The staggering cost of small print for saversPosted on: 27 January 2011 by Rhian Mainwaring
Peter McGahan our resident financial expert sheds light on the cost of not reading between the lines!
I have seen some advertisements for combination investments with Barnsley Building Society and Yorkshire Building Society. At first glance they offer a high interest rate, but unbnknownst to me I appear to be forced into another investment plan otherwise I don’t get their savings rate!
Most banks and building societies have been 'found out' over the years and are left wanting in terms of adding any value to their savers and investors. In the most recent study of complaints by the FSA, banks and their subsidiaries steal the show hogging over 73% of total complaints received - a PR gem.(1)
It often puzzles me how investors have mixed up a bank/building societies' success at administering money through to its ability to advise and sell investment products. Either way, there is still immense pressure on the bank salesman to sell ancillary products, and so, if you deposit some cash, you are likely to get a call from 'helpful bank manager' wanting to tell you about ways you can save with them, and sure enough, there will be an ancillary product.
Bank advisers generally do not have the time or qualifications to provide bespoke investment advice and as such they have to rely on packaged products and solutions and differentiate their products in different ways.
The above products are a classic example of pure sales gimmicks and one can only head scratch why they have been designed. Banks are under immense pressure today. Customers are very aware of the statistics above (nearly 55,000 of the 75,000 complaints received at the FSA were against banks and their subsidiaries). They are demanding more from their bank and are aware of underhanded sales tactics. The pressures are being placed on banks and they don’t want to differentiate their offering by price. This is a sure fire way to go out of business. And so, with access to lots of money saving websites, consumers are dumping one bank in favour of the next best rate.
Banks know this churn of product is expensive so they have sought to decommoditise their products with the result that you are comparing a stick of celery to a stick of rhubarb. They are nearly the same, but not quite. They will, however taste very different - try it.
Barnsley and Yorkshire (as well as a few others) advertise high headline rates on their website (6%) which are then picked up by the price comparison sites. The following is truly amazing. To achieve the best savings rate with both banks you have to buy an investment bond. An investment bond is one of the most tax inefficient ways to save money and is highly expensive. It is also the highest paying commission plan in the financial services market place. Barnsley insists you invest a minimum of 70% in an investment bond. Amazingly the offering with Yorkshire is the same. That is of course until you realise that Barnsley is a trading name of Yorkshire. (2)
They also insist you use their investment planning service. Ooooh, I thought… until I realised it was of course a salesman from Legal and General. How is that investment planning? So Barnsley/Yorkshire's marketing department have tied to one insurance company to offer this service! Why would they do that? Why would they insist on selling something as tax inefficient as an investment bond? Why would they choose Legal and General as opposed to offering their customers to use an Independent Financial Adviser who will give full access to the market?
To put this into perspective, as an Independent Financial Adviser, you can choose any product after researching the entire market place. I trawled our system. After checking nearly £330m worth of investments placed I couldn't see one person who had been recommended to use a Legal and General investment bond.
And so it’s an obvious 'stay clear' sign.
For a fact sheet on the best savings rates call Peter on 0845 230 9876 end_of_the_skype_highlighting, e-mail firstname.lastname@example.org or take a look at our website.
The value of shares and investments can go down as well as up
(1) FSA Ombudsman
(2) Barnsley Yorkshire
Need Expert Advice?
Peter McGahan is an Independent Financial Adviser and the Managing Director of Worldwide Financial Planning Ltd who 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 our understanding of current tax practices, which are subject to change.
If you have a financial query you would like Worldwide Financial Planning to respond to, call 0845 230 9876 end_of_the_skype_highlighting or email email@example.com.
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