Be wary of financial sharks and trickstersPosted on: 21 December 2009 by Mark O'haire
Buying a home, and in turn ascertaining which are the best financial solutions for your family is rated one of the most stressful scenarios you can possibly go through.
It is most amazing the sales tricks that are applied by salesmen at estate agents who now seem to be ‘financial advisers’.
In a number of recent scenarios we have heard of estate agents insisting that customers see their mortgage adviser before they are allowed to view a property, a highly dubious if not illegal practise that could be costing customers and homeowners’ families tens of thousands of pounds.
Whilst most estate agents stay clear of mortgage advice or make a professional referral to a trusted adviser, others have seen this as a chance to make some money out of the sale of the property.
Indeed the tip of the iceberg was when our mortgage manager was frogmarched in front of a mortgage adviser when he recently bought a home to check if he could afford it!
The fact that our mortgage manager’s face had been all over the press for being voted FT mortgage adviser of the year didn’t seem to deter the salesman, so I wonder how many others would be in the same position.
So why might families be losing so much money?
The typical scenario involves the sales agent at the estate agent offering a package which might look good, but in practise is very expensive indeed.
The first thing you should check is that the agent is completely independent for mortgage advice; and are they independent for the life insurance and pension products too.
Next, check if they offer the option to pay on a fee. It doesn’t matter what excuse they give for the above, if the answer is no to any of it you need to walk away.
Typically they will have a story which says ‘we have looked at the market and decided to tie to just a few lenders to offer you the better deals.’ In practise, this actually means they are partnering with select providers to make a better revenue stream for themselves as the lender will pay a better commission.
The biggest loss however will be in the life insurance. Safe in the knowledge that you have the home the purchaser is not focused on the finer detail, and that’s when the agent pounces.
Agents make a decision to tie to one or a small number of providers for the life insurance. There can be no logical reason for this that would benefit the customer.
In one of many situations I found that agents were tied to just one provider. If the customer had taken the life insurance product from that estate agent it could have had dramatic effects on their family, yet they probably, like most people, will never know.
The agent was tied to Friends Provident. The life insurance provided for £50 per month was £28,876 less with Friends Provident than what an Independent Financial Adviser could have offered.
Worse still, if a customer was to take out critical illness (a plan that pays out to your family if you suffer a critical illness like cancer, heart attack, total and permanent disability) the effect could be much worse still. The cover offered by an Independent Financial Adviser was a staggering 37.9% more.
More seriously, there are also conditions under which you can claim. This is just one of many, for example, picture this – your doctor tells you that you are no longer able to work, so you claim on your critical illness plan or accident sickness and redundancy to have your mortgage repaid.
However a staggering 55% of all claims are turned down. This is down to what that company agrees is total and permanent disability. For some, it means you are unable to do your own job, for others you have to be unable to do ANY job, and for others you may have to prove you cannot do a range of work tasks.
For all the conditions there are loopholes but there are three or four clear leaders in this field that an Independent Financial Adviser would point you straight to.
By Peter McGahan
Need Expert Advice?
Peter McGahan is an Independent Financial Adviser and Managing Director of Worldwide Financial Planning. Worldwide has won 16 Financial Times awards in the last four years. Peter has also been named the top media IFA of the year by Unbiased.co.uk in 2009.
Peter comments regularly in major journals such as the Mail on Sunday, Irish News and Sunday Times and is a weekly columnist for FT Adviser. He has also appeared on Working Lunch and the Today programme. In addition he is an expert on international tax matters for a range of international publications.
Worldwide Financial Planning Ltd are authorised and regulated by the Financial Services Authority. 'The FSA does not regulate Credit Cards, Will Writing and some forms of mortgage and Inheritance Tax Planning.'
Information given is for general guidance only, and specific advice should be taken before acting on any suggestions made. The above represents the personal opinions of Peter McGahan. All information is based on understanding of current tax practices, which are subject to change. The value of shares and investments can go down as well as up.
If you have a financial query you would like Worldwide Financial Planning to respond to, call 0845 230 9876 or email email@example.com.
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