MSE News: Renewed calls for simple financial products

chudiver

So the chair of this committee was the chief risk officer of a bank that essentially went bankrupt on her watch, and demonstrated such utter contempt for its customers' interests that they've been forced to set aside more than £4bn to repay them because of a culture of endemic mis-selling of financial products.

And her advice on how to improve the industry's reputation is to push 30-day notice accounts? What exactly is the bank supposed to do these days when somebody comes to them to say that they want to withdraw 100 quid in 30 days? People want to fix their mortgages for years - not 30 days! It's not at all useful in hedging the interest rate risk associated with selling lots of mortgages. Banks want fixed rate bonds - ideally fixed for many years.

In the distant past, they'd use the notice to move physical cash around to meet demand. We just don't live in that world any more. I'm a little worried that the chief risk officer of a major retail bank seemingly hasn't worked that out.

You couldn't make it up.

(Disclaimer: I work in risk management for a bank. It's not Lloyd's!)

opinions4u

chudiver wrote: »

So the chair of this committee was the chief risk officer of a bank that essentially went bankrupt on her watch, and demonstrated sich utter contempt for its customers' interests that they've been forced to set aside more than £4bn to repay them because of a culture of endemic mis-selling of financial products.

And her advice on how to improve the industry's reputation is to push 30-day notice accounts? What exactly is the bank supposed to do these days when somebody comes to them to say that they want to withdraw 100 quid in 30 days? People want to fix their mortgages for years - not 30 days! It's not at all useful in hedging the interest rate risk associated with selling lots of mortgages. Banks want fixed rate bonds - ideally fixed for many years.

In the distant past, they'd use the notice to move physical cash around to meet demand. We just don't live in that world any more. I'm a little worried that the chief risk officer of a major retail bank seemingly hasn't worked that out.

You couldn't make it up.

(Disclaimer: I work in risk management for a bank. It's not Lloyd's!)

Spot on. In so many ways.

Thrugelmir

talexuser wrote: »

Hey, great idea! We could have say local type mutual societies that take in money from local people and lend it out to other local people to buy their homes - call them Building Societies.... oh! seems familiar somehow.

You maybe on the right track. Mortgage lending isn't highly profitable. So better suited to mutual lenders than a commercial business. Where shareholders require a decent return on their equity.

.

oldvicar

Remember - not that long ago - there were government kitemarked or 'CAT' standard accounts - fair in Conditions, Access and Terms.

They were pretty decent accounts too. But they fell by the wayside.

Why? Well the typical/average and ignorant man/woman in the street or building society branch wanted more. (S)He was essentially greedy, and was seduced by the prospect of returns from accounts/investments they didn't understand.

Another call for basic accounts isn't the answer. They do exist already, and I have some of them. The only way to get joe public to save in 'approved' basic accounts is to ban him from the more sophisticated ones, and that is simply not politically acceptable.

Thrugelmir

oldvicar wrote: »

and was seduced by the prospect of returns from accounts/investments they didn't understand.

Nothing complex about Icelandic banks other than the returns they offered were unsustainable.

oldvicar

Thrugelmir wrote: »

Nothing complex about Icelandic banks other than the returns they offered were unsustainable.

They offered great returns, and were generally basic/simple enough to have achieved the sort of 'kitemark' suggested. And people flocked to them, even without a kitemark.

innovate

Why don't they instead make proper financial education, and perhaps something like a "financial passport", compulsory for every pupil in the country?

SeethingSaver

Just posted something along that vein after years of frustration trying to get sense out of building societies over their taking advantage of closed accounts and almost incessant creation of new accounts or issues.
There is not so much a need for kite marks but there is for product interest rate band identification.
Issue a product and it gets a market level rate band rating at inception.
Band ratings move as the market rates change but stay the same relational indication to where account level is in the market.
The bank or building society cannot vary the interest rate given outside the band, it has been placed in at inception, tolerance allowed; even after discontinuing a product.
If the bank width allowance is exceeded then all restrictive terms and conditions (such as minimum account amount to be maintained or withdrawal notice are no longer appicable).

Simplification can also be achieved by fixing the total number of products (current and discontinued) an organisation can have.
This would supress the willy-nilly issue of essentially what is the same thing banks or societys are continually complicating savers lives with.
Accounts decided upon to be shelved to make way Once the limit of accounts has been reached by the bank or society would be changed to the one type of closed account. For which the financial organisation would be obliged to make the closed account instant access and pay their top rate of interest which is paid to any of their current products irrespective of restrictions of those current products.

Simplicity, stability and scrutiny is what savers need not a continual flow of bamboozling variations of the same thing.
The recent introduction by Nationwide of a new arm called mySave which is just a restrictive terms online variation of their existing online system is sheer lunacy.
New user Id, new password, can't look at the regular online products from the mySave region....we don't need those extra complications, especially the elderly who are most vulnerable to the current way this industry operates.

A grip is needed now not in proposals for 2013,2014 or whenever.
It has all already gone too far.

JuicyJesus

rogerblack wrote: »

Stupid people are people too.

http://blog.moneysavingexpert.com/2011/10/21/a-blog-in-support-of-stupid-peoples-rights-probably-the-most-important-blog-ive-ever-written/

I wholeheartedly agree with.

Sorry, but that article doesn't even fit, and even then I disagree with it on certain points.

If someone can't read or understand a contract, they are vulnerable and should be protected (so long as they make that inability clear to the bank ahead of time.) If someone won't read or understand a contract because they can't be arsed, they are not vulnerable, they are an idiot for signing up to something they have not read.

The former does not make you stupid. The latter does.

And regardless, opinions4u is (as ever) correct. You can get basic bank accounts; you can get simple savings accounts. They're not market-leading products but they are simple to understand. How, exactly, do you market a simpler savings account than an instant access branch based account? No matter how you go about explaining a "simple" rate of return, at the end of the day all you're doing is dressing up the concept of interest in a fancy package, so why not just explain the concept of interest? How do you make a simpler current account than one like, say, HSBC's Basic Bank Account or Yorkshire Building Society's Cash Transactor account, where wages go in and ATM withdrawals and Direct Debits go out?

Those are very, very simple products. What can be simplified about them? And don't say "terms and conditions" because quite simply (pun not intended) those terms are long and wordy for a very good reason - because they're legal contracts, which the bank are bound by, and they need to be clear in their wording otherwise they could be held to be unfair. If someone does not understand them, then they should be explained at their request (and they will be - seriously, go into a branch of your bank with a copy of your account's terms and ask them to explain a clause to you, I'll bet you they will happily do so) and if someone doesn't care and doesn't bother to find out because they can't be arsed to read them... whose fault is that precisely? The bank's for printing them or the customer for agreeing to something they couldn't take the time out of their life to read?

innovate

JuicyJesus wrote: »

If someone won't read or understand a contract because they can't be arsed, they are not vulnerable, they are an idiot for signing up to something they have not read.

I largely agree with you - - though I really do think that a huge part of the root cause of the problem is that huge numbers of people aren't being taught anything about financials. Not by their parents, not by their schools, not by the media.

We're probably seeing just the tip of the iceberg of "idiots", "stupid people", "people who cba", people who go to banks for "advice" etc etc in some of the posts here on MSE: plenty of people who post about their problems failed to do any basic research but then came on here and cried foul. And found themselves in a miserable position, with no legal recourse.

There is plenty of evidence that large numbers of people simply don't know how to, and comprehend why, they should

1. "shop" for available offers
2. compare available offers
3. find T&Cs
4. read T&Cs
5. understand what T&Cs mean to them (and not least: what is needed to comply with T&Cs)

IMO, there are plenty of "simple" financial products in the market. Making them even more simple doesn't mean people will understand them any better if they aren't being given education on the basics.