The sooner the guarantee goes the better

Finance companies is the theme I was am going to start the year with. Originally I toyed with the idea that maybe we should rename the survivors in this sector. Instead of calling them finance companies – such a tainted name now – that we could call them something like non-bank deposit takers. Not a particularly eloquent name, I must admit. Then I thought about it a little more and figured that’s the role of a PR guru, rather than me. Instead I have warmly welcomed the moves by some finance companies of offering non-guaranteed product to the market. So far only Marac and PGG Wrightson have done so, but others, I hear, will follow soon. It’s good for a number of reasons. Firstly it shows you how much the guarantee really costs. This is something like 100 basis points. To my way of thinking it is far better the investor gets this rather than the government. It also makes investors and advisers return to basics and think about the risk reward equation. It’s been too easy just to say take the company with the highest guaranteed rate. Who needs an adviser to do that? Advisers and investors should be researching any company they plan to invest in before giving them their money. It doesn’t matter if it is a finance company, a managed fund or a listed share. Do the research. The challenge for advisers though is they have to start doing some work rather than take the easy option of saying to clients, take the guaranteed product. At some stage the guarantee will go. The sooner the better as it just distorts the market, and encourages laziness.