October 3, 2008 | posted by Pam Atherton in Banking, Insurance, Investments, Mortgages, Pensions, Savings |

The near collapse of the global banking system in September left financial advisers stunned as they tried to come to terms with the implications of recent events for their businesses and clients.

UK and global insurers revealed over £1.5bn of exposure to Lehman Brothers and insurer AIG, with Axa, Aegon and Aviva declaring exposure to both, while Friends Provident, Zurich Financial and Royal Liver confirmed exposure to Lehman Brothers only.
 
IFAs scrambled to assess the potential losses for clients’ capital invested in structured products underwritten by Lehman Brothers, such as those offered by Meteor, Arc, NDF and DRI.

The takeover of HBOS by Lloyds TSB raised the prospect of a new super bank controlling 28 per cent of the UK mortgage market, leading to adviser concerns over competition and cuts in
procuration fees. 

Advisers also wondered about the future of Swip and Insight’s multi-manager propositions and the new bank’s plans for the protection market, when the two banks merge with an 18 per cent share of the life insurance market once the Scottish Widows, Clerical Medical and Halifax Life brands are all under one roof.

The Investment Management Association issued a warning about the lack of transparency and performance information on retail structured products and the FSA was severely criticised for allowing structured products to go unregulated.

On the Retail Distribution Review front, Financial Services Consumer Panel chairman, Lord Lipsey, said he thought the FSA would seek a middle way on the strict division of sales and advice set out in the interim RDR report.

Simply Biz chairman, Ken Davy, called for the RDR to allow advisers to have the choice of gaining a diploma or equivalent qualification within six years or working under the supervision of a qualified adviser.

A mandatory deadline for higher qualification in the final RDR report would force 10- 30 per cent of IFAs out of the industry, Davy said.
 
But the Personal Finance Society said the number of advisers who hold the chartered financial planner qualification had leapt by 50 per cent in the last 12 months.  The Society also established a group of pensions experts to lobby HMRC for greater clarity on QROPs regulations.

Advisers welcomed the FSA’s decision to investigate absolute return funds with regard to their development, risk management and Treating Customers Fairly, while IFA firm, Hargreaves Lansdown, said it did not think the FSA’s ban on the short selling of 32 financial stocks until 16 January 2009 would adversely affect these funds. 

Elsewhere, APCIMs attacked the FSA for failing to do an adequate cost-benefits analysis of its TCF requirements.

Meanwhile, the Lib Dems at their party conference vowed to tackle the disincentives to save via personal accounts, axe higher rate relief on pensions, urge the FSA to fund a system of generic advice via an industry levy and endorsed equity release as a way of boosting pensioner incomes.

Pensions Minister Mike O’Brien said the Government would report on the effect of means-testing in December and dismissed the ‘wild claims’ that had been made about the number of people likely to be affected.

Meanwhile, research by Fidelity revealed startling differences on the returns of mainstream funds over a five year period, depending on the fund wrapper used. Highest returns were from collective funds, followed by offshore and onshore bonds due to the CGT changes effective since April 2008 which make collective funds more tax efficient for most investors.

The Irish Government’s decision to guarantee the retail deposits held by six of  Ireland’s largest financial institutions ratcheted up the pressure on the UK Government to do likewise.