25.06.09 WE NEED 'PROFESSIONAL' ADVICE FOR CONSUMER FINANCIAL PRODUCTS

At our Bearsden office, we have a sort of 'Hill Street Blues' style roll call on a Monday morning. Last Monday, I remarked to my fellow Partners that I had just finished putting up a new trampoline that weekend (for my kids I hasten to add).

One of my Partners had noticed the recent phenomenon of trampolines popping up all over the place, so much so that on Google Earth it appears that large parts of the country have been invaded by crop circles, or smaller ones if you include the patio heaters. We further discussed that there was too much choice on offer in the major purchasing decision of buying a trampoline, or indeed any consumer product these days. If I were to buy a television I wouldn't know where to start in the confusing world of CRT, Plasma, LCD, LED, not to mention pixel size. This plethora of choice is perhaps indicative of the perceived prosperity before the crash.

I often wonder how many of the trampolines, patio heaters and too big TVs are now being paid up over 25 years, or not at all if they've elected for an interest only mortgage.

We've lived in the balance transfer times, the 'no fee' 0% world, air mile cash back - yes, you got it, we're talking about financial products. The ease of obtaining credit, to state the obvious, was out of hand. However the choice we all had was brilliant.

One credit crunch war story I have been retelling is one of a client's mother, 63-year old retired civil servant on a very meagre, albeit final, salaried pension. She asked my client if it was a good idea to buy a new kitchen on her credit card. My client was shocked to then discover that his mother had a credit limit of £16,000 on her card - enough to give her a one way ticket to an Insolvency Practitioner. It was a prime example to the regulators and the retail banks on what needs to stop.

I'm not saying that everyone doesn't take personal responsibility for their actions and I'm certainly no advocate of the Nanny State. However many recent financial products will be seen as the cigarettes of the Noughties. We all look back and laugh at how ridiculous the cigarette adverts of the 1950s were. The regulatory and education bodies now need to seriously consider the health implications of many financial products.

The choice of financial products has to be limited. Perhaps then we can avoid the 25-year repayment of the trampoline, patio-heater and that several-times-a-lifetime dream holiday. We have now reached the stage where only professional bank managers, rather like the pharmacist, should be 'dispensing' financial products, as opposed to the self-diagnosis and dispensing we have at the moment primarily through the Internet and call centres.

If you wonder why I'm so passionate on this subject, it's because as a Chartered Accountant I see first hand the number of businesses suffering in the owner-managed business sector due to the personal financial circumstances of the owner. In one instance where I was looking at cost saving for a business, the main issue was the owner's drawings - a thorny subject to broach for both accountants and bankers. When I stated that the only cost left to look at was the owner's £10,000 net of tax per month coming out of the already overdrawn directors loan account, I was told 'but I can only shop at Lidl's and live on beans on toast at that level of pay'.

The owner of the business in question had the obligatory buy to let, silly contract hire cars and balance transfer levels of debt. As a professional adviser - be it a banker or an accountant - you are limited in what you can do, either for the accountant presenting to the bank manager or the bank manager presenting to credit committee. Again, in my view, many of these issues arose due to too much choice - too many Beemers, Mercs and Range Rover Sports.

In summary, the vast deleveraging that it is required will only come about when choice is reduced and all our decision making will be made much easier. Perhaps then I'll get the hours of my life back spent trawling the net for such frivolities as trampolines.

Publication: Chartered Banker
Author: Donald Boyd