James ConeyOct 3 2018

Stop the rotten apples from tainting the crop

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For the life of me, I couldn’t tell you when all these things happened. They’re some of those bits of knowledge you just seem to acquire over time. But I can remember the day, and my utter incredulity, when someone explained to me about ‘phoenix’ firms.

“Hang on, while I get this straight,” I remember saying while rubbing my eyes. 

“So a business can shut down, walk away from any claims a consumer has against it, and then start up again almost the next day and do almost exactly the same thing using almost exactly the same business name? And they can even do it from the same building they worked in before?”

It’s flabbergasting. Of course, the practice is not just limited to financial advisers.

I also realise that director liability has been a core part of corporate law for more than 100 years, but that doesn’t mean it is not utterly distasteful and should come to an end.

It’s damaging for the reputation of the industry and utterly harmful to consumers – particularly when it involves financial advisers who trade seemingly with no scruples as to the harm they do to their clients.

It doesn’t need an overhaul of business regulations for more to be done to clean up the industry and stop the sharks who create a trail of phoenix companies. The power lies in the hands of the City regulator, the Financial Conduct Authority, and its register of approved persons.

How to check the credibility and reputation of a financial adviser has always been one of the great challenges of seeking advice. And more specifically, how to spot the rotten apples that taint the rest of the crop.

I’ve always thought looking at the FCA register or asking for qualifications was a largely meaningless process.

Recommendations from friends and family also only go so far: what’s good for the goose isn’t necessarily good for the gander – particularly if the goose is already being misled or mis-sold and doesn’t know anything about it.

What has always baffled me is how hard it is as a consumer to see the track record of an individual adviser. A certificate tells you they know their stuff, but what I really want to know is whether they are honest.

The individual complaints record of an adviser should stay with them forever – or at least for a reasonable period of time.

It means that the work of a rogue adviser can hang around the neck of one business, while the adviser can move on elsewhere and continue their dirty work (presumably, to taint the track record of another firm).

Then the Financial Services Compensation Service will hand out cash to those left out of pocket, leaving everyone else who hasn’t misbehaved to pick up the tab.

So now is the chance for the regulator to act. Not only must the track record of an adviser stay with them throughout their career, but the FCA must update its register quicker when an advice firm shuts down. Only then will consumers be able to keep track of the scoundrels that taint the reputations of others.

It’s no wonder retirees are shunning annuities

The 19 per cent rise in annuity rates since they hit rock bottom in September 2016 is something to cheer for those wanting a little stability with their retirement incomes. 

That it has done nothing to help their sales increase is no great surprise though.

It has been suggested to me that it’s the media who are to blame for demonising the product, which is akin to blaming Homer for the bad reputation giant wooden horses got after he wrote about the Trojan war. Only it’s not that annuities are a tainted product, just that the payouts are so painfully low.

Tell someone that for £100,000 in a pension they’ll get little more than £5,000 a year and you’ll quickly see their face drop with horror.

Reality it may be, but in the current low rate environment hardly anyone wants to commit.

Lib Dems’ pensions proposal 

One of the highlights of the party conference season so far has been the Liberal Democrat’s proposal to cap tax-free pension lump sums at £40,000. Can you imagine the jiggery-pokery from retirees that would go on if that bit of legislation came in?

It’s hard to believe we actually had a Lib Dem pensions minister a few years ago. 

Thankfully, the party today stands almost zero chance of forming a government any time soon. And what little hope it had, probably disappeared the moment that policy was unveiled.

James Coney is money editor of The Times on Sunday