Friday, 28 September 2012

FSA apparently happy to pay High Commissions ?

The advice community is presently undergoing great upheaval as the ‘Retail Distribution Review’ draws near. With it, will come the banning of ‘commissions’ for all investment-based financial arrangements from January 1st 2013. The move to fees may not actually be as much of a revolution as one might envisage, as it will still be permissible for providers to deduct an agreed ‘fee’ from arrangements for onward payment for advice.  

However, much is being made of this ‘Brave New World’ and the FSA seems genuinely proud to have taken this bold step. Which makes it all the more curious that they seem not to be demanding it from the contractors with whom they do business themselves: 

In a recent Freedom of Information request, the journal Professional Adviser discovered that the FSA had paid more than £6.69m in commissions to Recruitment Consultants and Head Hunters since 2007, with the most expensive year being 2010, during which £1.91m was spent in this manner. 

Financial Advisers face a continued squeeze on the viability of their businesses as regulatory costs spiral and clients become ever more price conscious. Since the regulatory fees are ultimately borne by clients in what they pay advisers, it seems all the more incongruous that such a vast sum of money should be spent on their behalf. 

If the extraneous costs of recruitment and selection look large to you, then consider the fact that the total estimated annual cost for the FSA’s conduct of all its operations now stands at £543.5m, of which £371.8m is earmarked for staff costs and recruitment. 

For me to comment on these revelations would probably be ill advised, so I merely pass them on to you here so that you may draw your own conclusions…..

Tuesday, 22 May 2012

Breaking up is always hard to do.....

For the past two years there have been two questions over Greece's future.  A question of "if" it might leave the Euro and a question of when that dramatic event might take place.  It seems reasonable to conclude from recent events that we may now be dealing with a single question: when?

The best that can be said is that the world has given itself two years to prepare for such an event. While that debate is going on, other developments pale in comparison, but there is some good news out there. In the UK unemployment fell again and there was an extremely welcome pick up in non-EU exports. The Eurozone as a whole avoided recession and its inflation rate fell. Meanwhile in the US, consumers are still spending, albeit a little less quickly and there is a bigger chance that the Fed will inject more funds to speed its recovery.

May’s Inflation Report made glum reading in the UK.  Each of the Bank of England’s main forecasts moved in the wrong direction this quarter. The Bank revised down its forecast for UK economic growth in 2012 to 0.8% from 1.2%. It also revised up its forecast for inflation as the Governor admitted that inflation would remain above its 2% target for longer than he had thought. That will tighten the screws on the UK economy, particularly on households. Wages are growing, but with inflation outpacing them, real wages have been falling for nearly two years. ‘Sticky’ inflation means that’s likely to continue.

UK unemployment fell to 8.2% in March and earnings growth stayed low. There was a second consecutive, and unexpected, fall in unemployment in March. This is great news, but it probably won’t give the economy that much of a boost because it was almost entirely due to more part-time workers. Part-timers now account for 27% of workers, up from 25% in Q1 2006. But some job is better than no job, and this is helping to keep a lid on pay growth. Average weekly earnings grew by just 0.6% year on year in the three months to March. The rate of total pay growth has now slowed in every month since August 2011, kept down in particular by lower bonuses.

More good news on UK trade:  The UK's trade deficit narrowed a bit in March due to growing surplus on services exports. Weak demand from the Eurozone is a drag and the Governor’s warning that the fallout from the Eurozone problems is ‘the single biggest threat’ to the UK’s recovery isn’t good news for UK exporters either. But a 12.1% month on month rise in goods exports to non-EU countries was great news, particularly as it easily outpaced a 4% rise in imports. Better trade with these countries will provide some welcome cushioning against problems in the Eurozone.

The Eurozone avoids recession – for now: A solid performance from the German economy kept the Eurozone out of recession in Q1. GDP growth was flat, but better than the 0.2% quarter on quarter fall that had been expected. This is good news, but don’t hold your breath. Eight out of the 17 Eurozone economies are in recession and a broad based weakness in industrial production, backed up by weak Purchasing Managers’ survey data, suggests that the industrial sector will still drag on the recovery.

Eurozone inflation slowed in April. There was a small, but welcome, fall in Eurozone consumer inflation (CPI) in April, to 2.6% from 2.7% in March. Budget cuts across most of the Euro area, rising unemployment, and an intensification of the sovereign debt crisis all pushed prices down. But the European Central Bank expects the inflation rate to remain above its 2% target this year, due to high energy prices and indirect taxes.

US retail sales grow in April – just: Retail sales rose for an eleventh consecutive month in April. But the 0.1% month on month increase was the weakest in that growth streak, which helped pull the year on year rate down to 6.4%. The slowdown probably reflects the unseasonably warm weather and the weaker pace of job creation in March and April.

US inflation steady in April, but a third round of Quantitative Easing looks more likely. A sharp fall in gasoline prices was offset by rises in other items, notably food, which kept the inflation rate at 2.3% year on year in April.  But core inflation, which strips out volatile items increased by 0.2% month on month to 2.3% year on year. Inflation is above the desired 2.0% rate, but the Fed’s dual mandate is to secure stable prices and high employment, which means that there is no prospect of tighter monetary policy.  Indeed the Fed is edging closer to a third round of quantitative easing, according to the minutes of its April meeting. "Several members indicated that additional monetary accommodation measures could be necessary," if the economy slows or downside risks become too great - i.e. if the euro area deteriorates markedly. In March, only two members voted that way.

So, amid the bleak headlines with which we are all faced, there are glimmers of hope for life after the break up.

Wednesday, 25 April 2012

On No, Not Again....

Witht he latest figures from the ONS showing a further contraction in the UK economy and the ensuing use of the "R word", today could be going better for the UK Government. Half of their critics will say that they have cut 'too far and too fast'and the rest feel more bold autserity packages are necessary. It's true that everyone will have their own view, driven largely by their own ideology, but amost all will agree that this is not where we want to find ourselves - again.

I heard one informed commentator saying today that we should follow the example set recently by Estonia, where they made breathtaking cuts to their Pubic Sector and as a result are now enjoying 8% GDP growth. On the face of it that seems like a great idea, but can you imagine the collective pain there would be having made such cuts, while we sat waiting for their expected beneficial outcome? Bravery is most definitely required from here on in, but will Democracy allow any government, of any colour, to do what is required and to stick at it for long enough for the desired result to emerge out of the gloom?

It is times such as these when a benign dictatorship (has there ever been such a thing, anywhere?) might allow policy makers the time to see their policies through to conclusion. That is never going to happen, when we seem if anything to be moving toward an even less well-defined political era where the colours have run in the wash and where blue, red and orange have become a pastel-shade messy purple.

Inflation will, over time ease the size of the debt mountain, as it always does. Though we may not have actively been seeking such an outcome, I think it hard to imagine our turning it down!

Tuesday, 17 April 2012

Is Gratitude dead and burried?

The recent debate over charitable giving and how it should be viewed by the State has set me thinking. Like most of these subjects that we try to simplify, this one proves to have more to consider than immediately meets the eye. I found myself motivated to put pen to paper on this when I found myself watching Tony Blair on the BBC’s NewsNight and for the first time ever, agreeing with what he said!

George Osborne was apparently horrified when he discovered that some of our wealthiest were only paying 10% tax (although why this was such a shock to him is beyond me). However, if this reduction in their tax-paying activity is brought about solely by charitable giving then we might well ask why this anything other than a good thing.

After all, if your income is a cool million and out of the goodness of your heart you choose to give away 90% of that to good causes, leaving yourself ‘only’ £100,000 a year to live on, there’s a strong case for asking why you should pay any more tax than another who earns a straight £100,000. You would have no more money to spend on yourself than he does and it could be argued that you have done a great deal more good than he has. With this in mind, it seems rather churlish for the Government to be suggesting that in such circumstances, you should not only give away the £900,000, but then be required to pay a further £402,500 in tax, leaving yourself over £300,000 in deficit for the year.

The other side of the argument seems to be that why should you, one of society’s most fortunate, be able to pick and choose whom your money benefits when ordinary tax-payers just have to make do with the choices made for them by the Treasury? When you put it this way, it seems less clear cut than at first impressions, but I do think we need to take a slightly more grown-up view of this and look at things in the round. If a wealthy philanthropist decides to endow a particular University with wads of money for instance, then surely this organisation is subsequently less needy when it comes to demands made on the public purse?

Clearly, a distinction needs to be drawn between genuine and absolute gifts, made to genuine charities and cynical, contrived arrangements that some might seek to make in such a way as to recover the money on the other side of the transaction once they have avoided the tax.

As ever, it seems that you cannot have your cake and eat it. If the Government believes in the Big Society then it is going to have to come to terms with the fact that wealthy people might just make personal choices that don’t replicate Government spending plans. As the ones writing the cheques, why shouldn’t they?