Personal finance review 2000 - Weathering the financial storms.
Did the sun shine on your finances last year? Here are the big stories.
Did the sun shine on your finances last year? Here are the big stories.
The big banks were slated in a report for the government by Don Cruickshank, a former regulator. The report accused banks of ripping off millions of their customers to the tune of £5bn a year.
Cruickshank then accused the government of wanting to bury his report, a charge he retracted within hours of it being published in the Financial Times. The Treasury later ‘accepted’ the report, but was less clear on exactly how it would force banks to stop some of their poor practices.
In particular, it signalled the introduction of benchmark standards for credit cards and consultation on whether these standards should be extended to other bank products. It will also carry out a review of the banks’ current self-regulatory regime.
March 2000: The dot.com bubble burst: after months of increasingly unsustainable valuations, prices of dot.com company shares were suddenly hit in March last year, dragging the entire Footsie in their wake.
Some experts blamed the high-priced flotation of lastminute.com, the online travel firm, for the debacle. Most, however, rightly saw that lastminute’s flotation and the subsequent downturn were only a symptom of a wider problem affecting many other dot.com companies.
In any event, many thousands of investors got their fingers burned, including those who poured hundreds of millions of pounds into hi-tech funds, conveniently launched at the beginning of the year, mostly on the advice of incompetent financial advisers.
The decline of hi-tech stocks continued throughout the rest of the year, with many worth a fraction of their value just nine months earlier.
April 2000: No more high vehicle prices? The Competition Commission published the outcome of its nine month investigation into prices paid for new cars by UK motorists. It found that there was evidence of over-charging by about 10 per cent compared to prices on the continent.
As evidence mounted of a consumer boycott and more and more buyers began sourcing their vehicles abroad, most manufacturers have caved in and cut prices on selected models in their range.
The problem for most consumers lies in understanding whether these cuts are genuine or simply reflect discounts that were already available for those prepared to negotiate hard with dealers. The reality remains that car prices abroad are still cheaper, partly a consequence of the euro’s low value. For most of us, it still makes sense to buy a new motor outside the UK.
July 2000: Axa, the insurance company, announced how it would divide up its #1.7bn of ‘orphan assets’, excess funds it currently manages. Under the Axa plan, 70% would go to shareholders and the reminder to policyholders.
This went against industry practice whereby the policyholder/shareholder split is 90/10. The row continues to rumble on, with a court case in late December expected to determine whether policyholders were entitled to more.
October 2000: City watchdog, The Financial Services Authority, announced it would not be requiring insurers to carry out wholesale reviews of millions of endowments sold to mortgage borrowers after months of suspense. It promised, however, to ‘crack down’ on examples of misselling.
Evidence of this crackdown came at the end of November, when the regulator announced a record #2m fine against Royal Bank of Scotland over a series of endowment-related failures. It also ordered the bank to pay #50m in compensation to endowment policyholders.
November 2000: Storms across the UK are likely to lead to a #2.5bn bill for homeowners. More bad news came as insurers said they would be forced to consider selective price increases in the worst-affected areas, while a smaller number of policyholders who live in newly-determined flood areas might find it impossible to obtain any kind of cover.
But suggestions that insurance premiums may have to rise for all policyholders as a result of the storms and floods are still wide of the mark.
Most insurers have laid off damage claims through complex re-insurance mechanisms. In practice, this means that if your insurer tries to raise home and contents premiums by reference to storm damage, you should switch your cover immediately.
December 2000: More than 2.5 million members of Bradford & Bingley received cash or shares worth about #609 when the former building society floated on the stockmarket.
Payouts to the 38.5 per cent of those who sold their holdings right away were at the bottom end of earlier expectations.
Meanwhile, it was claimed that Bradford & Bingley’s increase in mortgage rates as a result of flotation meant that a borrower with a #100,000 mortgage would see that small cash pile evaporate within 13 months, compared to someone with a loan from Nationwide Building Society.
And what about 2001?
Fund management companies are likely to come under the spotlight in the run-up to the end of this tax year’s ISA investment season.
What faddish new funds will they be trying to flog us this year? Keep an eye out for ‘theme-based’ investments, where specific sectors such as health are targeted for potential growth.
Mind you, if you hear your financial adviser intone the word ‘theme’, run a mile: the chances are he’s only just heard the word from a friendly fund manager at a seminar.
Also, look out for a new report by the City regulator on how to compare funds – not by performance but on charges, the real determinant of how much it will ultimately be worth. The report will be dynamite: it could change your investment strategy forever.
– Nic Cicutti is head of content at www.FTyourmoney.com, the personal finance website
TOP 10 PRODUCTS OR SERVICES OF THE YEAR – AND STILL AVAILABLE IN 2001
1 E-banking: Smile, the Co-op Bank’s online service (www.smile.co.uk), which won the top award from Gomez, e-commerce researchers, for its combined ease of use, customer confidence and onsite resources. The best of online banks – with few of the glitches suffered by its rivals.
2 Flexible mortgage: Virgin One’s all-in-one mortgage-cum-bank account finally broke through consumer indifference and industry hostility to establish a beach head in the market. It’s an offer that is well worth considering. (0845 600 0001, www.virginone.com)
3 Credit cards: Egg overcame poor internet service to offer the best deal to consumers: 0% for six months and 9.9% APR thereafter. www.egg.com.
Best deal on the market, but for how long?
4 Personal pension: Legal & General launched a set of pre-stakeholder pensions with some of the cheapest charges in the industry. And as we know, charges are the key determinant of final payout – don’t we! (0800 096 6959 or www.landg.co.uk)
5 ISA equity fund: Framlington Health fund, which not only outperformed all other UK unit trusts with growth in excess of 260% in the past 12 months alone, but helped spark a new trend of ‘thematic’ fund launches into the bargain. (0845 7775511 or www.framlington.co.uk)
6 Shareholder perk: a 50% discount from P&O on ferry rips between Calais and Dover, useful for stocking up on wine and fags (though we know that GPs neither smoke nor drink!). (02392 301000 and www.p-and-o.com)
7 Telecoms: (eg Wap phone/mobile tariff) – One2One, which despite the higher profiles of some rival operators (think of Richard Branson’s Virgin Mobile or Vodaphone’s epic takeover battle for Mannesmann) offers consistently cheap prices. (www.one2one.co.uk and 0500 500 121)
8 Annual holiday insurance policy: Primary Insurance Group, one of the first companies to allow its policies to be compared with others in an online travel insurance service – and consistently came top in price and overall cover, ski trips included. (www.primarygroup.co.uk or 020 7335 7300)
9 Savings account: Nationwide Building Society’s e-Savings account, paying 7% gross on deposits between #1 and #50,000. (www.nationwide.co.uk).
Simple and effective, though only available online.
10 Personal loan: Northern Rock, almost always among the top three providers for any sum borrowed. Consistently good value. (www.northernrock.co.uk or 0845 605 0808).