Industry News category
RDR requires urgent changes
Ken Davy, CEO of SimplyBiz, has condemned the FSA for failing to reform the Retail Distribution Review (RDR) in the wake of the financial crisis.
“To continue blindly on in the way the FSA has done has been fundamentally flawed,” he said.
“When you look at the FOS’s statistics, the number of complaint cases is tiny in relation to customer numbers”and “in a 30-year career, an average adviser might get two or three complaints.”
He goes on to suggest that “We’re going to see a reduction in the availability of financial advice and the cost of the whole exercise is going to far outweigh any benefit”.
Although he denied the possibility of a mass exodus into the restricted sector, he estimates that around 20% of advisers had either retired or reduced their permissions in the last two or three years.
The Retail Distribution Review establishes a specific set of guidelines that Independent Financial Advisors (IFAs) must follow when providing advice to consumers. The review aims to ensure that advisers are sufficiently trained and offer transparent, independent advice.
The recession has meant that consumers of financial products seek greater knowledge before purchasing a product and some would say regulations regarding IFAs need to be reviewed in the current format.
Davy’s comments come despite SimplyBiz’s Practice Buyout proposition being “reinvigorated” by RDR, which currently provides services to 50 firms looking to exit before 2013.
There are also indications that SimplyBiz will report a “useful increase in profitability in its annual results”.
Businesses positive on economic predictions
According to the British Chambers of Commerce, businesses are more positive about economic prospects than they were at the end of last year, with levels of some activity measures at their best in nearly a year. Around 8,000 members of The BCC were surveyed and it was found that overall growth patterns remain slower than before the recession, with manufacturers reporting more robust prospects than the services sector.
The BCC now forecasts first-quarter growth of 0.3 per cent, in line with the independent Office for Budget Responsibility. However, for 2012 as a whole it predicts 0.6 per cent, below the OBR’s 0.8 per cent forecast, mainly due to worries about increasing prices for oil and food. The BCC chief economist, David Kern, said “…growth is likely to remain low for some time, and a return to a more normal pace is unlikely before 2013.”
The survey established that orders for employers in both the manufacturing and services sectors were progressing. 12 per cent more manufacturers said that domestic orders were increasing rather than dropping; the best reading since the second quarter of 2011.
In manufacturing, there was optimistic news in employment, with the balance of those reporting that they had increased staffing rising to 16 per cent in the first quarter, up from 6 per cent at the end of last year being the single largest quarterly jump since the end of 2010.
Financial firm hiring on the rise
Britain’s Financial sector, including banks hit in 2011 by the euro zone debt crisis, have begun to re-employ, in a turn around to the forecasts for more lay-offs, according to a new industry survey.
19 per cent of financial firms reported a rise in staff numbers in the first three months of the year, according to a survey by PricewaterhouseCoopers (PWC) released on Monday.
However, while the results were good news for retail banks and insurers with a large increase in headcount, it was not such good news for securities traders and investment managers where headcount continues to fall.
20 per cent of firms surveyed also predicted a rise in employment by the second quarter, in stark contrast to the previous PwC survey. The previous survey suggested that 18 per cent of firms thought thousands more dismissals were inevitable after a poor end to 2011.
The findings are equivalent to a small rise in employment numbers of about 5,000 in the first quarter of 2012 and of 9,000 in the second quarter.
Most industry segments had said that their optimism regarding the business situation had fallen in the last quarter. However, the first quarter has shown a rise in optimism in all quarters.
The European Central Bank has channelled around 1 trillion euros (834 billion pounds) into the financial system since December, this has been a major help to steady funding fears around banks and promoting investors to begin trading once more.
London: the FDI hub of the world
London continued to receive more foreign direct investment (FDI) than any other city in the world this year according KPMG and Greater Paris Investment Agency.
London’s success is all the more noteworthy when contrasted with other Western European cities that have suffered the stagnating repercussions of the sovereign debt crisis.
This news also comes despite the rapid influx of investment experienced by cities in emerging economies. The BRIC nations exemplify this trend; Brazil, Russia, India and China all received exponential levels of growth.
China’s Shanghai and Hong Kong followed close behind while Sao Paulo in particular stormed to fourth position after it received a 160% increase in FDI over the past two years.
With the inclusion of New York in fifth position, the top five cities absorbed half of total global FDI.
Russia also launched itself to eighth position after receiving a 60% increase in investment during the same period.
The Eurozone crisis, causing instability and meagre returns on the mainland is perhaps the main driving force that has driven investors to London. London’s entrenched legal and accountancy infrastructure, not to mention the Square Mile’s institutional corporate power base provides a secure environment for investors.
London’s IT and software sector also appears an attractive option for investors: $3985m was invested in this industry in the first six months of 2011. This is compared to $530m during the same period in 2010.
With Google, Intel and Cisco all expressing plans for further investment in London, the capital appears to be a bastion of hope within the Eurozone and a safe haven.
50p tax rate debate
Business Secretary Vince Cable has confirmed that the Liberal Democrats are prepared to abolish the 50p top rate of tax in favour of a new ‘mansion tax’ on properties worth more than £2m. The Lib Dem foreign spokesman stated they were not ‘ideologically wedded’ to the 50p rate.
Party leader Nick Clegg has opposed calls to scrap the tax rate, but Cable indicated there was a reciprocal deal to be done pre-budget that would see the tax shift from income to wealth. Cable stated: “it should be replaced by taxation of wealth, because the wealthy people of the country have got to pay their share.”
The Chancellor, George Osborne, has also indicated that new higher rates of council tax could be the levy of choice. The Lib Dems were emphasising the importance of lifting low earners out of tax altogether – one of the party’s key themes.
Boris Johnson voiced his stance at the Lib Dems’ proposal of a mansion tax: “Obviously in a city like London, you’re going to find many more people who might be hit by such a tax.”
A London Tory MP, Malcolm Rifkind, echoed Johnson’s concerns, stating that many homes costing over £2m are: “fairly ordinary townhouses.. [and].. such a wealth tax would target not mansions but desirable locations”. Rifkind felt that it would be ‘extraordinary’ if a Conservative-led government incorporated such a levy into the tax structure.
New FSA guidance issued on mis-sold PPI
New guidance has been issued by the FSA which outlines the process firms should follow when writing to customers who have been sold payment protection insurance (PPI).
The guidelines emphasise that firms need to be clear about why a PPI policy may have been mis-sold, why the customer could be entitled to compensation, how they should make a claim and the timescales involved in doing so.
The FSA are contacting customers who may have been mis-sold a PPI policy but have not yet complained. Since 2001 nearly £34bn worth of policies have been sold and in 2011 the total redress paid by firms was £1.9bn.
From the time a sale is made customers have six years in which to make a claim, or three years from the date they became aware that they had cause to complain. If a complaint is made outside these time limits, the firm no longer has any obligation to consider it and the Financial Ombudsman Service is also entitled to dismiss such a claim.
Martin Wheatley, managing director of the FSA, has stated: “This is important guidance and marks a key moment in the story of PPI. So far the majority of payouts have been for complaints received before, or put on hold during, the judicial review. However, we are now beginning to see firms considering how to treat customers who were mis-sold but have not complained.
“We think that the redress due from this process may well exceed what has been paid so far, and that is why we are acting now to clarify our expectations. By ensuring that firms are clear about the problems they have identified and the potential redress due, we are aiming to prevent people running out of time if they choose to complain.”
ECB Loans Soar
The European Central Bank’s (ECB) three year bank loan programme has hit a phenomenal total of €1trillion in only its second stage of the series.
It was designed to provide banks with a convenient loan offering a tempting 1% interest with the intention to try and ease them out of Eurozone debt crisis, therefore improving their liquidity. Due to this a total of 800 banks around Europe signed up for the loan.
Although, no details in relation to the distribution of funds have been published by the ECB, two-thirds of the volume went to three main countries, thought to be Spain, France and Italy. It was also alleged that an Italian bank took the largest cut with €24bn, double the amount it took in the first stage in December, whilst a UK bank scooped €11.4bn which was the largest cut outside of the euro-zone.
Although the vast majority of bank chief executives praise this programme for injecting liquidity into the market, many have since criticised the impact these loans will have on the debt crisis. Peter Sands, the chief executive of Standard Chartered, stated that: “[these loans]…risk laying the seeds for the next crisis”. There has been further criticism around the unknown exit strategy these loans will create in years to come.
Although analysts have stated that the loans show little signs that we are returning to the former economic state, there has been a sharp rise in Portuguese yields.
Portugal set for next round of bailout funds
After a harsh recession and unemployment figures reaching 14% in Portugal, the Portuguese Government has been working hard to cut costs.
The measures have included agreements with Unions and employers to cut holidays and the amount of compensation awarded when a worker is laid off, making it easier to hire and fire staff. This has won the Government praise from the so-called ‘troika’ (a term used to refer to the presence of the European Union, the European Central Bank and the International Monetary Fund) and has resulted in Portugal receiving their bailout payments with far less difficulties than Greece.
However, this has not come without a cost; steep cuts have hit public sector workers particularly hard resulting in a drastic reduction in their income. Mass protests have erupted to oppose the Portuguese Government’s measures, with a general strike planned for March.
Nevertheless the country has passed the most recent review of spending and economic reforms, meaning that they have qualified to receive an economic bailout worth £12 million from the ‘troika.’
Despite this, things are predicted to worsen for Portugal. The Government have revised their prediction that the economy will contract by 3% in 2012 to 3.3% instead. Economist Diego Iscaro, of IHS Global Insight, has voiced that Portugal is likely to need a second bailout before the year ends.
Eurozone Agrees 2nd Bail out
On Tuesday morning after months of talks a €130bn bail-out was agreed for Greece.
The bail-out is inclusive of a number of terms and conditions that the Greek government have been given until the end of February to agree to.
The short timescale facing the Greek Government is further evidence of the collapse of trust between lenders and the country after Greece failed to live up to the terms of the previous €110bn bail-out set 2 years ago.
The terms of the bail-out include sacking underperforming tax collectors, tightening rules against bribery and preparing at least 2 state controlled companies for sale by June. A permanent team of monitors is also to be set up ensuring that these terms are being upheld.
Greece’s Finance Minister Evangelous Venizelos said a: “nightmare scenario,” had been avoided and that the deal: “was a significant development that gives our country a new opportunity, and we need to make the most of this opportunity”.
Despite these optimistic comments Greece now appears to be in a race against time to agree to the conditions that they have been set in order to avoid a default that could send the country into a single currency and create upheaval across the Eurozone.
Targeted tax cuts called for by CBI
The Confederation of British Industry (CBI) has suggested that UK businesses could be boosted by as much as half a billion pounds through “targeted and modest” tax cuts.
Ahead of the March 21st Budget, the CBI has called for George Osbourne to implement a “Plan A Plus” in order to further stimulate growth and investment.
John Cridland, Director General of the CBI, stated “we’re calling on the government to make some targeted changes to the UK tax system, which could make an impact on business decisions and create new opportunities for growth.”
The CBI believes that many firms, especially those that invest in infrastructure, would benefit from specifically directed tax cuts, allowing them to fulfil their potential to grow – creating new jobs in the process. This could also increase confidence in the private sector, encouraging further investment and expansion.
While the CBI wants to ensure that the policies outlined are fully implemented, Cridland does not agree with Ed Balls, who has suggested stronger, broader tax reductions, including lowering VAT and decreasing income tax by 3p for the next 12 months. He believes Mr. Balls’ cuts were too severe and not affordable, as is an outlined £12bn increase in borrowing.
Mr Cridland believes these changes must happen soon, adding “with our economy firmly under the international spotlight, there is no time to lose: Plan A Plus must become a reality”.