Financial Education in Schools - with predatory companies and pusillanimous regulators, we must educate the children

Martin Lewis, of moneysavingexpert.com fame, started an e-petition to the British government: “Make financial education a compulsory part of the school curriculum”. To see the petition, now closed, click >>HERE<<. The petition successfully exceeded the 100,000 needed to be considered for debate in Parliament. The higher the number of signatures, the harder it will be for MPs with their ignominious record of failing to legislate against rip-offs to consider and reject debating this in parliament.

We share an objective with Martin Lewis. The objective: to build financial capability among Britons, and make them less ripped-off. This is a struggle on many fronts, but none more fundamentally important and potentially effective than education in schools. Astute young people protect themselves, their friends and relatives, and later their own children - creating a virtuous circle.

The rippers-off come from all sectors – energy, telecoms, retail – but they are lead by the example set by the financial services industry. They rip off because it is profitable and they rarely suffer any significant sanction. The most effective sanction could be applied by educating the customers to see and understand how they are being ripped off  - customers turning away and rejecting the deals because they can spot the rip-off in the first place.

Imagine, a school syllabus that includes the various rip-offs of the past. Homework analysing the impact of a rip-off - parents by helping their children at home will themselves learn. A class project to "design your own rip-off", to help the student understand the mentality of the corporate executives who create and promote these things. Examinations and assessments, and more...

The banks and insurers spend great fortunes on building trust with us Britons. They are already going into schools to build trust with the children, explaining why it’s a good idea to save, to borrow, and to insure. But unsurprisingly they fail to drum into the little darlings how to spot and avoid the rip-offs.

After all, every successful rip-off stands on a foundation of truth:

• Saving is a good idea:  
• Though excessive fund charges can swipe upto 50% of your investment, leaving you in poverty in spite of a lifetime’s saving. And if you are not eternally vigilant, your savings accounts with tempting "bait" rates are sure to drop to a measly 0.1%.
• Borrowing is a good idea:
• Except when you are tempted into taking on excessive debt by continual hikes in your credit card limit. Or by low teaser rates, that then jump up after a few months to strangle your finances.
• Insuring is a good idea:
• Unless you are sold insurance that it is impossible for you to claim on.

Building trust is their first step. “My word is my bond”, the banker’s lofty statement as he looks you straight in the eye, appealing for your trust. “Trust me and take me at my word. If I say it is a great product, then you can assume it is, so just sign here”. Make no mistake - Financial Services and other industries will look you straight in the eye, and then poke a sharp stick into it to try and pinch your eyeball.

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Our invitation to guest bloggers:

Some of the most valuable insights on the Ripped-Off Britons blog have been sourced from insiders and professional observers of our subjects. A few of these insiders and observers have themselves made valuable written contributions to the blog:


Richard Murphy, loved and loathed as one of Britain's most effective campaigners against tax abuses by powerful companies, individuals, and the government, gives us his checklist for 'good capitalism'.


Stefan Stern, visiting professor at the Cass Business School, asks why Truth in public life has gone even more out of fashion.


Deborah Hargreaves, Chair of the High Pay Commission, wrote on the de-linkage of executive pay from performance and how this is resulting in gaping and growing inequality. In a later article, she explains why this is not just morally dubious, but is also against the national interest.


Alexandra Woodsworth, of Campaign for Better Transport, described how Britons are among the most ripped-off in Europe when it comes to rail fares. She tells that the government will be raising the cap of fare rises from 1% to 3% above RPI, and how this will price people off the trains - a cynical ploy to reduce overcrowding? Sophie Allain, also from Campaign for Better Transport, wrote on the fact that Britons can pay three and a half times more than the fare for an equivalent journey in Europe.


"Honestly Banking", a banker writing undercover on his own blog, wrote a piece exposing the churning tactic used by fund managers to drive up their fees at your cost. He tells how new financial legislation has actually removed the requirement for funds to report their portfolio turnover!




If you have a good story you would like to tell on our blog, particularly if you are an insider, please contact us at guestblog@rippedoffbritons.com


One way to try and stay out of trouble is to write your piece as "factual fiction",  or "faction". Write as an imagined employee of the Ripped-Off Britons group of companies:


ROB Bank - perhaps you have an insight on the orders and incentives and threats from HQ on selling?


ROB Insurance - for example, do you know the rate at which claims are incurred and paid? And therefore can you identify an insurance product that is sold that few people successfully make claims on - e.g. Payment Protection Insurance, Indentity Fraud Insurance.


ROB Supermarket - do you know why a top supermarket prices some loose fruit & veg per kilo and bagged fruit & veg per pound? Could it be to confuse? Surely not.


ROB Telecom -
ROB Gas & Electricity -
ROB you name it...


These are just examples of topics you may want to write about. Organisations in Britain have vast armies of people, and pour treasure chests of money into campaigns to rip us Britons off. So we know there are many many other topics to be written about.


Articles need to be evidence based. Your comments should be backed up by graphs, data, quotations etc. from recognised researchers and commentators.

Please contact us with an outline of your proposed article - email us at guestblog@rippedoffbritons.com


If, like "honestly banking", you wish to remain anonymous then we'll accommodate you. Or if, like the High Pay Commission and Campaign for Better Transport, you want links to your own sites and blogs then that will be an honour for us too.

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The Occupy protesters at St Paul's...

Chris and KJ have pretty strong opinions on certain people

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Supermarket price promises really are a lottery!

Chris and his wife try and find the best bargains while shopping in a supermarket

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“Consumer Protection from Unfair Trading Regulations” - the law that legalises ripping-off in Britain

The right to rip-off Britons is enshrined in British law, most explicitly by the ironically named “Consumer Protection from Unfair Trading Regulations”. It is not our contention that the rip-offs we write about in this blog are illegal – just that they are rip-offs. But that is the problem: as you will read in the rest of this blog, the rip-offs are not in breach of the Consumer Protection from Unfair Trading Regulations so long as they rip-off no more than half their target market.


The preamble in this legislation tells us that the law will protect the “average consumer” (and of course all those smarter or better informed than average). It helpfully goes on to qualify this “average consumer” as being “reasonably well informed, reasonably observant and circumspect”.


It further states that:

“In determining the effect of a commercial practice on the average consumer where the practice is directed to a particular group of consumers, a reference to the average consumer shall be read as referring to the average member of that group.”

...going on to say:

“(a) where a clearly identifiable group of consumers is particularly vulnerable to the practice or the underlying product because of their mental or physical infirmity, age or credulity in a way which the trader could reasonably be expected to foresee,

and

(b) where the practice is likely to materially distort the economic behaviour only of that group,

a reference to the average consumer shall be read as referring to the average member of that group”

Thus, in words comprehensible to the average trader, the legislation makes clear that the trader is permitted to rip off the "below average" half of the population. If the trader, be he a high-street banker or a purveyor of sweeties, is selling specifically to a mentally infirm or credulous group then he is permitted to rip off the more infirm and credulous half of the group.

The act goes on to stipulate explicitly what a trader may and may not do:

• A commercial practice is unfair if…..it materially distorts or is likely to materially distort the economic behaviour of the average consumer with regard to the product. 

• A commercial practice is a misleading action if…. it causes or is likely to cause the average consumer to take a transactional decision he would not have taken otherwise. 

• A commercial practice is a misleading omission if, in its factual context…. it causes or is likely to cause the average consumer to take a transactional decision he would not have taken otherwise. 

• A commercial practice is aggressive if….it significantly impairs or is likely significantly to impair the average consumer’s freedom of choice or conduct in relation to the product concerned through the use of harassment, coercion or undue influence

The act continues that a trader is guilty of an offence if:

• (a) he knowingly or recklessly engages in a commercial practice which contravenes the requirements of professional diligence under regulation 3(3)(a);

and

• (b) the practice materially distorts or is likely to materially distort the economic behaviour of the average consumer with regard to the product under regulation 3(3)(b).

Never underestimate the power of an “and”. Einstein, in one of his quips about the world we live in, thought compound interest was the most powerful force in the universe. I think it is “and”, and/or perhaps “or”. Two little words that make almost anything possible. In this case the “and” tells us that the trader is legally allowed to use any tactic he wants, be it unfair, misleading, aggressive, reckless, unprofessional so long as the “average consumer” won’t be tricked by them. Anyone “less than average” is fair game to be recklessly coerced, misled, and handled unfairly. On them it’s open season 12 months a year!


To understand the implications of the legislation:

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Opting out of pensions … at the double

KJ and his pal have a drink while they discuss pensions and debt. But who's paying?

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Liebrary: Energy companies' profit margin is reasonable? See the accounting trick

Another addition to our Liebrary: In October 2011 OFGEM reported that energy companies' profit margins had leaped from an average £15 to £125 per dual-fuel customer per year. They claim that this equates to a 9% margin.

The industry claims that this margin is a reasonable return on their costs. The reality is that over 50% of what they charge is down to the commodity cost of the fuel plus the VAT.

This 50% for commodity and tax is just a pass-through cost. The retailer buys it from the wholesaler, and delivers it unchanged to your house.

It is no more legitimate for an energy retailer to fiddle down its profit margin calculation in this way than it would be for the post-office to include the value of the contents of the packages it delivers in its turnover.

Therefore the real margin based on the cost of delivery is actually double 9%,  coming in at a gouging 18%.


Graph from OFGEM Supply Market Report of June2011.

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Energy bills: taking the nation's temperature

The gang debate David Cameron's call for action from the big six energy suppliers

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Liebrary: Wholesale energy price graphs reveal the dismal fibs behind latest retail price rises

Another addition to our Liebrary: How is it that our leaders, including the well coiffed Cameron and the buff Huhne, are so poorly briefed about wholesale energy prices? 

So poorly briefed that Cameron and Huhne went to a high profile showdown to 'get tough' with the Big Six energy companies and come away mesmerised by the idea that retail prices are driven up by wholesale prices? Coming away preaching that the solution is for us all to wrap up warmly and search the internet for a lower tariff:

"We should be switching if we're not on the cheapest tariff and taking the opportunity ahead of this winter to really make sure that we're insulating so that we can save money."

Graphs from Consumer Focus, the soon to be axed "statutory consumer champion for England, Wales, Scotland and (for postal consumers) Northern Ireland", show the truth.

Wholesale prices have indeed risen in recent months. But that follows an even bigger fall in the months before that. Which all left wholesale prices well below their 2008 peak.  

On the other hand, the average retail price rose with the peak in 2008,  failed to fall as wholesale prices plummeted throughout 2009, and now starts rising even above the 2008 peak.

Electricity Prices - Wholesale vs Retail (graph from Consumer Focus, updated upto 2014)

Gas prices - Wholesale vs Retail (graph from Consumer Focus, updated upto 2014. Consumer Focus commented "For the second time in the last few years, average consumption levels for both fuels were revised downwards in late 2013 by Ofgem. This accounts for the “fall” in the retail gas price despite all suppliers putting their unit prices up.")

See the full Consumer Focus article - click here [NOTE: The government closed down Consumer Futures as of 1st April 2014. As far as we can tell, this graph is no longer maintained]

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Paying the price of the Banking Crisis - are we really all in it together?

David Cameron, prime minister of the UK, when speechifying about the cuts claims that we are “all in this together”. We must all, he insists, make sacrifices to pull the British economy out of the crash. A mantra repeated by leaders around the world to explain the all the sackings and the cuts. And to defend the additional money being poured into the banks even today as the Euro crisis rumbles on. All done, we are told, to save us all who are, it is stated, in it together.

Of course the assertion that 'we are all in this together' is a lie. The way we keep the economic balloon afloat is to chuck some people out of the basket. In the words of the Governor of the Bank of England, Mervyn King:

"The price of this financial crisis is being borne by people who absolutely did not cause it…..Now is the period when the cost is being paid, I'm surprised that the degree of public anger has not been greater than it has."

Mervyn King, Governor of the Bank of England, in evidence to the UK Parliament’s Treasury Select Committee, March 2011.

The people thrown out of the basket are absolutely not the ones who caused the current economic crisis. 

We are absolutely not all in this together. According to latest ONS figures for October 2011 the current crisis with 2.57 million Britons out of work leaves 29.1 million employed. Tragedy for the unemployed, some of whom may never re-enter work. But a great opportunity for those who still have a salary to draw, as dropping demand brings out a slew of bargains in shops and holiday destinations. A great opportunity to get a wider flat-screen tv, renew the sofa, and take a bargain-break to Marrakech for a new rug. And with more people unable to pay their mortgages, perhaps a chance to pick up a bargain home!

The Independent Commission on Banking published its final report last month, and then closed itself down. The report has various interesting elements, to which we shall return in a future blog. But these two graphs we need to look at now.

The first shows how the banks leveraged themselves – i.e. borrowed lots of money – to fund their irrational exuberance leading to the worldwide economic crash. Banks made money and paid bonuses by doing deals. The quality of the deal was irrelevant – all that mattered was the banks’ fees and the resulting bonuses. Be it an over-stretched “sub prime” home-buyer or a fiscally incompetent government doing the borrowing. To do the deals the banks needed money which they borrowed often from each other, generating further fees for themselves. The deal made the commission that paid the bankers’ bonuses.

The second graph shows public sector debt with and without “Interventions”. “Interventions” being the money pumped into the banks to make sure that when all the rotten deals imploded the banks could pay their debts using taxpayers’ money. To bail out the banks, Britain’s national debt nearly quadrupled.  

The banks who did cause the financial crisis are already reaping profits and bonuses, as is shown in this Bank of England graph from their 2010 Financial Stability Report. The graph shows that banks will be back to their pre-crash levels of profits this year even as the rest of us pay the price of what they caused.

So who is paying the price? The National Association of Welfare Rights Advisers, details the impact on the poorest. Some of the highlights include:

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Unaffordable rents

KJ's feeling the squeeze so decides to rent out another room

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Tax avoidance and evasion costs us all dear

The gang discuss why 400,000 more children will soon be living in poverty

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Portfolio Turnover, what you need to know and why your broker doesn’t want you to know it.

Guest post by a banking insider at www.honestlybanking.co.uk 


Are you being Churned over? Would you even know if you were?

Many investors have not heard of ‘Portfolio Turnover’ but it's much loved by stockbrokers, fund managers and bankers as it provides a nice way to increase their income without you noticing and without them having to tell you.

Portfolio Turnover is the frequency with which assets within a portfolio are bought and sold. Given that it costs you each time there’s a trade (trading commission plus stamp duty) and it has a big impact on your overall return, you should pay close attention to it. The manager of your money will always find a good reason to buy or sell an asset. They can always find a justification to sell a particular share or fund, this helps them avoid any allegations of wrongdoing. But each time its done, they collect a bit more commission and earn bigger bonuses.

When trading becomes excessive it is called churning or overtrading and is unlawful. Additionally the Annual Management Charge (AMC) and the Total Expense Ratio (TER) do not include the costs incurred to you by Portfolio Turnover. These extra costs that are racked up include commissions, stamp duty and the bid/offer spread.

The Financial Times^[1]  states that some funds annual turnover rate can be 500%. The average in the UK is 89%. This adds about 0.9% in addition to the quoted TER (Total Expense Ratio). If you’re already paying 1% for management this is nearly doubling the cost of the investment. In reality you are likely to be paying far more than this, but even this extra 0.9% is going to have a major impact on your money over time.

This chart shows the actual difference in return based on a £10,000 investment over periods of time and the impact of the costs of a higher portfolio turnover. The Blue represents a TER (Total Expense Ratio) of 1.5% and the red a TER of 2.4% (add additional 0.9% of costs from higher portfolio turnover). Even in one year you are 20% worse off with a higher portfolio turnover. The gross returns are the same, but the additional cost has a huge and compounding impact on your net return over time.

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QE: injecting money into the economy the only way a banker knows how

The gang think Mervyn King has been shrewd with his quantitative easing programme

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Greece leads the way on satellite TV … and more

Fee sits down with KJ to watch his new satellite TV, but gets more than just cheap football

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Britain's predatory companies gorging on your pension fund

Ed Milliband, the Labour Party leader, said in his speech to the Labour Party Conference in September 2011:

“Let me tell you what the 21st century choice is:  Are you on the side of the wealth creators or the asset strippers? The producers or the predators? Producers train, invest, invent, sell.  Things Britain does brilliantly. Predators are just interested in the fast buck”

Fast buck? What’s the speed limit on a buck? How can you tell a fast buck from one doing the statutory 30 miles per hour? The predators themselves know they have nothing to fear from yet another empty crowd-pleasing political promise. Promises made by Labour, Liberal, and Tory alike, all to pledge to the ordinary ripped-off British voter that they would do something if only they could. Predator and politician know there is always a commentator ready to say on air, online, and in print how hard it would be to separate the producers from the predators, and how it would never work, and that it would do more harm than good in any case, and regrettably it would be best to leave things as they are.

Of course these commentators aren’t speaking to Producers, Predators, or Politicians. They are speaking to us ripped-off Britons. They speak to convince us that nothing can be done, and we should allow ourselves to be preyed upon in the greater interests of the nation. Politicians and predators rely on this, to provide cover for political inaction and continuing predatory depredations.

It is of course true that many companies fall somewhere in between being clearly "good producers" and despicably "bad predators". However, using this fact to block any action is just a weak, though generally successful, attempt to disguise the fact that there are clear unambiguous villains out there. Just because the whole business world doesn’t need a mighty smack, doesn’t mean there aren’t specific rotten rip-offs that do need to be caned and expelled.

A perfect example of an unconstrained predator, a predator who for decades has paid protection money in the form of taxes and levies to successive governments for its licence to continue freely predating, is the pensions industry.

The key characteristic of a successful predator is the ability to sneak around unnoticed until it has got its prey by the throat. The Pensions Industry is master of this form of ambush-predation. With gentle sounding charges of 2.5%, much less than the 15% service charge you pay when you go for a restaurant meal, the pension funds can grab nearly half of a lifetime's savings. Something you may only realise when you get the letter announcing your pitifully disappointing pension, discovering too late the jaws of post-retirement poverty that have been tightening on your throat for the previous 40 years.

Bitter battles are being fought between public and private sector employers and their staff over reduced pensions, higher employee contributions and increased retirement ages. A battle fought in an attempt to:

a)      enlarge the size of the pension pot: by increasing the rate of contributions, and making people work and contribute longer.

b)      reduce the amount the pension pot has to pay the retiree: by scrapping ‘final salary’ schemes, moving the inflation link from RPI to CPI, and moving the remaining ‘final salary’ schemes to ‘career average salary’ linked payments

c)      reduce the number of years the pension has to be paid to the retiree: by making the employees work a few more years, thus spending a few less years collecting their pension in retirement before shuffling off to the next world/incarnation/ash-cloud/worm’s belly.

If politicians were actually serious about dealing with predatory companies then all the above can be solved with a stroke of a legislative nail-file, by blunting the claws of the predatory pension providers. As we will now demonstrate in an adult-friendly graph, people can get bigger pensions and retire years earlier if charges made by pension funds are slashed. After all, those charges go to pay the bumper bonuses – so this will not only alleviate pensioner poverty, but will also start to deal with excessive pay. 

So, how many extra years do you have to work to pay the fund management charges on your pension?

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