OpinionAug 31 2016

Incensed by these incentives

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Do bonuses act as a motivator or merely encourage the wrong sort of behaviour?

A lot depends on the industry and the individual, but within the financial sector there is ample evidence that bonuses have led to consumer detriment and very little to show they have benefited anyone other than the individual earning them.

Neil Woodford’s decision to scrap them at his investment company is therefore an interesting step. His firm may not be big, but his name is and so we should take note.

Woodford Investment Management chief executive Craig Newman has been quoted as saying that he and Neil wanted to do something different that “supports the firm’s culture and ethos of challenging the status quo”.

He referred to the “widespread academic evidence that there is little correlation between bonus and performance”.

Hallelujah – at last, someone prepared to tell it as it is.

Even those who live by the bonus probably do not benefit as much as they believe, because many factor this into their salaries anyway.

Do bonuses act as a motivator or merely encourage the wrong sort of behaviour?

A lifetime of working at arm’s length from advertising sales people has revealed many to be hopelessly optimistic – plans are made as if bonuses were already in their pockets.

In the financial world, bonuses have corrupted otherwise honest staff within banks who felt under pressure to sell rather than serve.

And what of fund management? Surely any decent fund manager should be aiming to produce the best performance possible without being incentivised by a bonus.

Does anyone really think “what will this mean for my bonus?” before making a decision? If they do, they are in the wrong industry and we should want no part of them.

Reward should come in the form of the satisfaction of a job well done, promotion, higher wages and, potentially, financial gain if they are invested in their own fund.

Bonuses can have a place in work culture. There is no reason why exceptional work should not be rewarded with an ad hoc bonus, but writing them into employment contracts in the financial world is tantamount to encouraging immoral behaviour.

There is a strong argument that bonuses should never be involved in any occupation that deems itself to be a quasi-profession.

Those who wish to be seen as cousins to accountants and lawyers should not adopt the employment practices of double-glazing firms and used-car garages.

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Advisers must always home in on equity release

Record equity release figures in the second quarter have led to renewed concerns about potential mis-selling.

Let’s sweep aside the obvious: equity release records will continually be set if only because of rising house prices and inflation, especially with this property-rich retired generation.

There are five reasons why the sector must always remain under intense scrutiny.

1. these plans are usually undertaken by older people who may have very limited financial knowledge or experience.

2. they involve large amounts of money (and potentially big rewards for advisers).

3. the plans can be complex.

4. they interact with the tax and benefits regime.

5. even when all else is perfect, relatives of the person taking equity release may come bouncing along years later to complain when their inheritance is smaller than expected.

To me, these are all reasons why the very best in the industry should be lining up to advise on equity release.

For all the dangers, it is a product that can immeasurably enhance the lives of those taking it. And it is not going to go away.

As I have written on these pages before, product-wise, equity release could benefit from a more modern approach which could potentially increase flexibility and lower interest rates and charges.

As things stand, equity release remains the province of a handful of specialists both in lending and advice terms.

I am not suggesting a free-for-all. But those advisers who are concerned about the potential for mis-selling, really need to roll up their sleeves and make sure they compete to provide the kind of clean and clear service that consumers need.

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Driving me round the bend

A couple of weeks ago I wrote about my car being taken into a garage while it awaited repair for a minor bump.

Well, it remained there for 19 days while the garage waited for parts and repaired it.

During that time my insurer paid £23 a day for a hire car. So that is £437 spent on a hire care when my car was perfectly drivable.

I can only repeat – it really is no wonder insurance premiums are so high when simple repairs are so badly managed.

Tony Hazell writes for the Daily Mail’s Money Mail Section. He coan be contacted at t.hazell@gmail.com