Category Archives: Business

Base rate cuts won’t make us spend

Well, if they lower the interest rate today as some have suggested it will not be in order to make the banks lend.  That’s not going to happen.  It will simply be to send a signal that putting money in the bank is pointless and to encourage us to spend it.  I will be seeking a better place to put my money, not throwing it away as the idiots in the City want us to.


Comparison sites code of practice

The British Insurance Brokers’ Association (BIBA) issued a press release recently (full version here) commenting on the proposed creation of a code of practice for comparison sites. Their stance is that buyers of insurance on comparison sites are not being treated fairly.  Treating Customers Fairly (TCF) is a concept created by the Financial Services Authority (FSA) which essentially removes the ability of firms to say ‘well I followed the letter of the law’ – the concept of TCF forces them to consider the spirit of the law as well. It’s about principles rather than rules.

I’ve written before about my distrust of comparison sites (to various different degrees depending on the site) and despite the obvious bias BIBA is bound to have I can’t help but agree with them.

In January 2008, BIBA published market research which showed that:

* Over half of insurance buyers interviewed believe that customers do not fully understand the differences between each insurance policy offered via comparison websites
* 94% of insurance comparison website users do not believe that the details of what the policy covers and does not cover are explained fully
* 84% of insurance buyers said that the details of insurance policies offered via price comparison websites can be confusing
* 93% of consumers believe that insurance comparison websites should be regulated in the same way as insurance intermediaries
* 63% of buyers are nervous about purchasing from comparison websites
* 59% of insurance comparison website users believe that it was not very obvious or not obvious at all who the policy was underwritten by.

Essentially, it could be argued that comparison sites are selling complex financial products and customers need more protection from poor practices that could result in the sale of inappropriate products.

Bank bonus disgrace

When banks are under pressure not to pay bonuses or just to reduce the bonus levels what do you think will happen? I expect those at the bottom of the tree – administration and ancillary services staff – will be the ones to suffer. How long before we hear ‘We’ve cut bonuses this year by 50%’ sotto voce ‘by only paying the top people’? After all, they are the ‘skilled’ people they can’t afford to lose. What a disgrace.

And what of the latest idiocy to come from Government – blaming everything on bankers when it was they who put in place the state of affairs that led/allowed the banking behaviour to develop. Despite their greed I do have a little sympathy with the bankers when they say what they did wrong was fail to anticipate the scale of the collapse. They worked within the framework that existed in order to maximise profits. That’s what shareholders expect.

The fact is that government policy (low interest rates for far too long), regulatory conditions (lax rules and not enough policing) and the (entirely natural) greed of bankers led virtually everybody in the banking industry to participate in practices that ultimately led to our current situation. The fact that they didn’t understand many of the financial instruments they were using is the part for which they cannot be excused. They didn’t understand the risks but proceeded with the gamble anyway.  Or worse, they understood the risks and thought they could escape with the cash before being rumbled.  Who could have predicted they would be rumbled yet still escape with the cash?!

Those at the top walk away with their millions from years of gambling excess while the rest suffer job losses and eroded savings. As usual the blame and the money goes right to the top.

UPDATE: an interesting take on the american solution

Recession and the rise of fascism

There are usually more extreme views, more selfish views, expressed when money and resources are scarce. What is slightly frightening is that it is happening to us so soon. Social unrest is spreading with riots in Greece, the French as always, are protesting about something (this is not a criticism – I love the fact that they take politics seriously and don’t just swallow the government propaganda), riots in Lithuania, Latvia and other parts of Europe.

Now Britain has wildcat strikes over the issue of foreign workers. The BNP were quick to take advantage of this new attitude. There is a real danger that they will see many more recruits to the BNP’s fascist agenda. Did anybody else see the ‘striker’ (BNP activist?) on the news last night refer to the Italians as “eye-ties”?

We should all try to keep things in perspective and think of the bigger picture. If there is no foreign demand for the UK’s exports then we all suffer. We can no longer operate without the rest of the world. Just look at the total collapse in exports currently being suffered by Japan. It’s worse than the collapse in the US in the 1930s. Look at factories closing in China as a result of falling demand.

It’s just so obvious that individual nations cannot take the beggar thy neighbour attitude without serious consequences. The trouble is that if all nations co-operated we would have a smoother ride but as soon as somebody doesn’t play the game and behaves selfishly they get an advantage. A nation’s leaders cannot be seen by the electorate to cede this advantage therefore we must all go for the less effective action – selfish protectionism from the outset.
At the very least Britain should remain a fully active member of the European Union. Let’s not let the fascist idiots drag us down the least productive and frankly rather disturbing path they promote.

What Happens when Countries Go Bankrupt?

Very interesting article on bankrupt countries The Ghost of Argentina: What Happens when Countries Go Bankrupt? – SPIEGEL ONLINE – News – International

The article contains well researched analysis of the situation in Argentina, Pakistan, Hungary, Ukraine and others. Of course a big worry is that the smaller countries might drag some larger countries down with them.

It’s fairly depressing reading so I recommend listening to Glenn Gould play Bach as an antidote!

Are comparison sites independent?

Does anybody still believe that comparison sites are independent? Years ago I had dealings with a very popular comparison site and was also involved in establishing a new one. I’m thinking back to the year 2000 here and I’ve had dealings with many of them since then so can see how the dynamics have changed.

Initially, there were far fewer internet users and far fewer comparison sites. There was a feeling that we were still on the cusp of something, the dot com bubble had burst and the more serious commentators were talking about ‘clicks n bricks’ rather than pure internet companies. The comparison sites began to grow rapidly.

Now, if you were selling personal loans at this time there were several factors to consider:

1. If I sell through an intermediary (comparison site) then I have to pay commission and I lose control over the customer acquisition process. Do I really want to help them to become more powerful?

2. If we allow the comparison sites to sell our products then we only make them stronger. After all, if they have nothing to sell nobody will use them. Except of course my competitors might advertise on their site and so I’d lose out.

3. The internet is growing all the time and it seems likely that it is going to become very important but none of us have the experience, knowledge or skills to make it work. The comparison sites seem to know how the internet works and perhaps if we use them then we will learn something and of course not be left behind.

And of course there were others who just didn’t think it was that important. But they were wrong because the internet’s powerful ability to provide access to information was set to revolutionise the way we shop online.

So the comparison sites would list your products on their sites and in return you would pay them a commission each time somebody took out a loan. It didn’t cost you anything to be listed and the site benefited from having a broad range of providers.

These days there are many comparison sites and and visitors are less trusting. This competition has reduced the income of comparison sites and forced them to look again at their business models. It takes a pretty substantial team of people to maintain up to date websites and continually refresh the content – they are basically publishers. Just like other publishers they have fixed costs that must be recouped and they have a limited amount of inventory with which to do so. They have to focus on those ad revenue opportunities that will provide them with the maximum income – and now they want paid upfront too.  This introduces a bias in which products reach your screens at all.

They will in fact, just like newspapers, have editorial departments separate from advertising departments but all publications have an editorial bias – the Torygraph probably doesn’t appeal to the loyal Guardianistas! And the editorial standards of the Sunday Sport probably vary from those of the Sunday Times. Not all comparison sites are the same quality.

The evolution of comparison sites into online publications like any other does not in itself give us reason to doubt the quality of the comparisons they provide but not all product providers will be listed. Direct Line make a point of telling you that they ‘cut out the middle man’. Comparison sites list fairly basic details and, for simple products like personal loans, this is a useful service that makes it convenient for us to get a snapshot of the market. In themselves they are not sufficient to guarantee that you are getting the best rates on the market but they offer a reasonable estimate.

What about more complex products though? What about rating funds? We’re moving beyond your usual comparison sites here because rating a fund is far more involved than simply comparing rates. What’s interesting here is that most fund rating companies will charge a fee to the company that runs the fund in order to provide a rating. This fee is in the order of £8-10,000 per fund rated per annum. In return the fund manager can advertise the fact that they have a 3 star rating (or whatever rating system applies). There is an exception to this practice – Old Broad Street Research (OBSR) rate the funds they feel ought to be rated and then, if the company that runs the funds wishes to purchase the rights to use that rating they may do so. Last time I looked OBSR rated around 280 funds from 67 providers – about 49 of these bought the rights to use the rating. OBSR makes money in other ways and its business model allows it to remain independent.

In summary, comparison sites are useful time savers for simple products. When it comes to more complex products you are still best advised to do more independent research.

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ABI targets 30 day annuity transfers

The Association of British Insurers (ABI) has announced an initiative designed to reduce the time taken to make Open Market Option (OMO) payments to pensioners.  The scheme includes creating an electronic information exchange which will, apparently anyway, reduce the time taken to switch annuity providers.  

Are they implying that delays of months are currently caused by a lack of efficient technology?  I suspect they’re actually caused by a lack of motivation to solve the problem.  In fact, 30 days still seems like quite a long time doesn’t it?  Just shows you how low the bar was set initially.

I suppose we’ll have to wait and see what effect this initiative has once we’ve given it time to work.