Financial Rights – Helping You Know Your Rights For Financial Products

It is very important to be aware of your rights when dealing with any kind of financial product or service. The actual rights you are entitled to will vary according to the product, but to make the most of them you will need to be aware of them in advance, as it may effect the decisions you make. Don’t wait until there is a problem to find out what your rights are!

In most case, your rights are stronger if you have taken advice before you make a commitment than if you did not. If you are negligently or fraudulently advised, you have some recourse to protection. If you did not take advice, then the responsibility is yours. If in doubt, take advice.

In general terms, you have a right to expect:

  • The firm to be financially sound and trustworthy
  • Advisors and salespeople who are competent and knowledgeable
  • Correct information on which to base your decision
  • A clear complaints procedure
  • Compensation if something goes wrong outside the normal risks of the product

In terms of specific products, the rights you are entitled to vary.

Banks and Saving Accounts

The FSA ensures that banks and building societies are financially sound. Banks and building societies abide by a voluntary banking code, which sets out standards for ensuring you get the information you need to make an informed decision and that you are treated fairly. They must help you if you wish to make a complaint by having internal procedures in place, and letting you know what they are. They must also belong to the Financial Ombudsman Service.

Loans and Credit

Moneylenders such as bank and insurance companies are regulated by the FSA, who make sure they are sound and trustworthy. Other companies (such as loan companies) have to be licensed by the Office of Fair Trading. The Consumer Credit Act of 1974 ensures you have access to certain information. Loans from banks and building societies are covered by the voluntary banking code, which includes procedures for making a complaint.

There are other lenders who may not be covered by any regulation. If you have a complaint against one of these companies, you can contact your local Trading Standards Office, but your rights are much reduced.

If you buy goods or services worth more than 100 pounds using your credit card, the credit card company is jointly liable, along with the supplier, if the goods turn out to be faulty. They have a joint responsibility to put matters right.

Insurance

Insurance companies are all regulated by the FSA. However, general insurance advisors need not have any particular license or training. Many, however, choose to subscribe to the General Insurance Standards Council (GISC), and you may prefer only to deal with GISC members. They have agreed to abide by the GISC General Insurance Code for Private Customers, which includes formal procedures for making a complaint.

Should an insurance company be unable to meet its commitments, then you may be covered by the Financial Services Compensation Scheme.

Life insurance policies, investments and personal pensions are all covered by the Financial Services and Markets Act, which ensures that all companies are trustworthy and competent. They must also have formal complaints procedures, give you suitable advice, and provide you with certain key information, both before and after you buy.

Mortgages

Nearly all mortgage lenders subscribe to a voluntary code, as described in more detail by The Mortgage Code Compliance Board, which also has a list of lenders who subscribe. This includes formal complaints procedures, and regulations ensuring you are being treated fairly and have the information you require to make informed decisions.

Lenders who abide by this code have agreed to only take customers from advisors who also abide by the code.

Pensions

As has been famously covered in the media of late, pensions are a complex area and are not always the risk-free product they used to be. The decision as to what kind of pension to subscribe to is probably the most crucial financial decision you will make in your life.

The FSA publishes a whole series of guides to pension issues, which provide useful information on how to choose and maintain your pension effectively.

When a Financial Product Sounds Too Good to Be True

It probably is. I’ve recently heard about such a product, one that guarantees you 10% return for the next seven years, and 5% for life after that. It’s even in writing. Doesn’t that sound great? Who wouldn’t want that?

But the devil is always in the details. Let’s examine the details of this particular offer, which is an annuity. Let’s say you invest $100,000 in this product. At 10%, you’ll double your money in about seven years. You’ll have $200,000.00. Fantastic. So far, so good, right?

But here’s where the details come in. If you read the fine print, you’ll probably discover that the $200,000 does not belong to you. You can’t ask for a check for that amount. You’re not allowed to touch that $200,000. In fact, if you do, there are penalties. Instead, you can take an income from the 5% for life that was guaranteed, which will be $10,000. So let’s say you were paid $10,000 a year for the next ten years. How much have they paid you now? $100,000. Guess what just happened? Over that ten-year period, you were paid back the money you originally invested. In a nutshell: You invested $100,000 in this product, you waited seven years to see $200,000, and then you had to wait ten more years while you were paid $10,000 a year. You made back your money 17 years later.

The guarantee was all true. The value of your investment rose by 10% and you did get 5% for life. But I don’t think this is a good deal. If it were, I could retire right now. I could put all my clients in this deal and never have to do another day’s work. I wouldn’t have to worry about the market. I wouldn’t have to worry about anything. Unfortunately, there is no free lunch, and there’s no such thing as a risk-free product that guarantees a 10% return. And if someone tells you there is, read the fine print very carefully. Ask questions. Be an informed consumer. Remember that the devil is in the details, and if something sounds too good to be true, it probably is.

TO POLITICIANS: STOP BEING NICE

I wish the politicians would stop being nice. We’re getting closer to the fiscal cliff, and all this playing nice stuff is getting on my nerves. We’re all Americans. We’re not Democrats. We’re not Republicans. We’re Americans, and the politicians need to do what’s best for the American people. Take the gloves off and let’s get the fight going.

They’re wasting time. The fiscal cliff deadline is January 1st. We don’t have a lot of time to get this thing resolved. I’m concerned that they’re just going to talk nice, not resolve anything, and have a fight at the last hour-and that the market will drop dramatically as a result. I don’t doubt that they will find a way to extend the deadline, but they might wait to make a decision with only seconds left on the clock, like they did last year.

During the debt ceiling debate last year, we saw the market go down 19% before they finally decided to raise the debt ceiling. I think we’re seeing all the earmarks of the exact same thing. Do you want to take massive losses while you wait for those guys to resolve their problems? Why not take some profits off the table? Then, when they do announce that they’re gonna postpone, band-aid, or resolve the situation, how about going in the market at that time? Maybe buying in at 19% down? I don’t know if the situation will play out like that, but I think we can learn from the past. We can use past experience to navigate this market in hopes of coming out without losing too much money. And we can hope that the politicians stop being nice and get down to work.