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Barclays has taken the market by surprise yet again and taken a bite from the money tree.

Earlier this month, it told the market that it would not be taking the government up on its recapitalisation scheme and was well capitalised.

It said it was: “well capitalised, profitable and has access to the liquidity required to support its business” and would not call on government funding.

Yet at the same time it also said that it would raise in excess of £6.5bn of Tier 1 Capital from investors in order to meet the Financial Services Authority’s (FSA’s) new higher capital targets for all UK banks.

Then today, the news came that it is to raise £7.3bn in additional capital from Middle Eastern investors, with most of the cash coming from the Royal families of Abu Dhabi and Qatar.

The Qataris however already own a significant shareholding in Barclays through two different investment funds and with its provision of up to £2.3bn they will own up to 15.5 per cent of the bank.

Investors don’t seem particularly pleased about the move as Barclays share price has dropped by around 17 per cent or to 170.60p since the announcement.

Liberal Democrat shadow chancellor, Vince Cable has spoken out about Barclays’ decision and labeled it as a scandal of mammoth proportions.

“Sheikh Mansour and the Qatari Group are being offered convertible bonds at very attractive interest rates with an opportunity to convert into shares when things improve.

“We have to ask why Barclays is willing to offer a better deal to foreign investors than the British taxpayer. The answer is simple: they don’t want the British Government stopping them from paying massive bonuses to their executives.

“The British Government must not simply let this pass. I have absolutely no objection to Arab investment in the British economy but this deal smells to high heaven.”

It seems a few people are already not happy about the decision. How about you?

As the recent banking crisis seeps into the wider economy and recession looms, concern about the effects on our pensions is rising.

With the stock market in turmoil, billions has been wiped off the value of pension funds and annuity rates are likely to decrease as a result of falls in corporate bond yields and interest rates, significantly affecting the amount of income that retirees can purchase in the short to medium term.

On top of this, the strain of increasing longevity, increasing inflation and the decline in defined benefit pension schemes is putting additional pressure on people heading towards retirement.

Retirement planning has never been a simple business but it is unlikely to have faced as many pressures as it does today.

The “Cost of Retirement” report commissioned by Life Trust and carried out by the Centre for Economic and Business Research discovered that the average amount needed to fund retirement from the age of 65 to 85 (currently the average male life expectancy) was £413,000.

Calculations by the Annuity Bureau reveal that a retiree would need a pension pot of £319,296 to purchase an escalating annuity, or £263,729 to purchase a level annuity, at the point of decumulation in order to obtain the requisite income of £413,000.

The results in the Cost of Retirement Report were all calculated using an inflation rate which worked out at a little over two per cent, broadly consistent with the Bank of England target for inflation.

If, however, inflation was to be twice this at 4.6 per cent then the cost of retirement would increase to £1.3 million and, bearing in mind that it is currently running at 5.2 per cent, the figures begin to become a little more perturbing.

The challenge is further complicated by the issue of increasing longevity.

All the indications show that increasing longevity has been accelerating, meaning that people have a longer retirement period to finance. It is therefore essential that the income levels can be sustained, if not increased over the period of retirement.
The Life Trust report found that the cost of retirement peaks at 92 for a retiree living alone. At this age, the retiree can be expected to spend more than £19,700 per year.

This is more than 50 per cent greater than the amount that the individual would have spent when they were 65.

Furthermore, special attention ought to be paid to the real rate of inflation for pensioners. Based on the typical shopping basket, inflation for the over 65’s is currently estimated to be at around 9 per cenr, causing further concerns about the cost of living that awaits us when we reach our eighties and nineties.

As all advisers know, lifestyle can also have a big impact on the amount of income that clients need. For an individual living alone, at the top end of the income requirement scale, the cost of retirement, should they live to 100, is estimated to be a massive £1.55 million assuming a long-term interest rate of 2.3 per cent.

So clients are more reliant than ever on the expertise of advisers to provide a level of income that is able to match both their expectations in retirement and last the full course of it.

Given the current climate where many fund managers are struggling to find alpha returns amid falling markets, generating enough capital to mitigate the full risks of increasing longevity and ensure a comfortable retirement appears as harder than ever.

Conventional accumulation strategies aim to amass as much money as possible up until the point of decumulation, but already advisers are looking for innovative products to sit alongside traditional methods in order to help supply the necessary income to last the course of retirement and fend off the erosion occasioned by inflation.

The gauntlet has been laid down and the financial services industry must rise to the challenge by developing and utilising new tools and solutions to ensure ample income for ever lengthening periods of retirement.

Clients want to be able to enjoy the retirement of their dreams and they will need financial advisers more than ever to help them achieve this.

Andy Briscoe is the CEO of Life Trust

Checking my bank balance – even three days after I have been paid – has made me think that the ‘banking crisis’ is truly in force.

The Bank of Garduce seems to be suffering under these uncertain times and I am sure you are all the same.

But seriously, with the FTSE 100 Index plunging, Wall Street in crisis and the £500 billion banking rescue plan of the UK’s banking sector, it seems we must already be experiencing a recession.

It is received wisdom that a recession is categorised by a fall in GDP over a period of six months. We have had one quarter of falling economic output, many expect the next quarter to be the same.

But if there is one new trend that seems to be emerging above all others, it is that all the old assumptions should be torn up.

Banks could go bust, the fiscal rules are being rewritten, and now we have political interference in setting interest rates, something many of us thought had long gone.

The lastest news is that Chancellor Alistair Darling has signalled that the Bank of England is free to cut interest rates without fear of breaching its inflation targets, as the US slashed its rates by half a percentage point to 1 per cent in a bid to curb off the deep recession.

While the world’s biggest banks are also facing having to cut rates – at least those that have not been bailed out by the International Monetary Fund – in a unified effort to fight off the global economic downturn, with the Bank of England and the European Central Bank expected to cut aggressively in the near future.

It seems however hard we tried to avoid talking ourselves into it, there seems to be no going back about whether we are or aren’t in a recession.

In the choice of whether we embrace it, remain despondent or stay in denial, it is clear that everyone knows that there is something unhealthy going on in the global economy.

Whether it is named as a downturn, credit crunch or slowdown, what must be addressed is that any decisive or well thought-out decisions which are to be taken to contain the crisis and keep depressed demand and plummeting prices at bay – to avoid a period like the 1930s Great Depression – will certainly affect how people react to the taboo word of ‘recession’.

“The loss of confidence has spread wider than the banks.”

Never have truer or more timely words been said, in my opinion.

In a speech today, John Gieve, the deputy governor of the Bank of England talked about rebuilding confidence in the financial system.

But with the latest facts that have come to light, that might be easier said than done.

Apparently, the total US and European marked to market losses on credit assets are around £1.78trillion.

That’s bad enough, but it now seems the “banking crisis” may be spreading its poison to the other sectors.

Insurer Aegon today announced that it is to take up the Dutch government’s offer of a helping hand in the form of a €3bn capital injection joining ING who has also received help from the government.

On top of this, the deputy governor of the Bank said: “There are growing signs of stress in many emerging market economies.”

It was obvious that the markets had not returned to their normal healthy selves and that the crisis is not over but should we expect another one in the insurance sector or others?

According to Gieve: “Authorities worldwide need to remain vigilant and to be ready to step in again if necessary.”

Hold onto your wallets.

Bad publicity surrounding non-payment of insurance claims has damaged the reputation of Critical Illness Cover (CIC), so it’s not really surprising that sales of the product have been declining since 2003, as cited in the Swiss Re report 2008.

This is despite the fact that there is still a clear need and place for CIC, as medical advancements mean more and more people are surviving critical illnesses, such as cancers and strokes.

The recent fall in mortgage sales will only compound this decline further, but whilst we may not have much control over the current state of the economy, there are many steps that are being taken to improve the reputation of CIC to build confidence and reverse this downward trend.

Consumer confidence in the insurance industry has been knocked by stories in the press in the past of providers appearing to go to considerable lengths to avoid paying out on claims.

Even fairly recently there has been negative media coverage around the non payment of claims on ITVs ‘Tonight’ programme, that will have raised those concerns again in both consumers and advisers minds about whether they can really trust their insurer.

Despite such coverage, the industry has been making some real progress to grow consumer confidence.

The implementation of the Association of British Insurer’s (ABI) guidelines, with a corresponding increase in proportionate and sometimes even full payments where non-disclosure has taken place, has gone some way to restoring this confidence.

Insurers are in the business of fulfilling the promise they have sold – i.e paying valid claims.

While this is often a very distressing time for the client and their family, the way we deal with the claim is crucial to improve the reputation of the industry. There are many positive stories on paid claims and service delivered by providers and as an industry we need to start shouting about these.

I firmly believe that delivering and being seen to deliver a fair and compassionate claims service is key.

This, combined with a simplified process and an increase in both consumer and adviser education on the benefits of the product, will be fundamental in restoring confidence in Critical Illness Cover.

Mark Jones, head of protection, Friends Provident

Recently, new platforms desperate for scale have been making noise about re-registration.

Advisers need to be careful, because these platforms offer a range of different charging structures which need to be thoroughly analysed and understood to ensure re-registration is in the best interests of the client.

Financial advisers who are unaware of the economics around re-registration could inadvertently be accused of mis-selling to clients.

Figures show that re-registering a client from a platform with a bundled charging structure to a platform with an unbundled charging structure can result in the client paying between 0.1 per cent and 0.35 per cent more each year in charges.

In the past, the main platforms have operated a bundled charging structure where the costs of the platform, fund group and financial adviser were combined into one charge.

Historically many advisers believed that due to the simplicity of bundled charging, when the only cost of switching were fund manager initial charges, that there was little need for advice.

Newer platforms now list separate charges for the platform, fund group and financial adviser and therefore operate a complicated unbundled charging structure.

With different charging structures available, re-registering between platforms has become more challenging – charges will need to be explained and the customer benefits made clear.
As a result re-registration may not always be in the best interests of the client.

The Financial Services Authority has been clear that it is not appropriate to re-register client assets without clear customer benefits.

- FSA Feedback Statement 08/1 – Platforms and more principles-based regulation – Page 16: “Although segmentation of customers can lead to better targeting of services, we remain concerned that firms may recommend platforms to customers by default without due consideration of the suitability for the individual customer. This may be particularly problematic when any conflicts of interest have not been adequately managed.”

- Page 17: “There is a risk that some firms might transfer their customers’ assets onto platforms purely to generate additional income at the expense of a customer without delivering any further services.”

This demonstrates that if re-registration generates additional cost or complexity to the client and if the client is unlikely to use the full functionality of the wrap, then the suitability of re-registration may be called into question.

Peter Jordan is head of proposition marketing at Skandia

Welcome to the first edition of Young Adviser, a new blog on the ftadviser.com website dedicated to young advisers and their role in the retail finance industry.

We are looking for comments and insight from our readers in the IFA community on how to attract the next generation of financial advisers and what they need to know to be a success.

The blog will also look at what the perks and difficulties of being a young adviser are and what opportunities lie ahead for them.

We are keen to hear from advisers and would particularly welcome any feedback from new entrants to the industry or IFA veterans.

Whether you decide there is a need for regulatory reform or extra support for young advisers, we will do our best to lobby institutions for what you need.

Joel Barrett, a young adviser with Hertfordshire-based IFA KS Barrett & Associates, said anything that could be done to encourage younger people into the industry would be welcome.

He said: “Positions from a starting point in the industry are a lot more restricted.”

Mr Barrett said there was currently a trend among IFAs – from which young advisers would particularly benefit – to improve their understanding of investments.

“The industry is turning towards more investment knowledge,” he said. “It is so integral for that knowledge to be there because a lot of problems are coming home to roost now.”

We would encourage all our readers to post their comments and help us to direct the blog.

All suggestions are welcome, and any thoughts or requests you may have can also be sent directly to nick.rice@ft.com

If you’re anything like me, you’ll be finding it hard to keep up with the latest developments of the infamous ‘credit crunch’ and the never-ending stream of stories that have ensued.

My head is as up and down as some of the share prices either side of the Atlantic. I guess the full scale of what is happening won’t be completely clear for a good while yet.

For me it hit home when a lady phoned our office a couple of weeks ago to query what would happen “if we went bust”.

Having been in the industry for 30 years I went into automatic mode and started the usual spiel… “no bank/insurance company has ever gone bust, our industry is over 300 yrs old, regulation this and that”.

But then I stopped. Apart from the flashbacks of BCCI (when the script was changed to say “no British bank has ever…”), the point here was that a member of the public was genuinely worried.

She couldn’t care less about sub prime lending, democrats/US senators squabbling, or Fanny and Mae. She was, on a personal level concerned about her insurance policy.

I did my best to be genuinely helpful – referred her to the FSCS website, explained the current (and proposed change to the) level of protection under the scheme and what it meant to her.

In short, I answered her question. Although if I’m being honest, I’m not sure that she left with the peace of mind she was looking for.

During my many years as a technical manager I’ve perhaps only had three or four similar calls out of the blue. So when I had another call only a week later I was starting to appreciate just how these turbulent times are affecting people.

This time it was from an IFA, but the question was the same. He’d been asked ‘what if…’ by a number of clients and didn’t feel he could offer the reassurance that they wanted. I responded in a similar fashion to my earlier call and to be fair the caller claimed to be happy with my response. Nevertheless it got me thinking.

Working in insurance is easy when times are good, but when consumer confidence is low and times are changing, perhaps we need to stand up and be counted.

The protection industry has never been as important to consumers as it is right now.
So maybe we should be trying harder to deliver the clarity, support and advice that are needed, because right now business as usual doesn’t mean a thing.

Steve Elliott is technical manager at Progress from Royal Liver

Just when we thought we were getting a little bit of respite, something else comes along to squeeze us even more.

This morning, as expected, we got the official government figures from the Office of National Statistics on how the UK economy is performing in terms of growth.

There were no surprises. The UK economy has contracted by 0.5 per cent, representing the biggest fall in GDP in this country since the first quarter of 1990.

But the figures do nothing really except confirm what people around the country have been feeling for a while anyway.

Inflation which has grown to 5.2 per cent has made shopping for essentials, such as petrol and food, simply quite expensive.

However, in recent days there did seem to be a bit of light shining into the tunnel when the supermarkets reduced the price of petrol at the pumps.

They were able to do so because oil prices have fallen by more than 50 per cent, from a peak in July of around $147 a barrel to $60 today.

It seemed the economic downturn was draining energy demand and hence the prices came down.

Now though, this seems short-lived in light of the OPEC announcement today, and our finances look to be attacked once again.

At an Extraordinary Meeting in Vienna, the OPEC member countries met to discuss the current global financial crisis and its impacts on the oil market.

It resolved that there was a dampening in energy demand which was likely to be worsen, despite the approach of winter.

The outcome was a cut in production by 1.5m barrels a day from November.

So what can we expect now?

Well if we go by simple economic theory then this means oil prices are likely to shoot back up again, it’s now just a question of how far they will go.

Sadly, higher oil prices equal another dent in the already under nourished finances.

Much has been made, on these blogs and in the wider press, of the self inflicted nature of so many banks’ current problems.

“Who would have thought,” as one friend in the industry put it, “The reason some people live in caravans is because they can’t actually afford half million pound houses and shouldn’t be leant all that money.”

I won’t go any further along this line because you’ve heard it all before, but it is instructive of something I learned on a recent holiday to Florence.

It turns out that the phenomenon of terrible lending decisions is almost as old as the modern banking system.

The name Medici will probably be familiar to anyone with a sense of financial history as a major name in pan European banking during the renaissance and pioneers of accounting techniques observed to this day.

What I’d never encountered before was the fact Florence was once the banking capital of the West, full of business, all with outposts across continents.

You may or may not be aware of the Peruzzi and Bardi families, two of the biggest lenders in the world back in the 14th Century.

But by around 1350 their whole organisations collapsed; the reason, bad loans.

Specifically the then equivalent of several million pounds to Edward II of England to prosecute a war with France.

It occurred to me lending money to someone to fight a war is risky business if you don’t have every reason to expect your debtor to win it.

Edward was engaged in the early stages of the 100 years war and needless to say was left without the means to repay. Just like the caravan dwelling sub prime borrowers of the USA.

The FSA has lost the second round in the Lautro charges fiasco. The Information Tribunal Service handed down its judgement on 13 October in favour of the Information Commission Officer’s ruling that the FSA disclose the names of the offices using Lautro charges, following a request for this information from Evan Owen last year.

When the FSA first appealed the ICO’s ruling, it defended its refusal to name names under S.41 and S.44 of the Freedom of Information Act.

However, subsequently it presented a case under S.348 of FISMA and also under the Human Rights Act in regard to confidentiality.

This subsequent defence became the preliminary point, which had to be decided first before the secondary defence was considered. As this was only the judgment on the preliminary defence, we haven’t even got to first base on the main defence yet.

The judgment, which ran to 32 pages and 87 clauses, contained nuggets of information not discussed in open session at the Tribunal hearings earlier this year.

For example, the judgment states, in point 8, the fact that the Tribunal “draws its information largely from an editorial provided to it and drawn from the June 2005 issue of Money Management”.

This was the comment piece I wrote which first broke the story of just how much a policy could be adversely affected by the use of Lautro charges. The ruling quotes Money Management twice more, so it’s good to know that all my campaigning is having some effect.

When I analysed the potential size of the problem, in the September 2007 issue, I had a guess at the compo bill being around £100+m. It now seems that I seriously under estimated the size of the problem. According to point 39 of the judgment, five offices have paid compensation amounting to £100m.

However, point 46 mentions an FSA internal memo from March 2002 which stated that there were 19 firms where Lautro charges were an issue “with the estimated compensation being £274m with over 600,000 policies affected”.

It said that, of the 19 firms, two had paid compensation, five had arranged voluntary compensation, one was in the process of compensating all policies, while four were compensating “in force only, excluding surrenders”.

Apart from the injustice of only compensating in force policies, this still leaves seven offices which seem not to have paid any compensation, contrary to reassurances given by the FSA previously.

The FSA has the right to appeal the judgment on the preliminary defence, which it must do within 28 days.

If it decides to appeal, it will be to the High Court. An FSA spokesman told me that it was “inappropriate to comment, but will fully consider the ramifications of the Tribunal judgment.” The FSA has dug itself into a deep hole over this issue.

Confidentiality is regarded by the FSA as a vital part of its regulatory role, so I don’t think it has any choice but to appeal. And if it didn’t, how could it justify spending all this time and effort thus far, and your money, defending the indefensible?

The FSA has already run up a bill of £50m; at this rate the bill for defending the case could equal or exceed the size of the compo bill. If the FSA does appeal, either of the parties may ask for the rest of the appeal to be stayed pending resolution of this, thus bringing the whole Tribunal process to a temporary halt.

Taken to its (il)logical conclusion, therefore, if the appeals process continues for long enough, and/or if the companies concerned are only expected to compensate policies still in force, there will be no one left to pay compensation to – all the plans affected will have been surrendered, reached maturity, or their holders died. Could zero compensation, then, be the ultimate goal?

I recently had a worrying conversation with someone high up in the hierarchy at what is now just one of a handful of top lenders.

He asked the question of how long the balance of power would stay with the mortgage intermediary when it came to lending.

For years now lenders have relied on the intermediary for a steady flow of introduced business, with some lenders recieving up and around three quarters of their business from advisers.

But how long will this last?

With the takeover of HBoS by Lloyds TSB and Alliance & Leicester by Santander, the industry will essentially have just a handful of major players – Abbey, Lloyds TSB, Barclays, RBS, HSBC and Nationwide.

The suggestion was raised with me: So who is to say these lenders cannot get together and put forward a combined view on procuration fees?

Over a cup of coffee he told me: “Intermediaries have no idea how exposed they are.”

Another day, another gloomy report on the economy.

At this rate, I think I might seriously consider taking up my editor’s offer of a stress relief course.

The bad news just keeps on coming and today, it was the International Monetary Fund doing the doom mongering.

According to the IMF, the shocks to global financial systems in September have without a doubt heightened the risk of a systemic financial crisis in Europe.

On the up side, it says the recent rescue packages put together by France, Sweden, the US and UK will to a certain extent help stop world economies from suffering severe distress.

The same I am afraid it seems, cannot be said for banks across Europe.

The IMF says that as a result of the turmoil there may be more banks that fail.

It believes banks are likely to fail because of the very high risk spreads associated with them and also because of the market doubts that surround them.

We have seen this already with B&B and HBoS. As soon as the market confidence in these institutions was gone, the business as we once knew it followed suit.

We seem to be getting a bit of a breather at the moment as the rescue packages seem to be bringing a sense of calm to the markets.

So is the IMF right in saying more banks will fail across Europe? And can we expect more failures in the UK?

The IMF did after all say that the economies that will come off worse from the downturn are the ones which have been worse hit by the housing crisis, such as Denmark, Ireland, Spain, and the United Kingdom.

Saying that pensions are complicated is a little like saying that markets are currently volatile – stating the obvious.

The issue of qualifying earnings is one example, a subject so complex that most eyes glaze over at the mere mention of the words.

But, if we focus on the outcome, qualifying earnings is a simple topic. Unless the Government make changes many low earners, including a significant proportion of women, will lose out. And lose out substantially.

Small and medium size employers want to run their business, not run a pension scheme.
Imposing lots of bureaucratic red tape around their existing schemes will push employers down the path of least resistance.

That means either closing their scheme and putting employees in personal accounts, or adopting the same earnings definition as personal accounts as this means the red tape disappears.
Both result in the first £5,035 of earnings being ignored for pension purposes.

Now for high earners and those who receive reasonable bonuses and commission this isn’t a big problem – some may even benefit, although DWP’s own figures suggest this will be 30,000 people at the most.

But lower earners will lose out as the amount received in bonuses and overtime doesn’t match the £5,035 which is ignored. So they will receive smaller pension benefits, by huge amounts in some cases.

Given such a stark and simple message, most people would imagine some action would be taken.
Unfortunately, even though there has been endless discussion, we’ve yet to see any concrete moves.

And even more bizarrely the Trades Union Congress support the status quo – are they really saying they want lower pension provision for their most poverty stricken members?

Making a change here to significantly reduce red tape for employers, along with an appropriate compliance regime undertaken by the Pensions Regulator, gives a win-win position.

Yes, providers win because pension contributions stay at higher levels. But employees – especially low earning employees – also win by getting better pensions.

Now doesn’t that sound the simplest option for everyone?

Andrew Tully is senior pensions policy manager at Standard Life

As Investors’ Alphabet draws to a close, could there be a more suitable word for it to end on than zero? Although zero is also a nice round number – there’s no term in arithmetic less ambiguous than nought – it’s proved controversial in the investment world, not least because it has given a name to an IMA sector.

The funds in the UK Zeros peer group invest a minimum of 80 per cent of their assets in sterling-denominated or sterling-hedged instruments and a minimum of 80 per cent in zero-dividend preference shares or non-income producing positions.

Morningstar currently provides data for just five funds in the group, none of which were launched within the last three years – asset managers haven’t exactly regarded this area as a launch magnet.

Nor are its existing portfolios gargantuan in size. At a mean of £59.5m, the only sectors with a smaller average vehicle are Technology & Telecoms, Japanese Smaller Companies and Guaranteed & Protected, all of which have suffered busts or been overwhelmed by structured product launches.

Worse still, performance hasn’t proved stellar over one and three years. Although no asset classes have posted particularly fantastic returns over those periods to the start of last week, losses of 24.4 per cent and 15.3 per cent are not much for investors to thrill over.

Will the IMA abolish the sector? In June, it said it had flagged it up for review due to its small number of funds. But in these months and maybe years of portfolio consolidation and rationalisation, asset managers might find a reason to hasten its departure before the association steps in.

The divergence in various statistics for house price growth and fall can be explained by the changes in mix between new build and normal house sales.

Let’s go back say two years, when roughly 1 million houses were sold per year, of which 800,000 were existing and 200,000 new build.

Say a gain of 10 per cent was made over the year – then typically a £180,000 home would become £200,000, showing a gain of £20,000. Calculated over 800,000 houses, the growth becomes £16bn.

However, when we come to new builds no account is taken of the build cost.

Say the figures are £60,000 for the land cost, which is usually around a third of the sale price. This makes for a gain of £140,000. Again calculated over 200,000 houses, the gain is £28bn.

The Land Registry doesn’t include new builds in their figures, but the Halifax and the Nationwide do. So it translates that Nationwide and Halifax will show higher figures for house price rises than the Land Registry.

Equally, if the number of new build houses reduces then, because of a change in the mix, this generates a fall in house prices, i.e. a drop of a third in new builds would show the overall figures going from £42bn to £33bn compared with the previous year. The figures are MAT (moving annual total).

In addition, changes to building regulations over the last five years have added something in the order of 20 per cent to the cost of building.

It seems these regulations were introduced with no cost benefit analysis and the proposals to make all new houses suitable for disabled individuals would add a huge burden. This certainly has affected new offices and industrial estates.

It would seem that the Land Registry figures are probably far more realistic than the Nationwide and the Halifax which point to a completely different scenario than that shown by the press, i.e. the Halifax and Nationwide figures of 10.9 per cent and 10.5 per cent loss for August compared with the Land Registry of 2 per cent for July.

If the general public thought that house prices had only fallen by 2 per cent in the last 12 months there would be far greater housing activity.

Michael Royde is an appointed representative of Burns-Anderson

“Bluntly we have been doing supervision on the cheap.” What a simply brilliant and very honest statement to make.

If you haven’t already heard about it, those were the words that flew from the mouth of the FSA’s chairman, Lord Turner yesterday.

In an interview with our sister paper, the Financial Times, he said that the number of FSA staff monitoring large banks was much smaller than its US counterparts and that it was going to have to ramp up its supervision.

“If you look at the sheer number of people that we have been sending through the doors of our major banks compared with the numbers who go from the OCC and the FDIC and the FED to Citicorp, its’ been very, very small,” he said.

To increase supervisions, Turner said the FSA will also need to increase the number of staff it has working on the job and that some staff may even have to be paid higher salaries.

“We are going to get more people and train them more intensively. And in hiring form the outside we are in some cases going to have to pay higher salaries than before and we’re not going to do supervision on the cheap.

“We’re going to have to do supervision at the quality which is required to do it really well and if that means the total cost has to go up somewhat, then it has to go up.”

And that last statement brings me to my point.

I think it’s great that bank supervision is going to be increased, after all who wants a repeat of the recent problems in the banking sector?

But then the fact that total costs are going to go up begs the question of how the intermediary community will be affected.

FSCS levies are already expected to go up as a result of the Bradford & Bingley’s failure and it is keeping quiet about whether levies will be further affected by the recent Icesave and Heritable defaults.

So are larger than expected fee hikes on the way? At the moment it seems that they are not to be and banks are to pick up their own tab. Let’s just hope it stays that way.

I don’t know about you but I think the bank bail out is a great idea. The concept of pumping billions of pounds into a system where people have siphoned off millions already is the best plan since Ratner decided to take over his own sales promotion.

Let’s break the government bail out down to its simplest form. Basically you are going to hand over your money to a bank who will then, very kindly, give it back to you plus 7 per cent interest. This is fantastic! Why have I struggled for years as an honest citizen when all along I could have behaved like an idiot with a penchant for Bollinger?

That’s it. As a result I have decided to indulge in a Delboy-esque money making scheme in an attempt to finally live a champagne lifestyle without my current beer salary.

First I shall join a bank and work my way up by playing around with millions of pounds and telling the CEO he looks good in his suit.

Following this, I will get on to the board and throw myself into a hedonistic lifestyle of fast cars, loose men and an orgy of Celebrity Strictly Come Dancing. Along with late night parties, the purchase of “pedigree” dogs from a rather fierce looking man in my local and late night ramblings on Hampstead Heath in the style of various MPs, I will skid majestically to the end of my epic journey totally overdrawn and in need of money.

And this is where the masterstroke comes in. I shall then pay a little visit to Number 10 with my newly acquired “pedigree” mutt and throw myself on the mercy of the Government.

In an awe inspiring display of sorrow, I shall admit my failings. I will promise to be good, swearing to only turn the air conditioning on in my Mercedes when the person who fans me takes a day off.

I will swear to sell one of my houses in France. In the move to cut costs I will promise to stop hanging out on Hampstead Heath and frequent Clapham instead. I will even shun Fortnum and Mason and slum it with people called Tracy in Sainsburys. My repentance for my actions will be that great.

As I see it, they will be moved to tears and hand over a fat wad of cash. In return I shall fall on my sword and gallantly offer to forsake any mention of a huge fat payoff. However, in the interests of my Thai husband who I recently bought off the Internet, I would insist upon the sanctity of my pension fund so that I could ensure his health and happiness as well as allowing me to pay the final instalment on his nose job.

Personally I think my plan is a winner and it’s for that reason that I fully support the government bail out because it’s clear that acting like this truly does have its benefits.

Regular readers of Mortgage Adviser will know how outraged I was when Queen Vic landlady Peggy Mitchell was offered “equity release” by two dodgy geezers when she was in fact being pushed towards sale and rent back.

I was disappointed the soap land equivalent of the FSA did not swoop in on Albert Square at this point. Mind you, part of my hope for this intervention was down to the fact that given how terrible soap operas are at depicting police officers I would have loved to have seen their version of the City watchdog’s staff.

Back to a serious note though, for too long too many sale and rent back providers have not done enough to make clear they do not offer the security equity release providers do. This is hardly surprising – they have done well off being mistaken for equity release lenders.

That is why the Office of Fair Trading should be applauded for demanding this part of the industry needs statutory regulation.

The main recommendation of the OFT’s report was there should be statutory regulation of the sale and rent back sector by the FSA.

The details of regulation will be up to the FSA to determine but the OFT said the regulator should place an obligation on sale and rent back firms to be more transparent about the initial valuation and sale price, the terms of the tenancy and the amount of rent to be paid.

Some of you may remember I used to write a lot about regulation as chief reporter of Financial Adviser. After a year-and-a-half as editor of Mortgage Adviser at the end of this month I am moving back to Financial Adviser as managing editor. I am looking forward to writing about the FSA’s steps to bring sale and rent back under its remit and would love to know what demands you think should be placed on these providers?

How many times have you heard a pensioner fretting about yield? Probably not many, but after the terrible time high-yielding bank stocks have been through recently you may hear a few more retirees wondering where their income is coming from.

As the yield is the income you can expect from an investment as a proportion of its value, any investor who owns a portfolio with stocks, property or bonds will be wondering what cheque the yield will be cutting them in the future.

Although most portfolios are very high-yielding at the moment as values have fallen, this assumes that income will remain constant. Predictions of upcoming dividend cuts, defaults and lower rental income will not benefit help yield junkies’ nerves at present.

So what should you tell your grandmother when if her income portfolio witnesses dividend drops, or if her fund’s tenants aren’t paying the rents that they used to?

At this stage most advisers’ answer is to hang on in there. One of the advantages of active management is it should be able to weed out companies or properties that can’t sustain their current cash flows.

Given some active managers’ difficulties over the past 12 months, however, investors may decide to be a little less forgiving if they can’t get them enough downturn-free fixes. Could we see “more yield” on placards outside fund company headquarters? Even a hallucinating income addict might find that a little surreal.

It was always going to happen.

The fat cats that cost 1,500 people their jobs and played a part in bringing down Northern Rock have got off Scot free.

Despite being at the helm of the bank when it was nationalised by the government (a move which was shocking at the time), the likes of Adam Applegarth and other Northern Rock board members will not have to pay a price or suffer any consequences.

In its third quarter trading statement released today, Northern Rock said there were insufficient grounds to proceed with any legal action for negligence against the former directors.

Decisions taken by the board in terms of funding and liquidity were reviewed and it was decided that no legal action would ever be taken against the former directors.

But this aside, the Northern Rock ‘fiasco’ or ‘crisis’, as it was dubbed at the time, now seems rather mild when you consider that three of the UK’s banks are now part-nationalised and other countries such as the US are following suit.

With stock markets beginning to recover from their recent worrying lows, maybe a full-scale meltdown of the financial system has indeed been avoided. But this does not take away from the fact that we are still in a mild recession.

Many jobs are being shed across all sectors in the UK, inflation is still rising and house prices are falling while consumer spending has slowed down sharply.

I’m living proof of that. I spent the last two weekends hiding in my house coupled with only trips to the local park in an attempt to avoid spending any more money than was really necessary.

But the biggest worry now for the economy, economists and everyone else is just what is going to happen to the job market a result of all this turmoil.

If Capital Economics prediction turns out to be correct, then unemployment will hit 3 million over the next two years, from its current level of around 1.72 million.

Let’s just hope it doesn’t.

People are struggling to come to terms with the most turbulent economic environment in living memory and to understand the impact it will have on their day to day finances.

There is no doubt that many people will make knee-jerk uninformed decisions today that they will live to regret long after tomorrow.

Leaving to one side that British tendency of selling stocks and shares at the bottom of the market, what about those people who are considering giving up their precious life assurance and critical illness policies in an attempt to reduce their outgoings.

At the end of the day, it’s all a matter of priorities, life assurance or Sky TV?

Short-term decisions made today may have devastating consequences in the future e.g. cancelling a life insurance plan today may mean leaving their family with a mortgage and not a home.

Moreover, when their financial position improves reinstating their life cover may be more expensive and if their health circumstances have changed possibly even impossible to obtain.

It is now, more than ever, that customers need professional financial guidance to help them carefully consider all their options and make informed choices as well as understanding the long term implications of their actions.

For example, we need to outline all of the options available using the inbuilt flexibility of their existing products. For example where somebody thinks they can no longer afford a plan it may be possible to take a payment holiday or to reduce the level of their contributions.

We are all aware of the size of the protection gap and the burgeoning pensions timebomb. As an industry we need to do everything we can to help people to make the right decisions and to regain some sense of control over their financial futures.

Tony Solomon is business development director at Zurich UK Life

The banks may have taken a hammering on the FTSE 100 this week, but even while they were seeing billions wiped off their value, they still somehow won out against Joe Public.

In yet another blow to the man on the street (how many more can we take?), the High Court ruled that most consumers will not be able to use common law to challenge ‘unfair’ bank overdraft charges.

The one small glimmer of hope is that this doesn’t apply to all banks, and further discussions will be had regarding the terms and conditions of Intelligent Finance, Lloyds TSB and NatWest.

The OFT also still has authority to examine the fees under the 1999 Unfair Terms in Consumer Contract regulations following its High Court victory in April.

But, on the other hand, it may be best not to complain too loudly anyway.

Given the current turbulence, a further debt could prove to be the tipping point for one of the big banks. And as uSwitch.com estimates, 1 million bank charge claims worth £713m have been frozen since the start of the High Court test case last July.

uSwitch’s Simeon Linstead also points out, that with UK taxpayers about to become ‘bankers’ through the government’s part-nationalisation plan for banks, if consumers did end up winning back their bank charges, they’d effectively end up just paying themselves back.

The High Court case continues in the New Year when further tests, which could challenge this week’s ruling, will be applied to establish the ‘fairness’ of the charges.

But all up, I’d say that’s round one to the banks.

Changes to the regulatory landscape resulting from the Retail Distribution Review will impact the shape of financial advice and prompt advisers to reconsider their business models.

A quick look at the commission patterns on our investment solutions platform shows a small but definite change in commission trends, with less reliance on initial commission and a gradual move towards ongoing remuneration.

The average initial commission taken by advisers on our platform during the first half of this year was 1.9 per cent and the average trail commission taken was 0.6 per cent.

Compare this to the more traditional commission option selected by advisers of 3 per cent initial plus 0.5 per cent trail and the figures suggest a shift in business models.

Advisers seem to be adapting to a new way of working with more of an emphasis on ongoing investment advice based on risk assessment and asset allocation rather than stand alone product sales.

The change in commission patterns is evidence of this as advisers increasingly look to match the pattern and frequency of their remuneration with the ongoing advisory services they are providing.

So it is clear that a growing number of advisers, particularly those using platforms, are looking to get ahead of the RDR and actively increase the levels of recurring income they receive.

Platforms must respond to this.

The leading players have a responsibility to change their charging structures to make it easier for advisers and clients to have a clear, up front discussion about the cost of advice and how this advice should be paid for.

Peter Jordan is head of proposition marketing at Skandia

Once again the issue of risk management has raised its head. This time, we’re not talking about complex investment vehicles based on risky mortgage debt, but the very banking system of an entire country.

At one stage, the collapse of banks in Iceland was considered to be restricted to those who tried to get rich too quickly in a country that was punching above its weight, and maybe a few savers lured by the high rates of interest.

Now it seems a serious number of councils have put their money Iceland’s way as well, and they stand to lose it all.

On first glance, this seems daft, even if it is with the benefit of hindsight. Anyone with a degree of financial common sense, if not actual technical knowledge, would know that if something looks too good to be true, then it probably is.

Perhaps in this case, questions should have been asked about whether the attractive rates offered were sustainable, or perhaps whether the banks were strong enough to keep offering these products.

Many councillors have been wheeled out saying they took financial advice, a proper analysis was done on the products, and given the best information available, they felt they were taking a prudent decision.

Perhaps, this just goes to show that maybe too many people turned a blind eye to the obvious, believing the worst could never happen.

If a small country with a population the size of Leicester is trying to make it big in the world of banking, they are going to have to do it by taking enormous risks.

Unfortunately, these risks have unravelled, and it would seem no one ever thought of the doomsday scenario – ie wholesale money drying up – of happening.

Of course, as already mentioned, it is easy to say this with hindsight, but given the fact that so many councils have come forward saying they have millions at stake, it would seem everyone stuck with the technical analysis, and commonsense and judgement took a back seat.