There is a huge lack of trust in UK financial services…
Lack of Trust: FSCS Data
In a May 2023 report, the FSCS found a huge lack of trust in the UK financial services industry. Here are some of their key statistics:
25% of consumers say they trust the UK financial services industry to act in the best interests of its consumers, with 31% saying they distrust it
42% are concerned about a lack of protection if things go wrong
Out of 7 industries surveyed, the financial services industry was the second least trusted
The FSCS has an important role to play in fostering trust among consumers
Why is Trust Important?
Let’s have a look at what others had to say…
The FSCS has stated:
“Trust and confidence in the system is critical to financial stability. Without them, more people are likely to react to uncertainty and market turmoil by seeking to pull their money out of products or firms perceived as at risk, worsening liquidity and confidence pressures”
Further to this, a paper published by Brynchko et al argues:
“It is impossible to exaggerate the role of trust in the financial sector of the economy. Without trust, the financial system is deformed, and without a well-functioning financial system, it is impossible to ensure the macroeconomic stability and the potential for the country’s development”
Therefore, for the financial services industry to thrive, consumer trust is of the utmost importance, and it is indeed an issue that there is a continued (and growing) distrust in financial institutions. Financial institutions need to start putting consumer perceptions and experience at the forefront of their approach to delivering financial products and services.
How Can this Trust Be Built?
When consumers were asked by the FSCS what would improve their trust in the financial services industry:
54% said improved consumer protection
39% said legal consequences for activities that lose customers’ money
44% said the industry meeting the costs of compensation when providers go out of business
This is a great starting point for rebuilding this consumer trust. Other ideas are to:
Improve transparency… how can consumers trust industries that aren’t being completely open and honest with them?
Improve financial education… how can we expect people to trust financial institutions if they lack the understanding around financial topics in the first place?
Have providers engage with their customers more effectively… instead of simply pushing products at consumers, they should be guiding, helping and listening to them. Instead of help being inaccessible, with communication restricted to virtual assistants and chatbots, financial services providers should be encouraging and enabling consumers to get in touch if they need to
by Red Star Wealth
A recent Quilter survey found that most adults in the UK take their financial advice from people via media outlets like television, radio and online. 35% said they used this source to help manage their finances followed by 30% saying they used comparison sites and 29% using advice from family members.
The Lewises
Paul Lewis presents BBC Radio 4’s Money Box. Martin Lewis is the founder of MoneySavingExpert.com (MSE) and is a financial journalist and broadcaster.
Paul Lewis has faced backlash for claiming that consumers should use large, national mortgage brokers in order to access the “best possible deal.” As you can probably imagine, independent mortgage brokers were not happy to see their names besmirched by someone who is not even qualified to give advice in their field.
Click here to read more about what brokers’ had to say in response to Lewis’ comments.
“as I say always find an independent chartered financial adviser and admit that excludes some good, restricted advisers and some good IFAs who are not chartered, finding them amongst the rest is impossible. Hence my general advice. Which inevitably excludes some good guys”
Martin Lewis also faced criticism from advisers in October 2022 for telling viewers to stick with standard variable rate mortgages.
A recent article from Mortgage Solutions has highlighted these criticisms and discussed the issue that arises from the general public trusting the word of the Lewises over the advice of qualified financial experts.
What’s the Issue?
Financial journalists can be incredibly helpful in educating the public on financial matters, simplifying complex financial topics to make them more accessible and understandable. Martin Lewis in particular has made huge positive impacts by triggering major initiatives to combat scam ads, urging regulation of Buy Now Pay Later firms, and helping break down difficult financial topics via MSE.
However, education and advice are not to be conflated.
Paul Lewis himself has referred to his advice as “general,” and here lies the issue. The advice being given is often broad, general and unregulated. It is not tailored towards what is specifically best for you and your financial situation. Everyone’s finances are different and so a blanket statement of what is “best” won’t necessarily reflect what is best for all.
Many individuals advising you about your finances through various media outlets are unqualified to give this type of advice. Some advisers are now questioning whether these shows and media forums need to come with a disclaimer that these ‘experts’ are not in fact qualified to give financial advice.
by Red Star Wealth
As we are coming up to a new year, you might be thinking of making some changes to help improve your financial stability and happiness. Let’s have a look at some New Year’s Resolutions you can make to do so…
Prioritise my own Mental and Financial Wellbeing
Don’t stretch yourself too thin in order to please or impress other people. You are the main character in your own book of life!
Improve my Credit Score
A good credit score means you are more likely to be approved for loans and be offered lower interest rates on repayments. This resolution is particularly worth considering if you are thinking of getting something like a mortgage in the next few years. Some examples of steps you can take to improve your credit score are registering on the electoral roll and paying your credit card balance in full every month
Pay off More than the Minimum Payment each Month on my Credit Card
Even if you don’t pay the full balance, paying for than the minimum required payment is a good idea. This is because you reduce the amount of time you will be stuck making repayments and being charged interest. We talk more about credit cards on our sister company’s blog…
Increase my Pension Contributions
Pensions work on a system of compound interest so the earlier you start building your pension pot, the more it will be able to grow over time. If you are able to, increasing your pension contributions is definitely worth considering, especially if you are a woman… let’s close that gender pensions gap!
Build my Savings
Whether you’ve got something in mind you want to save up for or just want to create an emergency fund, savings are really important. LINK It sometimes seems impossible to save money because we think ‘too big’. For example, you might have a goal to save £1,000, but it seems unmanageable. However, when we break it down in terms of the amount we would need to save each week or month, it seems less daunting and more achievable. Maybe you could start by getting an un-openable tin money box, or enabling the round up transaction feature on your online banking if your bank offers this
Don’t open any New Credit Cards
Try not to increase your debt!
Tackle my Debt
Is 2023 the year of going debt free? One way of managing your debt is to pay off the ones with the highest interest rates first, in order to slow the rate of growth of the money you owe. It’s also worth checking out:
You are worthy and capable of achieving what you want in life. Keep working towards whatever that may be…
by Red Star Wealth
According to The Money and Pensions Service’s Financial Capability Survey, 11.5 million UK adults have less than £100 in savings and only 49% of people could last 3 months or more without borrowing money if they lost their main source of income.
Why Might You Struggle to Save?
It’s difficult to save money if you have any debts because you are tied into making repayments.
It’s also difficult to save when you don’t have a budget plan as it’s harder to keep track of your money. Budgeting can help you see where you might be able to reduce your spending and where (if possible) you can afford to put money into savings. Use our free budget calculator through our sister company’s website if you need some help making your budget!
It’s hard to save money if you have a habit of overspending. It can be easy to spend beyond our disposable income, especially at times like Christmas…
The Cost of Living Crisis
UK savings will likely only decrease in continuing months. This is because many people cannot afford to save money at the moment, giving the huge inflationary pressure on living expenses.
You can only afford to save money when your expenses are more than your income. Therefore, many people might see their savings slowly being depleted, the growth of their savings coming to a standstill, or their savings’ growth slowing down.
Why is Saving Money so Important?
It enables you to achieve your financial goals
You can form an emergency fund for any unexpected expenses. This in turn gives you security and peace of mind as the emergency fund acts as a safety net so that you can afford to cope with the unexpected
It can help you avoid taking out credit, protecting you from entering a cycle of debt. This point is particularly true when considering how many people turn to things like payday loans when they have unexpected bills
It means you can accumulate wealth, which is good if you want to do something like channel money into an investment
It helps protect your credit score as you can make payments on time
If saving for a house, it means you can put down a bigger deposit, meaning you will have a smaller mortgage with more competitive interest rates
We know that it can be really difficult to save money when the price of everything constantly seems to be on the increase. Sometimes saving is not a viable option, as you may simply not have any spare cash to put away. However, if you are able to, building your savings is certainly worth considering…
by Red Star Wealth
Cryptocurrency is a very high-risk investment due to its volatile nature. Some people make their millions and some lose every penny they have invested. The crypto market has just suffered another shock this month following the collapse of FTX…
What is cryptocurrency?
Cryptocurrency is any form of currency that exists virtually, using cryptography to secure its transactions. Cryptocurrency exists entirely within the digital sphere… it is not tangible.
In November 2021, the Bitcoin price was at an all-time high of $69,000 whilst just a year on, it has fallen to under $17,000.
Ether, the cryptocurrency of the Ethereum network, which is the second most popular cryptocurrency after Bitcoin, has followed a similar trend.
Ether also reached new heights in November last year, pricing at $4,800, whilst it has now fallen to under $1,200.
Why the Crash?
Crypto prices massively fluctuate and can drop in an instant in response to major crypto events like coins or exchanges crashing.
The crash in cryptocurrencies this month has been triggered by the latter, with the sudden collapse of FTX.
What is FTX?
FTX was a crypto-exchange company based in the Bahamas which allowed people and companies to trade currencies virtually.
The $32 billion company is now bankrupt.
Mismanagement
Sam Bankman-Fried resigned as CEO of the company on 11th November, being replaced with John Ray III who has previous experience at other companies of helping investors gain back losses.
John Ray III said that FTX had faced “unprecedented and complete failure of corporate controls”, with a lack of regulatory oversight and sufficient record keeping. The company failed to keep proper records or security controls for the digital assets it held on behalf of its customers and turned to software to hide their misuse of customer funds.
He also said that a “substantial portion” of assets held by FTX may be missing or stolen and that corporate funds had been used to buy homes in the Bahamas as well as other things for employees.
There are also reports that Bankman-Fried may have used FTX consumer deposits for trading on his crypto hedge fund, Alameda Research.
FTX is currently being investigated by the US Department of Justice, the Securities and Exchange Commission, and police in the Bahamas.
Binance’s Cold Feet about Acquiring FTX
FTX was originally set to be acquired by its rival, Binance. However, after looking at FTX’s books, Binance announced its withdrawal from the deal earlier this month.
I guess we will have to keep an eye out to see whether more information unravels about FTX’s conduct during these investigations…
by Red Star Wealth
In yesterday’s Autumn statement, Hunt announced £30 billion worth of spending cuts and £24 billion worth of tax rises over the next 5 years. This increased taxation and cuts to government spending is aimed at rebuilding the economy after instability from the Covid pandemic, Truss and Kwarteng’s failure of a mini-budget, and the ongoing war between Russia and Ukraine.
“Stealth Taxes”
Income tax’s personal allowance, the main national insurance thresholds and inheritance tax thresholds have been frozen for a further two years.
Some members of the opposition have branded these as “stealth taxes”. This is because the freezes effectively means that people will have to pay more tax as wage increases (due to inflation) will push them into higher tax brackets.
This payment of higher taxes alongside continuing inflation will mean the cost of living crisis will be hitting us all even harder.
Higher Rate Tax Payers
Currently, those earning between £50,271 and £150,000 a year fall into the higher rate income tax band of 40%. Those earning above £150,000 a year then pay the additional rate of income tax of 45%.
As of April 2023, this threshold will reduce from £150,000 to £125,140, meaning higher earners will be paying more tax.
Protecting the Vulnerable
Hunt has announced additional cost-of-living payments for the most vulnerable:
£900 for those claiming benefits
£300 for pensioners
£150 for those on disability benefits
He has also introduced a cap on the increase in social rents, at a maximum of 7% in the 2023/2024 tax year.
The triple lock on pensions has been maintained, meaning state pensions will increase in line with inflation. Working age and disability benefits are also to increase in line with inflation.
The national living wage is to increase by 9.7%, rising to £10.42 in April 2023, which will benefit the lowest-paid employees in the UK.
Funding the NHS, Schools and Social Care
Hunt has announced an extra £2.3 billion per year to be invested in schools over the next two years.
He has also announced an increase in the NHS budget by an additional £3.3 billion in each of the next two years.
Additionally, Hunt has allocated adult social care additional grant funding of £1 billion next year and £1.7 billion the year after. As well as this, the implementation of the Dilnot reforms has been delayed by two years. These reforms would cap the amount any one person in England would have to pay towards social care to £86,000. Delaying this means we will have more funding for the social care sector.
Energy and Electricity
In May 2022, Rishi Sunak introduced a tax as chancellor called the Energy Profits Levy. This was a 25% surcharge applied to companies profiting from extracting UK oil and gas, and was to run as a temporary levy until the end of 2025. In yesterday’s Autumn statement, Hunt announced that this windfall tax will increase to 35% from January 2023 and will also stay in place for longer, until March 2028.
A temporary new electricity generator levy will also be introduced. This will impose a 45% windfall tax on profits of selling electricity above £75MWh.
From 2025, electric vehicles will no longer be exempt from Vehicle Excise Duty (often referred to as Road Tax), which will help further raise Government funds.
It was also confirmed that plans for £700 million of Government funding into the Sizewell C nuclear power plant in Suffolk are to go ahead. This new nuclear power plant is expected to create 10,000 jobs and generate enough power for 6 million homes. The aim is to get the UK on the road to energy independence, so that we are no longer so heavily affected by changes in global gas prices in the future. It also signals the first UK state backing for a nuclear project in over 30 years. However, over the plant’s expected 13-17 years of construction, the government has predicted it will add an average surcharge of around £1 a month to household bills. This means that, yet again, our finances are likely to be under even more strain.
