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By  David Craig, on March 7th, 2012 U – Unit trusts have rightly been described as a ‘breakthrough in financial democracy’ because they allowed ordinary savers to put their money with professional financial managers at very low cost. But they have become so profitable and there are now so many of them, that there are more unit trusts than there are shares and bonds for them to invest in. A few things to watch out for. Charges – usually you’ll be told a unit trust’s ‘annual management charge’ is about 1%. In fact many costs are not included and you’ll find in reality you’re paying three times that. Closet trackers – there are two types of unit trust: actively managed which charge about 3% and index trackers which cost 1% or less. But many supposedly actively managed funds buy pretty much the same shares, so you’re paying for active management but only getting what’s called a ‘closet tracker’. Poor performance – over the longer term around 90% of the 6,000 or so unit trusts fail to beat the overall stock market. So how are you going to find the 10% which do actually perform? Making insiders rich – we pay around £59 million a day to unit trust firms to manage our money whether our investments go up, stagnate or collapse in value. The result is that fund managers become multimillionaires and we are lucky to get a few crumbs.
V – Vested interests. With every new investment fad, from emerging markets to gold to ostrich farming, there are always plenty of vested interests enthusiastically talking up the market. Before the South Sea Bubble burst one commentator wrote ‘South Sea is all the rage and fashion and happy are they that are in’. Those in the know made fortunes while many thousands of ordinary investors were ruined. Prior to the 1929 Wall Street Crash a respected commentator claimed, ‘I expect to see the stock market a good deal higher in a few months’. Once again, insiders made fortunes and ordinary people were ruined. With more recent bubbles like the high tech boom and the rush to gold, industry cheerleaders once again encouraged us to risk and often lose our money in their latest schemes. Beware of overenthusiastic insiders. They will get rich, you and I will not!
By David Craig, on March 6th, 2012 S – Stock markets. These can only function if savers believe that they operate fairly. In Germany, the small companies market closed completely in 2002 when it was found that insiders had been defrauding savers by manipulating the market. But there is increasing evidence that the major stock markets are now also heavily rigged against ordinary people with money in unit trusts and pensions. The average time a share is held today is about 21 seconds. So that’s not likely to be you or me doing the buying and selling. Hugely simplifying matters, we could say there are two main groups buying and selling shares – the ‘outsiders’ and the ‘insiders’. The ‘outsiders’ like ordinary savers, unit trusts and pension funds probably hold their shares for many years hoping for growth and dividends to give a reasonable return. The ‘insiders’ may be traders who only hold shares for a few days while they use all kinds of techniques like pumping-and-dumping, shorting-and distorting and pooping-and-scooping to get rich. Or ‘insiders’ may be the large banks and other financial institutions who use ‘high-frequency trading’ – computerised systems that only hold shares for milliseconds but take a cut every time shares are bought or sold. In this game, the ‘outsiders’ are increasingly being turned into mugs, while the ‘insiders’ make fortunes at the expense of the ‘outsiders’.
T – Three per cent. On average we savers pay around three per cent a year in fees, charges, commissions, dealing costs and other expenses to the people who manage our money. Some products are much more expensive, for example many people pay over 60% of the first two years contributions to their pension scheme. Some products like unit trusts or pensions may claim they only charge about 1% to 1.5%, but usually once you add in all the hidden charges, fees, commission, penslties and dealing costs you’re at or above the three per cent. With over £3.5 trillion in our savings and pensions, this three per cent gives financial services firms £105 billion a year, £400 million a day, almost £1 million a minute of our money to put in their pockets. This ensures that financial services insiders have more money, bigger houses, better holidays and flashier cars than the rest of us
By David Craig, on March 5th, 2012 Q – Questions. Too often, when being sold a savings product, we fail to ask the right questions. If you’re being flogged some kind of stock-market linked ‘Growth Bond’ or ‘Guaranteed Bond’ you need to find out who gets the annual dividends – you or the company selling the bond? If you’re looking at unit trusts, don’t get fobbed off by being told the ‘annual management charge’. You have to find out what the TER (Total Expense Ratio) is plus how much you can expect to lose each year in dealing and other more obscure charges. With pensions, you again must discover exactly how much you will actually be paying each year. Also, remember that most pension fund projections are total lies as most funds have never achieved anything like what they project. So find out what growth (if any) has really been achieved by the fund managers over the last ten years. But perhaps the most important question you need to ask is the “me and you” question – “if my unit trust (or pension or bond or whatever) goes up by say 3% (or 5% or whatever figure you think realistic) next year, how much of this 3% do I get and how much do you take in all charges, commissions and dealing costs?” If you ever can get an honest answer to this question, usually you will find that almost all growth on most financial products gets pocketed by those who are selling the product, not those who are investing.
R – Regulator. The body mainly responsible for regulating the financial services industry has been the FSA (Financial Services Authority). The FSA’s budget has leapt from about £21 million in 1997 to over £400 million today thanks to the profligacy and incompetence of Gordon Liar Brown. But in spite of this huge increase and in spite of paying itself record bonuses year after year, the FSA has failed to prevent a long series of mis-selling scandals and did nothing to prevent the greatest banking collapse in British history. Following so many years of abject failure, the FSA is now being given a different name in a kind of Blairite rebranding. But it will no doubt continue to devour hundreds of millions of pounds of taxpayers’ money and continue to protect our greed-ridden, mis-selling, overcharging and utterly corrupt financial services industry against legitimate complaints from ordinary savers who have been fleeced.
By David Craig, on March 4th, 2012 O – Opportunity. Most people today are constantly bombarded by financial firms offering investment ‘opportunities’ which will supposedly give us high returns and ensure a secure financial future. And with most bank accounts paying little to no interest, hundreds of billions of savers’ money has flowed into these ‘opportunities’. Some are plainly scams – property in Brazil, palm oil plantations in Indonesia and other such exotic and unlikely schemes. But the ones pushed by financial advisers (e.g. unit trusts and pension funds) and banks (e.g. growth bonds and guaranteed bonds) tend to look more credible. Yet if someone actually knew how to make money, why would they waste their time telling us? The only way these people know how to make money is by taking some, a lot or even all of our money. With most of these ‘opportunities’ there is only one certainty – the person selling the opportunity will make a lot more money than the person buying.
P – Pension pot. If you want a comfortable retirement, you’ll have to build up an awfully large pension pot. With annuity rates for an inflation-protected pension at just over three per cent, you’ll need £100,000 for a modest £3,500 a year pension above the state pension; £500,000 for a £17,500 pension and a massive £700,000 if you need a pension off around the average wage of £25,000. For people retiring today, nine out of ten have less than £50,000 in their pension fund, giving them a pension of about £1,700 for the rest of their lives. So there won’t be many world cruises for them. But if you’re a pension fund manager then, thanks to the forced generosity of the people whose money you’ve taken in all sorts of usually hidden fees, you’ll probably be a multimillionaire. And if you’re a council boss, hospital manager, senior civil servant or MP, you don’t need to worry about saving, your taxpayer-funded pension scheme is so generous that any ordinary person would have to save about £50,000 a year for forty years to get a pension like yours.
By David Craig, on March 3rd, 2012 M – Mis-selling. The financial services industry has a long and shameful history of selling us products which have made insiders rich but impoverished ordinary people. We lost over £15bn in the 1980s pensions scandal. Another £40bn evaporated when endowment mortgages failed to give the expected returns. At least £5bn of savers’ money was looted in the 1990s ‘precipice bonds’ disaster. Since 2000, more than £10bn has been pocketed by the main banks in supposedly ‘guaranteed’ stock-market investments. Billions more were stolen through mis-sold PPI policies (Payment Protection Insurance). More recently hundreds of thousands of us are getting caught by the ‘switch and get rich’ scam. With this one, financial advisers and pension salespeople convince us to switch our money from older, often expensive and/or poorly performing pension funds to newer or cheaper ones. When we switch, we pay huge commissions. A study of hundreds of people who switched couldn’t find a single case where the switch was in the saver’s interests. We switch, advisers and salespeople get rich. As for those who have already retired and bought an annuity, well they are losing about £8m a day (£2bn a year) because they were sold the wrong products. I believe that there are a few mis-selling scandals going on right now. Banks are still raking in billions from things like ‘Growth Bonds’ and ‘Guaranteed Bonds’ which are only guaranteed to give growth for the banks, not savers. I think ETFs (Exchange Traded Funds) are a disaster in the making. Please contact me if you want to find out why. And, of course, there is the government’s NEST scheme….
N – Nest (National Employment Savings Trust). This is likely to be a massive savings scandal and may well result in a huge legal action against the government for mis-selling. About twenty million people, who currently don’t save for a pension, will be automatically enrolled in a pension savings scheme. Employees can opt out if they can manage to find and complete the correct paperwork. At least £10bn a year will be taken from often lower-paid workers and will be handed over to the companies running this scheme. For reasons the government has so far failed to explain, the fees being charged by British pension companies to run the scheme will be three to five times higher than the fees for similar schemes in other countries. With the high fees the companies will take and the low growth they are likely to achieve, when many of these NEST savers retire, they will be lucky to even get back what they put in. But the pension companies will make a fortune.
By David Craig, on March 2nd, 2012 K – Knighthoods. These are just one of the many honours Blair and Brown handed out so generously to the bankers who ruined Britain. There were 7 knighthoods, 5 CBEs, 7 life peerages and 4 OBEs. Only one of these scumbags has been stripped of his honour – Mr Goodwin. But why was he ever allowed to run a bank in the first place? About 6 years ago, I contacted the SFO and the Bank of England (BoE) offering to put them in touch with a former Deloittes manager who claimed he had documentation proving that, while at Deloittes, Fred Goodwin was largely responsible for defrauding the creditors of the BCCI (Bank of Credit and Commerce International) of over £50m and so was not a fit person to run a bank. (Labour MPs Keith Vaz and Austin Mitchell should feel embarrassed, as they played a role in what happened). I even had a phone conversation with the chief legal counsel at the BoE. But he, of course, laughed off my concerns – after all, Fred was a good mate of Blair and Brown so not the sort of person who would do what the Deloittes manager claimed. Pity really, if that pompous, useless BoE windbag I spoke to had bothered to move his lazy overpaid arse, I might have saved British taxpayers about £45 billion!
L – Life expectancy. The good news is that we are living longer. The bad news is that most people aren’t able to save enough for their retirement. Many of us will work for 40 years and then have almost 30 years in retirement. This means we must save worryingly large amounts of money if we are to avoid ending our lives in pension poverty. With annuity rates approaching 3%, you’ll need about £1m in savings to get a retirement income of £30,000 a year above your state pension. But the pension industry siphons off so much of savers’ money that few people will ever get anywhere near this amount. The average pension fund today is about £30,000 giving an annual income of just £900. We pay about five times as much in fees to our underperforming multimillionaire pension fund managers as they do in Denmark or Holland. About £200bn of the £800bn we have in pension savings are in ‘zombie funds’ – which hardly grow but which pay huge fees to the companies that own them. Another £200bn or so are in misleadingly-named ‘with profits’ funds. These allow the managers to withhold any profits and then after a few years to pocket these themselves. Britain’s pension industry is awash with greed, incompetence, overcharging, mis-selling and outright theft. We may be living longer, but few of us will have enough money to enjoy our extra years on the earth.
By David Craig, on March 1st, 2012 I – Investments. The word ‘investment’ conjures up pleasant images – you put money into something and you get back more than you originally placed. Gordon Brown was perhaps the man who most used and abused this word. Between 1997 and 2007, he more than doubled public spending from about £350bn a year to over £750bn a year. He repeatedly claimed he was ‘investing’ for Britain’s future. We now know this was just another of his many lies and in fact he squandered over £1trn of our money. Financial advisers, bank staff and other assorted salespeople also use and abuse this word like Liar Brown. If your financial adviser really knew the best place to invest money, why does he or she spend so much time grovelling to and brown-nosing everyone they meet in the hope of persuading them to hand over some of their money? Similarly, if the supposed investment expert at your local bank actually knew how to grow money, would they be on their yacht in the South of France or working hard to sell you some crappy financial product their bosses had just cobbled together? Most so-called ‘investments’ are just rubbish, often complicated rubbish, pushed on naïve savers by commission-hungry salespeople and multimillionaire fund managers.
J – Journalists. Unfortunately most people don’t read the financial pages of their newspapers and very few subscribe to an investing magazine. If we are ever to arm ourselves to see through the sales pitches of those who are so eager to get hold of our money, we must make the effort to read what the financial journalists are writing. They know what’s happening, so can advise us about how to increase our savings and warn us about expensive and unsuitable financial products to avoid. But can we trust what these journalists are writing or are they just in the business of pushing the products which place most advertising with their employers? Personally, I’ve found the Daily Mail one of the few papers to dare take on the lying, mis-selling crooks who seem to flourish in financial services. In other papers, I’ve been worried about how frequently the journalists recommend products when the companies selling them just happened to have placed nice, big, expensive ads.
By David Craig, on February 29th, 2012 G – Greed. With the death of final-salary pensions and the government all but bankrupt, we increasingly have to take responsibility for our own financial futures. This means we rely more than ever before on financial services insiders to guide us where to put our savings. But as they flog us a bewildering array of ever more complex financial products, we should question whose interests they are serving – ours or their own? It’s worth remembering a famous quote, ‘within the City you find many who are greedy and talented, many who are greedy but untalented, but few who are talented but not greedy.’ In fact you could add to the quote – ‘most people working for banks (HSBC, Barclays, Lloyds) or as financial advisers are extremely greedy and very seldom talented’.
H – Hedge funds. Most of us probably believe that hedge funds are complex investments for the super-rich. But many of the rich are pulling their money out of hedge funds as they realise that their hedge fund investments seldom outperform the overall market, even though hedge fund managers became multimillionaires and even billionaires. This has forced many hedge funds to close. So hedge fund managers need a new batch of people to fleece. And they’ve found their next victims – the people who manage our pension funds. With stock markets likely to show little growth over the next 5 to 10 years, pension fund managers need to find some way to get better returns than stocks will give. Many hedge fund managers have been targeting those who run our pension funds suggesting mouthwatering growth prospects and, often unknown to us, our pension savings have started to pour into hedge funds. But every hundred million that goes into a hedge fund manager’s pockets each year means a hundred million less for us ordinary savers.
By David Craig, on February 28th, 2012 D – Down. This is the likely direction of the value of most stock-market investments like unit trusts and pensions over the next ten to twenty years. Your financial adviser or bank salesperson will tell you that shares always outperform cash. But this is not quite true. Stock markets tend to go up about 1.5% a year. But in the 1970s and 1980s they shot up by over 4% a year. The reason – a flood of money put into savings products by the baby-boomer generation. But as the babyboomers retire, they’ll change from being savers to spenders. This will lead to a massive withdrawal of money from stock markets as they move money from pension funds into annuities. Values will then fall because the next generation will be so deeply in debt that they won’t be able to save as much as their parents and so there won’t be enough money to buy all the shares the babyboomers’ pension funds are selling.
E – Equity release. With many people finding that their pension savings haven’t grown as much as they expected, they’re being tempted to increase their retirement income by borrowing money against the value of their homes with an equity release scheme. But they need to be very careful. Equity release products usually have worryingly high rates of interest so that someone of sixty five taking say a modest £50,000 loan against a home worth £200,000 will usually find they owe the whole value of their home before they reach eighty five and more than the value of their home if they live any longer than that.
F – Financial advisers. There are an estimated 165,000 people in Britain supposedly giving financial advice. But most are just salespeople pushing a narrow range of products which earn their employers the greatest commissions. About 28,000 of these advisers are registered with the Financial Services Authority as independent financial advisers. But only around 1,500 of these are actually fully qualified to give financial advice. Any financial adviser needs to take in at least £150,000 a year to cover salary, office costs, marketing and so on. This need for money causes what’s called “commission bias” – they tend to advise their clients to put their money into the products which earn them the highest commissions. For example, many advisers will recommend expensive unit trusts (high commission) but few will ever mention cheap index tracker funds as these pay no commission.
By David Craig, on February 27th, 2012 A – A million pounds a minute – over £400 million every working day – £105 billion a year. That’s how much we pay financial services insiders to manage our money. But it’s not obvious we’re getting much for our million pounds a minute. Our savings earn little to no interest; our pension funds hardly grow; and our investments seldom give the mouthwatering returns regularly trumpeted in the sales pitches we get from those who want us to trust them with our money.
B – Banana skin and grave brigade. That’s what financial services salespeople call their favourite targets – the elderly who have one foot on a financial banana skin as they don’t know much about savings and investments and the other in the grave as they’ll soon be going to a better place where they won’t be needing their money, so there’s no real harm done relieving them of their cash before they depart. HSBC and Barclays have been particularly enthusiastic in cruelly cheating the elderly of their life savings.
C – Charges. With most financial products, we don’t know how much we’re actually paying in charges. Often salespeople will claim this is included in the price. When we are informed of the costs of products like unit trusts and pensions, we’ll usually be told these are around one and a half per cent. However, the real amounts we end up paying in a bewildering array of fees, commissions, dealing costs and other expenses will usually be two to three times this amount. On our unit trusts we pay about twice what they pay in the US and on our pensions we pay about five times as much as savers in Holland and Denmark – why? Greed! The greed of the British financial services industry.
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