So, With Profit fund surpluses are being used to settle mis-selling claims against insurers. In other words successful compo claimants are being paid out the reserved profits from their own fund to settle their claims for not running the funds properly. (I know. I know. Compo is for 'mis-selling' - as in advising wrongly. But no client I have ever dealt with has ever contemplated a claim for anything else other than apparently poor investment performance).
Let's break this down.
One. There is no such thing as 'mis-selling'. You either allowed yourself to be pursuaded to buy an unsuitable product or you were subject to professional negligence. In the first case caveat emptor, buyer beware, applies. It's tough. You made a mistake. Live with it. In second professional negligence case you can claim from the advisers PI policy as he failed as an expert in giving you the correct advice.
Two. All financial services compo costs are ultimately paid by the compo claimants or their companion policyholders. The industry does not pay. These costs are either added to the investment / insurance company operating costs and incorporated in the policy charges or they are taken out of capital within the client funds and hence destroy the returns for both current and future populations of policyholders. In theory you can charge the shareholders but all that does is to drive down the share price which, as these shares are held by the managers as investments, drives down the returns for policyholders.
Three. All fees and expenses and FSA 'fines' paid by FS companies find their way to the costs charged to the client. Our FSA fees are paid by our clients. Competitive pressure keeps us honest and our prices in line with our competitors. All our competitors pay FSA fees. Therefore we all add the fees to the costbase against which we assess our overheads and hence our pricing.
Four. Money released from the sales of capital assets is transferred to successful compo claimants who in about 90% of the cases (based on our own experience) just spend the cash. This increases the broad money supply and drives inflation (inflation being defined as the increase in quantity and reduction in quality of money). It must be understood that the capital assets - shares, bonds, property - sold are only priced in money. They are sold, that is converted into cash, and this cash is then released back into the economy. A lot of the cash used to buy these assets is borrowed.
The solution is easy.
One. Add a simple fee to all products sold. Like VAT (yukk). Make it compulsory to set it out as a specific charge. This would be the 'Investor Protection Levy'. Make it possible to opt out. Investors could then see the price they are paying for FSA/FOS/FSCS and compensation and make a choice as to its value to them. It would make them think.
Two. Scrap 90% of the FSA/FSCS/FOS which would reduce the costs to the FS industry, or rather their clients.
Note. In 15 years we have had about 5 actual complaints to us of which two were endowment related. Both were opportunistic and failed. We have seen about 15 or so complaints through our business of which about 12 were successful and only one that I can recall actually used the money to pay down the mortgage. Most of the rest bought cars or had holidays on the windfall. We have had one complaint through our office that I considered showed serious failings on the part of the previous adviser - from Hambro Countrywide - and the FOS could not be of any help as they held that the claim was stale. Although they will happily adjudicate on endowment policies more than 15 years old. Justice or 'fairness' it ain't.
1 comment:
Typical of our Insurance business. In 1997 Snotty's pension raid was paid for by robbing policy holders, not bosses or shareholders. At the time those "with profits" were just being given the tax relief, the profits went elsewhere.
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