest level since 1997. Spain’s bonds were offering 6.05 per cent. Some economists argue that anything higher than 7 per cent makes borrowing to fund Government spending unsustainable.
* On Sunday Angela Merkel appeared to support the move in a statement with Nicolas Sarkozy saying it was up to the ECB to decide when there was a material risk to financial stability. However, its been reported Merkel complained to Chancellor George Osborne in a phone call about European Commission President Jose Manuel Borroso’s claim more action was needed beyond what was agreed by European leaders in July.
* The IMF has welcomed the statements from the European Central Bank, Germany, France and the G7.
* Amid reports accusing European leaders of being absent in a crisis, George Osborne also called G7 leaders on Saturday from his holiday in California, stressing the interconnected nature of the European and American debt crises. Speaking to European Monetary Commissioner Ollie Rehn he suggested launching Eurobonds in exchange for more control over member states’ domestic economies.
* Standard and Poor’s is warning this morning that Asian sovereign ratings could face downgrades if global financial markets deteriorate. The ratings agency says its downgrade of US debt to AA+ on Friday would not weigh on Asian Governments ratings in the near term but added Asia-Pacific economies would have to support their domestic economies.
* The Australian market dropped 2 per cent as it opened and briefly rallied during the day but at close the S&P/ASX200 index was down 2.9 per cent.

“Money Marketing 08/08/2011

US debt-limit bill heads to Senate

The US Senate is to vote on a bill to raise the nation’s debt limit, one day after the House of Representatives backed it and hours before a deadline.

Monday’s vote in the House appears to have averted the prospect of the first full-scale US federal debt default.

Members of the 100-seat Senate will vote at midday (16:00 GMT) on Tuesday. If approved it will be signed into law by President Barac

The bill has the backing of Republican and Democratic leaders in the Senate and is thought likely to win the support of the 60 senators it needs to pass.

In the House on Monday evening the bill passed by a clear margin of 269 votes to 161.

Despite ongoing reservations about how the bill would fare with conservative members of the House, the bill won the backing of 175 Republicans, with 66 voting against.

Democrats were more evenly split – 95 for and 95 against.

The vote was notable for the reappearance in the House of Congresswoman Gabrielle Giffords for the first time since she was shot in the head in Tuscon, Arizona in January.

Ms Giffords – who has undergone a number of operations – caught lawmakers by surprise when she appeared on the floor of the House on Monday evening.

There was a standing ovation and embraces for the Democratic representative, who voted in favour of raising the debt ceiling.

k Obama.

 

The deal ties a $2.4tn (£1.5tn) debt increase to spending cuts.

The Senate vote will take place barely 12 hours before Washington is due – according to the US treasury department – to cease to be able to meet all its bills.

Hutton recommends career average pensions for public sector

Lord John Hutton has recommended pensions for public sector workers shift from final salary to career average provision before the end of this Parliament.

In the final report of the Independent Public Service Pensions Commission, published today, the former Labour minister sets out detailed structural reforms designed to make public sector schemes “sustainable and affordable”.

He resists calls to introduce a hybrid scheme with a salary cap “due to the complexity this introduces to the system”, instead suggesting Government implements tiered contribution rates to reflect the “different characteristics” of higher earners.

Other key recommendations include linking the normal pension age in most public sector schemes to the state pension age, setting a “clear cost ceiling” for public provision to limit taxpayers’ exposure to employees’ pensions and introducing stronger, independent governance regimes across public service pensions.The pension age for uniformed services employees – which includes the armed forces, police and firefighters – will be 60.

The report says the cost ceiling, which has not been specified, should be the proportion of pay that Government will contribute. If it is breached, a consultation would be issued to bring costs back below the ceiling. However, if the consultation ended in deadlock Hutton says there should be a default mechanism which could take the form of an increase in employee contributions or a decrease in accrual rates.

The commission says accrued rights should be protected, meaning the final salary link for past service for current members would be maintained. It also proposes an overhaul of the legal framework for public service pensions to make it simpler.

Hutton (pictured) says: “These proposals strike a balanced deal between public service workers and the taxpayer. Pensions based on career average earnings will be fairer to the majority of members that do not have the high salary growth rewarded in final salary schemes.

“The current model of public service pension provision is clearly not tenable in the long-term. There is a clear need for reform. Getting the decisions right on the most appropriate structures and designs will be crucial to making any changes work in the future. This will only be achievable if there is effective dialogue between public service employers, employees and unions.”

The commission has not recommended specific levels for accrual rates, indexation and employee contributions as these remain “a matter for Government”. However, Hutton does warn that setting contribution rates too high would risk low-earners opting out of the scheme.

The report also recommends that benefits are increased in line with average earnings during the accrual phase for active scheme members. Post-retirement benefits should then be linked to prices to ensure they maintain their purchasing power.

The Treasury is currently in discussions with representatives from the Trades Union Congress over how a 3 per cent increase public sector pensions contributions will be phased in from 2012.

Base Rate unlikely to rise

The Bank of England is likely to hold Base Rate at its current historic low of 0.5% for the foreseeable future.

UK Business Secretary Vince Cable admitted in a speech to the Lib Dems yesterday that there “would be a problem” if the Bank were to increase the rate.

He went on to point out that most of the decision makers at the Bank did not support a Rate rise.

Andrew Sentance, one of the nine members of the Monetary Policy Committee (MPC), which takes a monthly vote on whether and how to move the rate, is in favour of an increase to keep a lid on consumer prices.

“There’s one member of the MPC who says inflation’s coming back,” Cable said.

“He’s just one. It’s very clear that the inflation we have in the system is largely imported. You don’t deal with imported inflation by shoving up interest rates.”

Speaking at an event hosted by Your Mortgage sister publication Mortgage Solutions last week, Nationwide’s head economist forecast that the Base Rate would not increase until 2012.

Mark Saddleton, head of economic and market analysis at Nationwide, said that, while inflation is likely to be back at 2% in two years time, the Bank of England is more concerned with growth than inflation, meaning it is “entirely conceivable” that the Base Rate will not increase in 2011.

He said that when the Base Rate does rise, it will do so very slowly.

However, Saddleton sounded a note of caution for the future, saying that “…when interest rates rise, a lot of households will have significant difficulties in repaying their mortgages.”