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Financial Mis-Selling: Has Anything Really Changed?

Tuesday 23 April 2013

In 1720 hundreds of people were ruined when the ‘South Sea Bubble’ collapsed. The share price of the South Sea Company had been inflated to ridiculous levels by insider trading: bribes were paid to politicians, some people got rich, far more were ruined and considerable damage was done to the national economy.

That was nearly three hundred years ago and you might argue that very little has changed in the intervening years. Both the 19th and 20th centuries saw their fair share of financial scandals as those “in the know” sought to get rich quick at the expense of those who wanted to be in the know.

Is it any better now? Maybe we no longer have the colourful corporate scandals and frauds of earlier years – but the banks and building societies have just set aside £14bn to cover the mis-selling of Payment Protection Insurance. You have to wonder if the aim has changed from taking a lot of money off a few suckers – to making suckers of us all.

With the PPI scandal following hard on the heels of endowment mis-selling there’s little wonder that people are becoming sceptical about financial advice. Is it in their best interests? Or is in the interest of the people giving the advice and the targets they need to meet?

According to the latest figures, around 34m PPI policies have been sold since 2001, generally with the intention of ‘protecting your payments’ on a loan. The theory was simple: if you couldn’t make your repayments through accident, sickness or unemployment then the payment protection policy would come to the rescue and make the repayments on your behalf.

But what if you were in a job in the public sector where – barring a huge indiscretion – you were almost guaranteed a job for life? What if you were self-employed and simply couldn’t be made redundant? What if the terms of your employment meant that you still received full pay in the event of accident or sickness?

Sadly, it didn’t matter. Sign here, all included in your monthly payment and you really needed that loan didn’t you? And that’s how we came to £14bn being set aside for compensation and thousands of banking staff working on processing the mis-selling claims.

As an adviser, it’s easy to be smug. The trouble is that mis-selling scandals like this damage everyone in the financial services industry. Clients become suspicious, which means that they are sometimes reluctant to take action which is necessary or advisable.

That’s why we welcomed the Retail Distribution Review and the regulatory changes which came in at the beginning of this year, including the greater professionalism required from everyone in the industry. We’re fiercely proud of our independence, we’ll continue to pursue the very highest standards of professional development and we’ll always give our clients advice which is in their very best interests.

Does all this mean that mis-selling scandals will be a thing of the past? Sadly, it probably doesn’t. There is now a lot of talk in the media about possible mis-selling by the energy companies. Why does an energy company need five or six different tariffs? Surely gas and electricity are just…well, gas and electricity. Let’s see how that one develops.

In the meantime there are three pieces of advice we can offer which will hopefully see you avoid any potential mis-selling scandals in the future. Not surprisingly, the first two have been around for a very long time!

  • If something seems too good to be true it almost certainly is too good to be true
  • If you don’t understand something then you probably shouldn’t do it – irrespective of how persuasive the nice young man across the desk is
  • Finally, talk to us. We’re always here to answer your questions: if there’s some aspect of your financial planning that’s worrying you, pick up the phone and speak to us.
 
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