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The State of the UK Banks and what it means for your Financial Planning

Monday 25 March 2013

Once upon a time it was all so simple. Nothing could be safer than the UK banks. They were the cornerstone of every fund manager’s income portfolio. Do you want to build your financial planning on shares that would protect you against market fluctuations and deliver a steadily increasing dividend income? Sober, well-run, cautious businesses that the rest of the world could learn from… Look no further than the UK banking system.

And then – as we all know – the banking crisis struck.

The sober, well-run organisations turned out to be anything but: reckless loans, mismanagement, ‘casino-style’ back offices... The share prices plunged, the reliable dividends stopped dead and the UK taxpayer had to come running to the rescue. The Government was left with substantial stakes in RBS and Lloyds TSB and with plenty of commentators – wise after the event – muttering, “told you so.”

As the Spring of 2013 approaches, the taxpayer is showing a net loss of £13bn on the stake in RBS and a loss of £5bn on Lloyds TSB. Using the new 1,200 bed Queen Elizabeth Hospital in Birmingham as a comparator, that’s enough for around 30 new hospitals!

With results due out shortly, RBS and Lloyds TSB are expected to post a combined loss of £6bn. This might be a far cry from the record corporate loss of £24bn by RBS four years ago, but it is still a long way from a return to profit.

Whereas many European banks have a very close relationship with their national Governments and China sees state control of the banks as an essential part of central planning, it seems likely that Her Majesty’s Government will follow the lead of the US Government and sell its stake in the rescued banks, ideally as quickly as it can.

Most people would probably agree with that decision, as long as the taxpayer ‘gets his money back.’ However, a recent report in the Observer seemed to suggest that the sale of the stakes in RBS and Lloyds TSB may take much longer than expected.

The position of the UK banking sector therefore remains – and is likely to remain – confused. More services will undoubtedly move online: as the retail sector so sadly demonstrates, the high street is a ridiculously expensive place to do business. More new players will come into the market, unburdened by the compliance failures and vast branch networks of the established companies. So there are still plenty of changes in store: what implications does this uncertainty have for your financial planning?

If there’s one thing you need in your financial planning, it’s certainty. None of us can predict how stock markets are going to perform, but hopefully one thing you can depend on is your financial adviser.

Most people know that there have been changes in the way advice is delivered and the way in which advisers are remunerated. It’s fairly safe to say that if a firm of independent financial advisers is in business now, then it’s because they are well-run, prudently managed and have established a track record of delivering excellent service to a satisfied client bank – and that they’ll continue to deliver such a service for the foreseeable future.

A good independent financial adviser will obviously make recommendations that will help you achieve your financial planning goals. But they’ll do something much more important than that – they’ll listen. Before they make any recommendations, they’ll make sure that they understand you and understand the lifestyle you want.

They’ll also continue to work with you long after the initial recommendations have been implemented. Everyone has changes in their life and it’s important that your financial planning adapts to those changes. You can only do that if your financial adviser has a long term commitment to you – not a short term commitment to their annual bonus.

As always, we’re at the end of a phone (or an e-mail) for both new and existing clients. If you’d like to see us for a preliminary chat – or if you’re a long established client who simply wants to make sure everything is still on track – then don’t hesitate to get in touch.

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