UK pension rules get even more complicated!!

Thanks to UK chancellor Alistair Darling, pension rules are getting even more complicated. The government wants to hit "fat cats" but reducing higher rate pension relief to earners of £130,000 a year compared with the previous level of £150,000
will bring in extra revenue of £100m but hit wealth creators.
The Labour government is discriminating in favour of unfunded public sector pensions,
which the country can't afford. These liabilities are going up and up.
For instance, local authorities are already devoting a large size of their fire service budgets to service pensions.
With the uncertainties generated by the fact that the government can change the rules anytime it likes, I am surprised people still contribute to personal pensions.

I am going to repeat stuff from sister blog!!

I am going to repeat stuff from the sister blog "Accountancy Distilled", which today looked at the gold price. This has rallied 12 per cent since India bought 200 metric tonnes from the IMF in early November and is now $1,180.50 an ounce. This blog is not an investment newsletter with recommendations as such but the gold price probably shows us that there are quite a few nervous investors out there. You can buy
physical gold, gold certificates, gold futures, gold coins, gold jewellery and the shares of gold miners. I don't have any of these gold-linked assets but I wish I had a few Victorian
sovereigns for sentimental value.
The "Accountancy Distilled" blog started off with a bit of a rant against Gordon Brown in who,in his former incarnation of British Chancellor, ordered the independent Bank of England to sell gold at $252 an ounce against its advice. I suppose if the British central bank was not so spineless there could have been a few resignations about it but why walk the plank early when the pensions are so juicy?
I suppose now is not the time for IFAs to recommend gold purchases to their clients following the sharp rise. However, maybe it is not the time to be in fixed income gilts. This is not a recommendation but perhaps an observation!! Inflation is already rising quite sharply (petrol prices, New Year VAT increase) and if the Bank of England does not support the pound with an interest rate rise or two, then things
could get quite interesting.

Would it have been cheaper to nationalise RBS?

With state control of Royal Bank of Scotland (RBS) creeping up to 84 pct, I wonder if it would have been cheaper to nationalise the bank? This might have created a hornet's nest between London and Edinburgh but it might have been cheaper, since it looks like the bank is going to be broken up anyway. Selling insurance assets like Direct Line won't making it any easier to repay taxpayer support and kow-towing to the European Commission shows how weak the government is.
Probably the UK government's balance sheet would not have been big enough to formally take on the RBS assets but state control might have avoided the furore about banker bonuses. The UK Treasury is probably regretting its disinterest in RBS taking over ABN Amro, where it looks like Spanish bank Banco Santander waltzed off with the best assets of the Dutch group while the British bank just took on board a lot of toxic debt.
The UK government did at least save the banking system a year ago since the economy could not have coped with the collapse of RBS or of the Halifax. It is a shame that taxpayers and bank employees are going to pay dearly for the mistakes of the past.

We are in a right pickle over pensions in the UK.

The poor state of UK public finances apparently dictates a rise in the state pension age from 65 to perhaps 70. Yet at the same time companies can forcibly retire someone
at 65. So what are we going to do with the five year gap?
Contributing to pensions seems unnecessarily expensive and uncertain. Private pensions get hit by charges, which offsets the tax relief, while state pensions get hit by the government moving the goal posts.
We also won't be able to pay the goldplated pensions of council employees, members of parliament etc. The recent volatility of equities has shown that we can't rely on
share performance to pay on all types of pension promises.

Personal accounts delayed four years to 2016.

The latest big idea in the British pension mess, personal accounts, are to be delayed
four years to 2016. A total of 8 pct of pay will be contributed by employees (4 percentage points), employers (3 percentage points) and the government with 1 percentage point. However, Moira O'Neill of the Investors Chronicle quotes pensions expert Dr. Ros Altmann, who wonders what pension income will be achieved. Current forecasts are too optimistic given worsening annuity rates.
I think one concern is that pension income could be heavily taxed in the future to pay for the demographic bulge of old people. The state pension age could be lifted quite quickly to 70 in order to save money. It would be interesting to see what people would live on. I suppose the complexity over pensions could be reduced.

Tories should not axe FSA - Xavier Rolet.

Money Marketing cites a speech by the chief executive of the London Stock Exchange,
Xavier Rolet, that the Conservatives should not axe the UK regulator Financial Services Authority (FSA). Speaking at a fringe meeting of the Tory conference in Manchester, Rolet said the regulatory system in Britain had to be similar to that in Europe and in the United States otherwise it would make joint action on financial crises harder. The power of the FSA should not be fragmented over many different entities.
The Tories have said that they will scrap the FSA if they win next year's general election. The regulatory body has been given a bad press over its efforts to regulate the financial industry ranging from one person IFAs to major banks. The FSA's role in a tripartite system involving the Bank of England and the Treasury has been questioned. The Tories want a bigger regulatory role for the central bank.
Personally, I would try and reform the banks first and make them easier to regulate.

With RDR advisers will be looking at passive funds - Tora.

Investment guru Brian Tora, writing in a July edition of Money Marketing, notes that the independent finance advice (IFA) community will be looking at passive investment funds following the retail distribution review (RDR). IFAs have preferred commission from active funds but there will be RDR changes on adviser remuneration.
Tora reveals that at a recent presentation of investment trusts Aberdeen extolled the merits of its Edinburgh US Investment Trust. This passive fund has a tracking error of just 0.1 per cent. To declare an interest my son has a few shares in this trust.

Some 75 pct of funds fail to beat the index.

FSA chief Lord Adair Turner likes a nice hotel.

Money Marketing made a freedom of information request to ascertain that Lord Adair Turner, chairman of British financial regulator FSA, claimed £812 for two nights in a hotel during last February. Nice work if you can get it while FSA CEO Hector Sants
has a full time driver.
There is the perception amongst some independent financial advisers is that they get a hard time from the FSA while the regulator leaves the big banks well-alone. One IFA has recently called the banks giant selling machines.

A July issue of Investors Chronicle looks at RDR.

I should have commented on this article earlier but I did'nt. Sorry about that!!
A July issue of the Investors Chronicle got Martin Bamford and Jonathan Fry, well-known independent financial advisers (IFAs), to comment on the proposals of the Financial Services Authority (FSA)
with its retail distribution review (RDR).
Bamford is a chartered financial planner from Informed Choice while Fry runs his own
firm Jonathan Fry & Co. Fry was against the review proposals while Bamford was for.
As a consumer of financial advice I kind of side with Fry that paying directly for financial advice would not help low-income groups. The fee payments would come from taxed income and might be considerable. However, I have sympathy with Bamford's assertion that the commission bias of independent financial advice has led to the slew of recent investment scandals (with-profits anyone?). There is also a tendency for investment bonds to be recommended by IFAs, which is not very impartial.
Fry also notes that the British financial regulator FSA lives in an utopian world
He considers that more disclosure of costs would help
consumers.
Anyway with the Conservatives proposing to scrap the FSA, if it wins the next general election, then it will be interesting what will happen to the RDR.
I had to do some pension transfers recently and it was saddening to realise that I was paying three sets of costs with the money. First, the independent financial adviser (IFA),
second the Royal London unit Scottish Life and third the various investment fund managers. However, in
the IFA's defence there has had to be quite a bit chasing up in terms of the pension funds making the transfers. One source of delay is anti money-laundering legislation
and I wonder if the checks could be speeded up. Nobody would want to send their passport to a pension fund manager by post and then hope to get it back by the same postal system. An email could have sufficed with my passport number.
However, the chunks taken out by the various parties (the IFA, the pension fund platform and the investment fund managers) will mean that investment returns will have to be spot-on to get anywhere.

Friends in need are friends indeed!!

Sorry for the corny title but I thought it was a good idea to get into the troubled affair of Friends Provident, which has recently unloaded investment manager Foreign and Colonial at a loss. The bid by Resolution for the British insurance company originally founded by Quakers seems just to be a bonanza for city firms. It seems an expensive way of getting Clive Cowdery et al on the Friends Provident board. I ploughed my way through the initial Friends Provident documentation as my wife has a few shares and an endowment policy with the company. Selling out for around 79 pence does not make much sense since the shareholding is a minimum from the original flotation so I suppose we will hang on and see what the Resolution deal brings. This could mean reduced service levels to endowment holders and poor prospects (to say the least) for
workers.
Money Marketing quotes a spokesman from the stockbrokers Charles Stanley, who said that "What we suspect has happened is that two groups of investors have put pressure on the Friends' board to do a deal, the first group being investors who wanted an exit from the stock and the other group being investors who have a stake in Resolution and realise that if Resolution is going to be successful in its consolidation project, then Friends had to be the first step." This quote is in the edition of August 20th.
Quite a few commentators say that it will be tricky for Resolution in terms of execution risk but I think there are a lot of insurance companies in the UK market place, which could be snapped up and make for easy cost-cutting.

With all the regulation in the world it looks bad for Keydata investors!!

On the front page of the Money Marketing edition for August 20th, one story highlights the plight of Keydata investors. I thought these kinds of disasters would not happen considering how much money the British quango (is it a quango?) the Financial Services Authority (FSA) absorbs every
year.
Dan Schwarzmann, a partner of PricewaterhouseCoopers (PWC) and joint administrator of Keydata, predicts that it is unlikely that creditors will receive much money back.
PWC has not yet found missing SLS Capital policies, where about 5,500 investors have investments.
Keydata was a structured investment provider put into administration by the FSA initially for the non-compliance of ISA retail investment plans.
This case is additional to the Lehman Brothers mess and at least the FSA cannot expect ordinary UK retail investors to evaluate counter-party
risk.
The following week's edition of Money Marketing has Paul Farrow quoting one angered Keydata investor, who said "The question of how £103m of investors' money could disappear from an FSA-regulated company is an utter scandal as is how non-compliant ISAs could be marketed for five years.
Paul Farrow wonders what was the role of HMRC in the checking of the ISAs?

The FSA is in the wars!!

The British regulatory body Financial Services Authority (FSA) seems to be in the wars. I would not have taken the road of the opposition party Conservative Party which announced that the FSA would be abolished, if the Tories won the forthcoming general election. I think it does'nt help morale and there might be actually a case for the tripartite process of regulation. The regulatory bodies of other countries do not seem to have performed well.
However, the FSA is the bane of the humble independent financial adviser (IFA) in the United Kingdom with masses of red tape and fees. Although I don't think the Bank of England would want to track the activities of the financial advice arena.

I am wondering about UK gilts again!!

There are warnings about a run over the British pound and I suppose UK gilt prices will wilt if this happens. However, if things get really bad economically and if we have deflation, then the relatively guaranteed income streams of UK government bonds
would become really attractive.
A mate of mine thinks Canadian dollars are a good bet because they are not printing extra. What do I know about currencies? SO, JUST TO REITERATE THIS IS NOT AN INVESTMENT ADVICE COLUMN although I love waffling about investments.
www.searchifa.co.uk
I suppose I would have to hide the Canadian dollars under the bed since foreign currency bank accounts are not a mainstream product in the United Kingdom.

PIBS look a bit of a risky investment.

The PIBS issued by UK building societies look a bit of a risky investment with the possibility that coupons will not be paid. The rescue of West Bromwich Building Society has shown their true position in the pecking order for creditors and it is not good. The securities were bought for their yields but unfortunately the yields have gone up.
The PIBS of demutualised building societies converted into perpetual subordinated bonds. While the Nationwide, the flagbearer for the industry, is offering a running yield of 11 pct on its issue of 7.25 pct according to the Investors Chronicle, which highlights the risks and rewards of this area. The original investors in the Nationwide issue have taken a battering on the capital performance of
the PIBS.
This is an esoteric part of the market and perhaps not one for many financial advisers.
www.searchifa.co.uk

Financial advisers are going to have to get used to charging fees.

British financial advisers (IFAs)are going to have to get used to charging fees
from the end of 2012 rather than charging commission. The UK regulator the Financial Services Authority (FSA) estimates compliance costs of £430m and an additional £40m of annual ongoing costs for the £12bn investment advice industry. This is according to the Sunday Telegraph.
The FSA wants all investment advisers, whether independent or connected to a bank, to obtain a qualification equivalent to a first year at university.
However, the Association of British Insurers (ABI) wonders about the complexity of
options such as independent advice, restricted advice and basic advice.
www.searchifa.co.uk
I think the complex area of pensions will prove a rewarding area for IFAs. I have had to transfer sums from a company pension and I had to have a personal financial adviser to handle the transaction. The British tax legislation is so complex you really need your hand holding.

Public sector expenditure cuts are on the horizon.

In the United Kingdom public sector expenditure cuts are on the horizon. David Cameron, the Tory leader, has finally got a grudging admission from British premier Gordon Brown. There was a thoughtful article in today's Daily Telegraph, which argued that the main problem is collapsing tax revenues. Currently, benefits outstrip
income tax revenues but I don't know if Labour will get away with their trick in
2005 of winning the election then sharply increasing stealth taxes.
I think UK Chancellor Alistair Darling is praying for a quick end to the recession but he is not helping his reputation for honesty by not having a comprehensive spending review.
www.searchifa.co.uk
To be fair to the UK, other countries are in similar situations such as Spain, Greece
and Italy. In Ireland, there have been tough spending cuts. However, we are in electoral limbo and this is exacerbated by Gordon Brown's seeming determination to struggle on until 2010. This is too long given the cabinet's propensity to implode.
I don't think we can have another ministerial reshuffle. An October general election might be better for Labour.
Also, Shadow Chancellor George Osborne might find it difficult to promote austerity measures when it is perceived he comes from quite a privileged background. Labour will be relentless about Old Etonians, investment versus spending cuts and the fact that some Tory policies don't stack up. Apparently, its educational policy is quietly
collapsing.

Another return to the tricky problem of emerging markets.

Forgive me if I return to the tricky problem of emerging markets, which are seen by some as a key area for future investment. Developed economies will not be able to match their growth rates and investors putting something away for their retirements should for collective investment schemes in emerging markets. However, I can't see these emerging markets paying out dividends to their former colonial masters. Also, the West is still the final buyer of quite a few goods from the emerging markets.
www.searchifa.co.uk
The United States has exported quite a bit of its industry to the Far East but Obama might persuade American corporates to bring it back. We have outsourced call centres
to India but these could easily be brought back, especially if unemployment rockets.
This is probably not very free trade but the U.S Congress has already introduced "Made in America" legislation, which has upset Canada.

Paul Krugman says UK economy is well-positioned.

The distinguished U.S economist Paul Krugman says the UK economy is well-positioned compared with its European counterparts due to policies such as low interest rates.
He gives a lot of credit to British Prime Minister Gordon Brown.
However, the UK economic landscape has changed radically.
It is good to be positive but the City of London will not be a major producer of tax revenues while the car industry in Britain is getting a real battering. Exports will not be helped by a recovery of sterling against the euro and the dollar.
If the "green shoots" of recovery consolidate, then we will have to work out how to pay the bill for the UK government's borrowings. Some commentators are predicting ten years of higher taxes and lower public spending.
Some observers say the banking sector is now stable. However, Royal Bank of Scotland
(RBS) and Lloyds will be quite interested in getting down the state holdings and possibly less interested in refinancing British industry.
However, building societies seem vulnerable and the Nationwide cannot rescue them all. The recent downgrades in their credit ratings will possibly persuade the building societies to reduce their lending so as to improve their financial strength.

I am trying to consolidate two small pensions.

I am trying to consolidate two small pensions into one small one after expenses, charges etc. The charges are quite expensive but I have not got much choice. One of the two will disappear, if I don't take action by August. My financial adviser recoomended a lifestyle one, which moves into cash at the end of the term to provide some protection.
Let's hope it will perform. The financial adviser said the annuity rates were very poor at the moment so it did not make sense to get an annuity and especially at my age. I wish the charges were lower, since they hit investment returns. I suppose that
in many cases gross investment in pensions produces little after charges.

I must have been insane!!

In a very weak moment or was I insane but I was contemplating a minor purchase of War Loan. This was after my previous post on how likely it was for foreign investors to boycott gilts (British government bonds) for inflation and currency
reasons.

Obviously, this is not a recommendation one way or the other since this is not a professional blog and I have not got any professional qualifications. Most of my ideas probably come from the Daily Telegraph. I think it was in the 1930s that the UK government cut the coupon on War Loan, which was a tinsy bit naughty. It is an undated stock and some hold the bonds through inheritance. I still fancy buying them though, since they are a bit of history.
www.searchifa.co.uk

However, conventional government bonds can really be hit by inflation. A lot of financial pundits are saying that UK index-linked gilts are a better buy. In reverse,
if there is real deflation in Britain, then gilts and corporate bonds could be a wonderful investment if coupons are maintained. That is a big if, especially if yields reach the default levels of the 1930s.

Also bond prices are being distorted by quantative easing measures being carried out by the Bank of England, so I better lie down and wait for the War Loan urge to go away.

UK Chancellor Alistair Darling stretches credibility.

It is probably correct to say that UK Chancellor Alistair Darling is stretching everyone's credibility with his growth forecasts for the British economy, which is basically England. To get Johnny Foreigner to invest in £200bn plus worth of gilts, I would have personally introduced measures such as higher VAT, lower international aid and European Union payments and lower expenditure on PFI projects. As I am not chancellor....

Introducing a top rate of 50 pct might play well to the left wing of the Labour Party but will lead to a lot of talent going abroad. However, it will be nice to see top-level bureaucrats and town council fat cats having to pay more. I think it is the case that quite a few footballers and football managers get paid through the Channel Islands, so at least this will stop (I think?).

The mountain load of UK government bonds (gilts) will have to compete with US Treasuries, German Bunds and even Spanish Bonos. There is unlikely to be a currency gain since we need a very weak sterling to get the British economy going and to mask the effects of deflation. If there is a gilt buyers strike and we have to lift the yields on these British government bonds, then Gawd help us poor
Britishers.

British Premier Gordon Brown says the economic crisis started abroad. If you say so Gordon. Obviously, Northern Rock and Dunfirmline Building Society are major international institutions. That is why they hit the rocks. (sorry about the pun).

I suppose we live in dangerous times!!

G-20 already seems far away. And it was only last week. I doubt if the world's leaders were worried about British government bonds (gilts). I suppose we live in dangerous times. Gilts could be a poor investment if inflation takes off unless they are the index-linked variety. These last type of gilts are a favourite investment of the pension fund of the Bank of England itself itself according to economist Liam Halligan writing in the Sunday Telegraph..
The investment expert Brian Tora writes in moneymarketing.co.uk
that corporate bonds could be hit by either inflation or by a downturn longer than forecast.
I wonder if we need a return to the Goldilocks economy, not too hot or too cold. I know there are some big bets being made over corporate bonds on the basis they are underpriced and that they could provide much-needed income. There is a ghastly alternative scenario and this is that corporate bond defaults will match the 1930s Depression.

Could we get deflation and prolonged recession?

In the moneymarketing.co.uk edition for 19th March 2009 Brian Tora again does an excellent summary of the current financial situation. He muses about the 1970s and the problems suffered by the UK economy then. Tora concludes that "the risk of being out of the market is rising". Before that, he considers that gilts look vulnerable to a correction.
Since then we have had a gilts auction uncovered, which apparently the bond market taking a dim view of HM Government's borrowing plans. We could get a tough budget from Chancellor Alistair Darling, if he ignores his boss Premier Gordon Brown.
The government wants some voter friendly measures in the budget, which is happening late this year. Chancellor Darling will have to come up with a plan to get the public finances on track.

In the UK defined contribution pensions are being crunched.

Research by the firm Aon Consulting has shown that the value of defined contribution pensions has fallen from a total of £550bn in September 2007 to £410bn at the end of January 2008 according to a report by moneymarketing.co.uk.
I think Gordon Brown, UK premier, will have to increase the tax advantages of personal pensions since people will otherwise decide that these investment vehicles are not worth the candle. I am thinking about putting a modest monthly amount in a pension for 15 years and probably the sum and the time period are not sufficient. I will probably invest in a tracker but it could be quite diminished by the charges, which mount up in time.

Protected rights!! What are they?

On the British pension scene we have the thorny issue of protected rights. These can now be transferred into a SIPP.
www.searchifa.co.uk The area of protected rights should be a good one for IFAs to give independent advice. Companies seemed to have washed their hands over trying to help out their employees in this area. In fact, it is pretty hard to get pension advice anywhere.
The collapse of corporate pension schemes, such as defined benefit ones, have made state pensions more valuable. The state scheme should be the cornerstone of pension planning. I suppose the tax raid on defined benefit schemes sanctioned by the then Chancellor of Exchequer Gordon Brown was based on an understanding that the sponsor companies would make up the difference. In fairness, increasing longevity would badly hit the pension schemes of firms. Perhaps, the demise of Equitable Life made people question the security and certainty of pensions. Despite being told by the Parliamentary ombudsman, the Labour government has not helped the victims of Equitable Life.
I invested in an Equitable Life with-profits fund and it was not funny aking the hit when I transferred. The authorities regulated the firm, which was originally founded in the 1760s, but provided no compensation. British personal depositors in Icelandic banks got their money back, where there was no UK regulation. However, this was not the case for Dutch and German depositors (I think), who really took a hit.

UK quantative easing is coming our way!!

The United Kingdom government is going to carry out quantative easing to get out of the economic predicament we are in. Gold reached $820 an ounce in August and now it
stands at $1,000. British premier Gordon Brown insisted that we sold at $250 an ounce. I wonder if the two issues are linked? Sterling is not supported by masses of currency reserves unlike the China or Taiwan. Although these countries must be wondering how long will they buy U.S Treasury bonds.
www.searchifa.co.uk
So we are probably in a bit of sticky situation. British savers have been abandoned (hopefully this will change) and they should keep to mainstream institutions. There was a rush to the Post Office agent Bank of Ireland and now there is a rush back. I suppose everyone needs some certainty.
The shenanigans at Anglo Irish Bank don't look good. I think the Irish would like to have some quantative easing but the good bankers at the Frankfurt-based ECB have proved several steps behind in this current economic crisis. Perhaps, the Bank of England held interest rates too high but have certainly gone for it in a big way. Say the UK central bank buys a few corporate bonds and some gilts, it probably would provide limited help to the housing market, which needs private individuals buying residential properties from other private individuals. To help these transactions Sir James Crosby proposed a reasonable plan involving mortgage securities. This plan has been studiously ignored by the Gordon Brown administration.

Should IFAs recommend buying baked beans and other provisions?

I wonder whether independent financial advisers (IFAs) should be recommending to their clients the purchase of baked beans and other provisions? In his article in the Sunday Times, William Kay makes some solid financial recommendations such as beware of gilts because historically the British government has managed to get out of its obligations. Kay says we should store extra food because of possible shortages. If these took place, they would happen very quickly. We should also have some gold stored in a safe place.
www.searchifa.co.uk
I have been trying to persuade members of my family of the need to stockpile certain items. This is maybe not to cope with a crisis but with perhaps more mundane issues. Recently my parents were hit by a wave of power strikes.
Last autumn we were close to financial disaster with the possible closure of Royal Bank of Scotland (RBS) and Halifax (HBOS). If ATMs temporarily closed, would people have enough cash to survive for a couple of weeks? What potential problems are we looking at? I think the favourites are the Middle East and North Korea.

I might have to see an independent financial adviser.

I try (and probably fail) to write a blog aimed at independent financial advisers (IFAs) and obviously I am not one. I like reading the publication MoneyMarketing, which I think is excellent. So quite a few blogs relate to articles from the publication. I really like Brian Tora and Mark Dampier. Then, today I suddenly realised that I am going to have to see an IFA to get some investment ideas. For instance, what do you invest in at the moment? UK equities, even with dividends reinvested, have posted a loss over the past decade. This coincides with Gordon Brown's stewardship of the economy.
Do I invest in yet another pension? Would a modest investment bar me from means-tested benefits when I retire in 15 years time? Will pensioners get any benefits then?
If a company like Rio Tinto can see its share price fall from £70 to just under £20 and get imbroiled in a mighty row over Chinese investment (worrying the Australian government), then it looks like individual equities are out.
Investment funds are supposed to be safer with their diversification but suffer from their poor investment choices and high costs. For instance, UK investment funds were
unable to avoid the disintegration of the British banking sector.
What about buy-to-let, which seemed to answer pension needs at the time? If the UK residential property market is going to tank further in 2009, why buy a loss? Distressed buy-to-let investors would see me as a gullible buyer and would probably not lower the price. However, a real asset might be a long-term winner especially with the pound collapsing.
If I see an IFA, I will let you know how I got on.
www.searchifa.co.uk

Standard Life coughs up £100m over pension sterling fund.

The venerable Scottish insurer Standard Life is going to cough up £100m following the tanking of its pension sterling fund. This was not the performance desired by independent financial advisers (IFAs), who pointed to the mention of "cash" in some brochures. Hargreaves Lansdown said simply that it wanted the money back for its clients.

It reminds me when a Fidelity Income fund was found to have invested in nil yielding tech stocks. There was a bit of a furore. The current investment conditions have really hit investment trusts and unit trusts. UK funds have been especially hit by the implosion of the British banking sector. Star fund managers have seen their reputations tarnished. The industry is trying to push corporate bond funds for investors looking for income. They represent quite a bet on future default levels to get the attractive yield.
www.searchifa.co.uk

Good corporate bonds paying 7 pct to 9 pct might be retired by companies, if they can refinance for less. Bond managers will be having another look at the issue documentation for the paper.

FSA boss Turner fails to read from government script.

The Daily Telegraph has cited comments by Lord Turner, chairman of the Financial Services Authority (FSA), which warn of possible stagflation. This could happen if the decline of sterling continued. I thought the drop in the pound was to help a renaissance in the economy. However, this happens rarely and food import prices should be shooting up soon. Discussing possible stagflation is definitely not in the government script. It would be a way of inflating away our debts but I think the pensioners in Spain would come back to Blighty to exact some terrible revenge on Gordon Brown et al.
Liam Halligan, former Channel Four economist correspondent, has been warning in the Sunday Telegraph, that we are not going to suffer deflation but increased inflation. He is pretty critical of the British government's policies to put it
mildly.
Back to the FSA, it does not seem to be resolving the spat between Standard Life and independent financial advisers (IFAs) over whether its pension sterling fund is a cash fund or not. Hargreaves Lansdown has asked the Scottish institution on behalf of its clients for the money to be returned. The pension sterling fund has taken a hit investing in mortgage-backed securities rather than cash as illustrated in some brochures.
www.searchifa.co.uk

I hope I have not been giving investment advice!!

I have been reading that the Financial Services Authority (FSA) has been maintaining a dignified silence that it was warned by Singer and Friedlander that its Icelandic buyers were not fit and proper. The FSA seems content to go after the small
fry.
Talking about small fry, I hope I have not been giving investment advice, since the FSA would come down hard on a poor blogger but lets the big fish go free. With the banking meltdown, something has gone very badly wrong at the FSA.
Talking about Iceland, bankruptcy does not look a pretty sight. I know they parked the foreign debts out of sight and out of mind but inflation and unemployment have been shooting up. I suppose the Borough of Barnet still wants its money back. Maybe Barnet could convert its debts into future
cod catches.
Although HM Government deigned not to rescue the local authorities with Icelandic deposits it probably had no choice but to repay depositors of Icebank to protect the integrity of the British banking system. The Labour administration could have done more to minimise the collapse of the Icelandic invaders by clipping their heels. I suppose hindsight is a great thing and probably it is the "mania of crowds" thing. If we allow Royal Bank of Scotland (RBS) to hit the rocks, then we were not going to be clued up in terms of preventing councils depositing council tax revenues in Iceland. Under the FSA rules I suppose the councils were considered professional investors, big and nasty enough to look after themselves. I suppose nobody is going to walk the plank about this mess.
www.searchifa.co.uk

In the UK is financial advice useful?

I read a recent article by Chris Dillow in Investors Chronicle, which looked at the merits of financial advice. It could be counter-productive according to some studies. However, when financial advice comes into its own is when it assesses the risk profile of clients. Dillow also says, perhaps tongue-in-cheek, that rather worry about financial planning, people should really look at if they want a bigger house or car.
In the Money Marketing publication Adviser Business the managing director of Worldwide Financial Planning, Peter McGahan, says that in terms of investment business the firm is attracting business from clients, who are basically unhappy with banks.
www.searchifa.co.uk

Clients will be bruised by the disappearance of bank stocks.

British independent financial advisers (IFAs) will meet plenty of clients, who will have been bruised by the virtual disappearance of UK bank stocks. For instance, the roll call covers Northern Rock, Bradford & Bingley, Alliance and Leicester and Halifax while the share prices of Royal Bank of Scotland, Lloyds and Barclays have taken a right battering. In retrospect, Alliance and Leicester did well to be taken out by Spanish bank Banco Santander, which is treated virtually as a UK bank by the British government.
So what can IFAs recommend to clients to make up the income gap because the UK banks were briliant dividend players? There are articles in the financial press extolling corporate bond funds while IFA David Kauders has always recommended to clients that first they should be debt-free and then they can invest in UK and US government bonds. So in the overwhelming amount of cases clients should be advised to get started on reducing their mortgages.
www.searchifa.co.uk
I remember years ago reading conservative advice from Foreign and Colonial Investment Trust that investors should have a financial cushion of a year's money before investing in their company. It sounds like genteel advice from a bygone era but one we are probably returning to.

Mark Dampier abandons political neutrality.

The research chief of Hargreaves Lansdown, Mark Dampier, has abandoned political
neutrality in an article for moneymarketing.co.uk. He says that it was always better to stick to political neutrality but has to own up to the belief that the government has "systematically wrecked our economy over the last ten years". The charge sheet includes the introduction of taxes on pensions and the weakened regulation of the banks. Dampier says the public sector has to be cut back.
www.searchifa.co.uk
I suppose the Gordon Brown economic miracle has been put to bed. We don't get any
slogans about "boom and bust".

UK bank stocks do not look too good.

You don't get the sense that the British government is not working too hard to avoid the complete nationalisation of some UK banks. There has been talk of a "bad bank" to take on the toxic assets housed by these institutions but at around forty pence the private shareholders of Royal Bank of Scotland (RBS) look like they are flying the white flag. The share price would be healthier if it could unload a few assets into the bad bank and if it could do it now.
www.searchifa.co.uk
So if the British government took full control of RBS the next day there would be calls for the sale of the U.S banking interests due to local fears of unfair competition. It would be impossible to get a good price for these American assets, which cost an absolute fortune to build up, because it would be a forced sale.
The current management of RBS might feel it is a good idea to sell off the international interests but retreating to a tough UK banking market dominated by the behemoth Lloyds does not sound a good idea. RBS has just sold a small stake in a Chinese bank but the original purchase must have been based on some kind of game plan, which was not completely wrong.
I suppose a UK taxpayer rescue and foreign assets do not compute.

Where are the British banks going?

There has been chatter in the UK about the creation of a "toxic bank" to house the ghastly assets not wanted by the British banks. One potential result would be to see the Royal Bank of Scotland (RBS) halve in size. It would be in the strange position of having no assets left from its ABN Amro acquisition but would still be paying for it.
www.searchifa.co.uk
I suppose British premier Gordon Brown looks at the electoral calendar and has decided he has not got enough time for the banks to gouge out the profits from UK consumers and corporates while it slowly writes off the problematic items on its balance sheet. The prime minister wants the British banks to lend again but they have instituted very conservative lending standards in the residential property sector and they don't seem to have any desire to lower them.
The UK economy is very dependent on the housing sector. House prices have fallen badly but there has not been any sign of real capitulation selling. For instance, the buy-to-let sector has held up well given the implosion of the main lender
Bradford and Bingley. If vendors start accepting the offers being actually made then
it will at least get the transaction numbers moving.
Hopefully, the toxic bank will not have to take lots of mortgage loans but unfortunately it will be full of acronym rubbish such as SIVs, CDOs as well as a load of corporate loans.

I am thinking about investing in premium bonds.

One of the main problems about investing in UK premium bonds is that punters don't often win. This makes them a poor hedge against inflation. Now, the odds over winning a prize have sharply got worse over the year. However, if there is deflation then premium bonds won't suffer as much from inflation as in the past. Over the last few years I have spent money on them and overall premium bonds have been disappointing performers. However, they could be a short-term punt over
2009 and with the government guarantee of getting your money back, that is a pretty powerful incentive in these times of troubled banks. Don't expect to win.
www.searchifa.co.uk
In actual fact I don't expect real deflation in terms of actual falling prices. Inflation indices are artificial constructs and the ones we have don't measure city or regional differences. For instance, if petrol prices go down, they are still expensive (mainly comprising taxes in Great Britain). Fares are going up above inflation and council taxes will also increase over inflation.
If the retail price index did go down, would the modest state pension be modified downwards as well? Of course not but there could be pay cuts in the private sector as
exemplified by JCB.