OpinionJun 25 2014

Misled members pay for their own misfortune

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Banks may rip you off, but your building society is run to much higher ethical standards – at least that is what they claim.

Yorkshire, the second biggest building society, states on its website: “We go out of our way to offer good, honest products that give good, honest returns.”

So how did Yorkshire allow the misleading marketing of a Credit Suisse capital-protected bond that led to the building society being hit with a £1,429,000 fine by the FCA?

How did Yorkshire allow the misleading marketing of a Credit Suisse capital protected bond that led to it being hit with a £1,429,000 fine?

This highlighted the maximum return – typically up to 72 per cent over six years – even though there was practically zero chance of achieving it.

In fact, consumer organisation Which? said the returns needed had never been achieved in the FTSE 100 index’s history.

More than £545m was invested in these bonds by 56,236 Yorkshire customers between 1 November 2009 and 17 June 2012.

During the period under investigation 59 per cent of the products maturing achieved only the minimum return – typically 15 per cent over six years.

Overall, the average paid above the minimum was an annual 0.45 per cent. No one got the maximum.

Yorkshire knew there was a 50 per cent chance of its customers receiving only the minimum return yet it failed to highlight this.

Did the society’s executives really believe this was a “good, honest product”?

Improvements were only made to the marketing material at the instigation of Which? and the FCA.

The root of the problem is undoubtedly that these products are far too complicated, not just for customers but also for the building society staff who are marketing and selling them.

I am going to the very top here. Would any chief executive of a building society really allow a product such as this to be marketed in such a way if they understood the low likelihood of their members achieving the maximum return and the high likelihood of them getting very little?

As with the Norwich & Peterborough Lifemark scandal, Chelsea’s dabbling with Icelandic banks and Britannia’s high-risk lending, there appears to have been too little understanding, too little investigation and too little due diligence on behalf of members.

Now Yorkshire – or its members – must foot a fine of almost £1.5m. Yorkshire’s four executive directors have let their members down. Which? raised concerns about the marketing of these products in 2010.

In 2012, when this scandal was taking place under their noses, Ian Bullock, Andy Caton, Robin Churchouse and Chris Pilling between them received total remuneration of more than £2m. This included £335,000 in bonuses plus £286,000 deferred pay from previous years as well as £73,000 in pension contributions.

They failed to deliver “good, honest products”. They should now alleviate the cost to their members by voluntary waiving their bonuses this year.

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Don’t shoot the messenger

Aggressive tax avoidance by large companies and extremely wealthy individuals is one of the less savoury aspects of capitalism. While ordinary householders must cough up their taxes, the super-rich and multinationals often seem to get away with it.

Charlie Elphicke, MP for Dover and a former tax lawyer, is arguing that it is time to crack down on advisers who devise and promote these tax avoidance schemes. He has tabled amendments to the Finance Bill that would make it illegal to help clients invest in such schemes.

These developments send shivers of fear down my spine. As Mr Elphicke well knows, tax avoidance is legal, tax evasion is illegal. We all seek to avoid tax to some degree, even if it is just contributing to a pension or Isa.

What would Mr Elphicke do next? Make it illegal for a solicitor to represent people in tax cases?

I do not approve of the super-rich making aggressive attempts to avoid tax, but I approve even less of attempts to create laws that could result in prosecutions of those undertaking what should be legal activities.

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Insurers on the give and take

You know that feeling when you see something and think: “Well, that’s a decent idea, but what’s the agenda here?”

This was my reaction to Friends Life’s suggestion for tax incentives to pay for long-term care.

The basic premise that people should be able to pay long-term care premiums out of pension funds directly and without tax being taken from that pension income is a sound one.

But the questions are how much bigger would the premiums be – and will such policies be viable or even necessary for most people?

I cannot help feeling that just as people are about to get their hands on their pension money, the insurance industry is already devising ways to take it back.