Time to weigh counterparty risk

There is one thing to come out of the financial fiasco that is upon us. Quality and valuable advice always wins out. Advisers who can provide that will be stronger in today's market and will be well set for the future as investors once again throw their hands in the air and leave it to the experts.

There are lots of so-called money saving experts out there who apparently know everything about everything. Few if any are regulated by the FSA - there is a message there.

While they may know lots of little bits about how to save cash here and there, this catastrophe has shown clearly that you should always seek advice before acting on anything to do with your hard earned cash.

The Icelandic banks is a classic example at hand.

Everyone is now saying that they had no idea this could happen. Twaddle. Only as recently as August this year in this column we pointed out there were problems in Icelandic banks.

Near three years ago the Icelandic government went absolutely mad as Norway, its neighbour, clearly knew something all our local governments and websites may not have.

Norway's sovereign wealth fund which has over $380bn in it, decided it would short the Icelandic banks, seeing that the arctic boom was at an end.

Why were Norway's managers of their funds so confident Icelandic banks would fall, that they could afford to bet on their share going down?

All this time later, local authorities invested and websites have promoted their all too over the top rates without looking at their potential risk.

While researching a bank is a complicated issue, as many are quite opaque in their nature, basic due diligence is required.

Many of those banks who bought an 'investment' into collaterised debt obligations, or sub-prime mortgages as they are called, have a lot to answer for. How can they really say they fully understood what they were investing into and what the risk was?

We should all remind ourselves that the cheapest is not the best, and investment without advice affords you no protection.

Customers will now know that scanning cheap websites for cheap information rather than speaking to an independent financial adviser may provide them with advice of a similar value. Suppliers of this information - some of which receive commission when you take out credit cards, bank accounts and the like - need to take greater responsibility with what they publish. A lesson for us all.

Another word of warning: Those who are investing, or considering investing into my pet hate of structured or guaranteed contracts, will need to be careful with what they are investing into.

Many of these structured or guaranteed products provide a guarantee through a third party counterparty. While you might think you are investing into a guarantee, the truth may be rather different.

Some of these guarantees were provided by Lehman Brothers through complicated investments which may now be worthless.