The many reasons why investors should take their lives into their own hands were brought home in the report on annuities issued by the Financial Services Consumer Panel this week. Once more the message is that the financial services sector puts profits before customers.
And, in a sense, so it should. Finance groups are there to make profits for shareholders, and customers only come into the equation as a nuisance, a group of people who have to be tolerated because without them there is no business.
On the whole, the perpetrators can get away with it because the customer usually has no way of seeing how the trick works, and probably wouldn’t understand it anyway. So we really do need a financial watchdog with teeth and with the demise of the useless Financial Services Authority we may now have one.
Hence the long overdue assault on insurance companies for making excessive profits on annuities, with pensioners in no position to check whether they are getting a good deal or not.
Banks have long demonstrated that they will pull any trick in the book, hoping that no-one notices. Lloyds has just been fined for a system of incentives that effectively forced staff to sell products that the customer neither needed nor wanted. It’s how the finance industry works.
This need not, however, be the case with investments. It’s better to have an investment adviser or pay a fund manager to handle your cash than it is to leave money rotting in a bank account, as I have said many times before. It is better still to buy shares yourself, making full use of your ISA allowance each year.
The FTSE index has so far failed to show signs of a Santa Claus rally. It dropped well below 6,500 points again this week. We may not get a run up in shares ahead of Christmas – it doesn’t always happen. In that case the buying opportunity will continue a little longer.
Private Sector Leads the Public
When the scandal over tagging of prisoners broke, I started to worry over whether I was wrong to encourage people to buy shares in outsourcing companies.
Would the government at last have to face up to the large profits that such companies make from these contracts? Would it become too uncomfortably obvious that these contracts work for the private company only if they are allowed to provide a lesser service at a higher price?
The Ministry of Justice is pretty adept at dishing out these dubious deals. Handing the courts translations service to a private company has been particularly disastrous, with a failure to provide competent translators leading to cases being postponed at enormous expense.
In the case of tagging, G4S (GFS) and Serco (SRP) have charged for criminals who were either dead or back in jail. Who cares – it’s only the taxpayers money.
Never mind, the perpetrators won’t lose out entirely, since Capita will continue to use Serco’s and G4S's equipment.
Justice Minister Chris Grayling says: “This signals a fresh start for electronic monitoring that brings us a step closer to introducing the most advanced tagging system in the world."
Don’t laugh. Remember you are paying for it. Listen to prison reform campaigners the Howard League, which says it is "surreal" for ministers to be still allowing private companies to bid for security contracts.
"Tagging is a small part of a bigger picture of private security corporations being far better at winning contracts than keeping the public safe, with increased crime resulting in increased profits," director of campaigns Andrew Neilson says.
Neilson is right. The people who supply services to government are the ones who are setting government policy and that will not change whichever party is in power. It would take a really brave soul to buy Serco shares at this stage but fortune may well favour the brave. The party is far from over for the providers of services to government.
Another Stand-off in the US?
My fears that nothing would be done before Christmas to break the stand-off in Washington, and that we would go through another process of partisan in-fighting in the New Year, have proved to be unfounded. After months of showing no signs of facing reality, political leaders in Congress have reached a genuine compromise.
I shared a platform at the London Investor Show in October with American financial expert and broadcaster Alvin Hall. He pointed out, quite rightly, that the dispute was not about money but about the intense dislike that conservative Republicans have for President Barrack Obama. The Budget was the weapon used to bash him.
This compromise is very much a case of never mind the quality, feel the width. Neither side is going to be particularly satisfied with it but the important thing from an investor’s point of view is that another costly government shutdown is being averted. We shall not spend another 11 months, to the next Congressional elections, watching US politicians cutting their noses off to spite their faces.
Rodney Hobson is a long-term investor commenting on his own portfolio; his comments are for informational purposes only and should not be construed as investment advice.
