What’s French for en-suite facilities?

In an episode of the 1980’s TV series “Minder, Arthur Daly is seen trying to sell the landlord of the Winchester Club, Dave Harris, a watch. Arthur says, “At that price it’s a steal”, to which Dave replies, “That’s what worries me Arthur”.

In January, we expressed grave concern that the Treasury is treating fines levied upon the banks and the financial services industry as another form of tax raising, to be spent in ways various, or not at all, with the public expected to believe the spin that it is ALL to be spent on good causes.

The Treasury trumpet, being loudly blown by the Prime Minister and the Chancellor, was sounding some really caring, sharing notes about how the banking fines will be used, for example to help wounded troops recover by way of various military charities.

It makes a great pre-election sound bite, and after all, who would cast the first stone at that most laudable of causes, even though the terrible state of our wounded and often cast aside veterans is not, at all, the fault of the banks or indeed the financial services industry.

But is all as it seems, are the fines being freely donated by HM Treasury toward those good causes as stated? How much has been spent and more importantly, how much has not been spent only to disappear into the general taxation pot or simply reducing the national debt left by the previous Labour government?

We issued an FOI request to the Treasury in January and the reply received has sadly confirmed that all that money is a long way from being spent in the ways it was suggested and is looking increasingly unlikely within the life of the current parliament, as was pledged.

Fines are no longer used to reduce the regulatory cost on firms who had ‘done the right thing’ so they could enable that reduction to be passed back their customers by way of lower charges. Regulatory fines are no longer about putting things right surrounding the bad behaviour of the banks toward their customers. Bank fines are simply a form of taxation, windfalls.

I think as an industry, we should be frankly appalled. The fines are a “craftily legislated taxation ‘skim’, a political opportunity steal of gargantuan proportions. And that is what worries me.

So how did this happen?

Because of a statute, ‘laid before Parliament’ in February 2013, that went into force on 1st April 2013 that made sure that those vast fines would be legally ‘skimmed off’ to benefit the Treasury, who perhaps with some sense of cynicism could have been privy to some ‘inside knowledge’ on how big those fines were going to be or actually set those huge fine levels.

Banking fines for 2014 were £1,462bn To put some contextual scale to this massive amount, the total revenues raised for alcohol and tobacco in 2014 was £197bn- that equates to 4% of total UK taxation revenues according to HMRC figures.

The FCA was obliged by statute to pay away £1.370bn of the fines the Treasury, the equivalent of 70% of alcohol and tobacco levies for 2014.

How has that money been spent? According to our FOI request reply:

£35,000,000 to the Armed Forces

£10,000,000 to Armed Forces covenant

£40,000,000 toward veterans’ accommodation

£20,000,000 to Childcare, but exactly what is not known

£10,000,000 to medical training, again, exactly what is not known

£10,000,000 to Blue Light charities, exactly which is not known

£10,000,000 to Youth United

£5,000,000 to the Imperial War Museum/ WW1 gallery refurbishments

£ 1,100,000 an approximate VAT rebate for the Tower of London poppies sale to allow more money raised to go to charity. This is not a government donation. It is a fine redistribution and a very cynical play upon public sentiment and the war dead of WW1.

This gives a grand total so far of £141,000,000 going toward good causes. And some £1.322bn left over.

I have never really had much time for the ‘Walking Opinion” that is Bono, but he had a point when saying “When a nation is over-reliant on one or two commodities like oil or precious minerals, corrupt government ministers and their dodgy associates hoard profits and taxes instead of properly allocating them to schools and hospitals”.

In the UK, the nation’s ‘good causes’ over reliance is on banking fines, and they are being hoarded and certainly not being spent in the manner implied or pledged by HMT.

The question the industry and the nation should be asking, especially as Parliament is expected to be dissolved on 30 March 2015 for the general election on 7 May 2015, is how and when is the remaining £1,322bn going to be spent during the remaining few weeks of the current Parliament….and on what and if not, why not?

A further question to ask is why are the fines so very large?

Is it all down to a translation of politico speak, as with the Arthur Daly inspired headline “what’s French for ‘en-suite’ facilities”?

Is it fines or just tax revenue raising?

Should regulation of the banks be completely removed from the FCA?

With politicians thoughts now very firmly set on the May 2015 General Election do ask any door stepping candidates: “why are you using banking fines to support Treasury spending instead of reducing my fees, as was the pre April 2013 intention, allowing me and others to charge consumers less”? 

Also, join the hundreds of your fellow advisers who have already supported our Downing Street petition asking that: 

Parliament should reverse SI 2013 No 418 allowing consumers to benefit instead by way of lower product charges and access to lower cost independent financial advice as a result of fines for bad behaviour reducing regulatory costs on MY firm.

Panacea Comment for financial advisers and paraplanners It’s a funny old game

I read that despite some 40 years of being told that butter is not good for you the processes that led to this conclusion were flawed, lacking in any solid trial evidence to back it up.

In fact it is suggested that ‘fat bastard Britain’ is in fact now the fault of scientific work in 1983. The BMJ journal ‘Review’ says it is “incomprehensible that such advice was introduced for 56million Britons in 1983”.

Well I guess that the scientists, like almost everyone else in the UK, will have the benefit of longstop protection, because if they did not, can you imagine the long line of CMC’s that would be forming now making claims stick for sending people down the ‘wrong dietary road’ for 40 years, seeking compensation for being ‘miss- fatted’ and being ‘advice deprived’ of the pleasure of full fat foods.

What is it about being wise after the event that is OK for some and not others?

It seems if you were a 60’s or 70’s celeb, financial adviser or politician of that era you will be ‘hung by the neck until dead’ for what many would consider to be a mix of some poor temptation based, wise after the event actions or decisions when opportunity presented itself and some ‘he said she said’ trial by public opinion or the FOS.

Yet if you have been responsible for giving very poorly researched health advice to some 56m Brits consistently over 40 years, life continues as normal.

APFA are meeting with the FCA later this month to press the case for a longstop.

Alan Lakey, a long time supporter of the ‘Longstop’ cause notes that Britain has long prided itself on being a bastion of fairness in an otherwise unobliging and inhumane world yet Parliament has seen fit to devolve virtually unlimited power to a non-accountable limited company status quango which has chosen to override statute and remove a basic human right from a small number of UK citizens.

This removal is made less palatable by the knowledge that when the FOS was being consulted on in 1999 the FSA promised that its strictures would mirror UK law.  This promise was broken without recourse to Parliament or the industry.

Now that the post-RDR world is comprised of professional, qualified advisers – who must agree some fee structure with their clients and must hold adequate professional indemnity insurance – it is entirely appropriate, fair and morally correct for the FCA to restore this basic human Longstop right.

In a week that we hear from a community member of an FCA positioning statement, all advisers should be very afraid of a lack of Longstop.

It says:

“There is no such thing as an insistent client.  If a client wishes to take a course of action contrary to your recommendations, then a letter signed by him/her to the effect that you will not be held responsible should a bad outcome result will NOT be accepted by the FOS. 

A complaint will be found against you for having allowed the client to do what you knew to be the wrong thing and took payment for it.  Your only option is to decline to act further”.

I hope that those in the chair at Canary Wharf meeting will have ‘boned up’ on their research around what consumer detriment ‘Longstop’ reinstatement would bring in a more considered way than our oh so clever scientists looked at consumer health in 1983 as FOS views like this one above will pursue firms to the grave.

Panacea Comment for advisers Hasta la vista, baby

Having until the end of 2012 owned a home in Spain for almost 10 years, I along with many others who have had the same experience will certainly know that the rain in Spain does not stay mainly on the plain.

Spain’s public debt is currently 92.1% of GDP and it topped €1 trillion for the first time despite years of government-imposed austerity. The economy in Spain is starting to show some signs of life and that is good news, but, with that sign of life comes the prospect of a new wave of UK second home-buying looking to take advantage of what appears to be very low prices linked to very favourable exchange rates.

We Brits do just love the idea of a holiday home bargain in sunny Spain and were the dominant international players in the Spanish market in 2012/13 accounting for 16.6 percent of the foreign total and 22.5 percent of the European total.

But making a rapid and sadly sinister move up the table were Russian buyers who accounted for 13 percent of the sales to European non-Spaniards, in 2003 Russians made up just 3 percent of this total.

This rapid rise is mainly because Spain offers residency, with very few strings attached, to non-European Union nationals who spend at least €500,000 on a property in the country. A great way to get those ‘Roubles’ out of Russia, but a bad way to provide ‘access all areas’ by way of the Schengen visa agreement.

But before you or any of your clients get swept away in a tide of euphoric bargain hunting, here are some things that you should know to avoid getting swept away in a tide of something quite toxically different. Would-be buyers can visit the very useful Spain-specific property advice pages on gov.uk and watch the FCO’s new video on YouTube.

Spain has a glut of unsold properties, those part built, those built but not yet sold and of course the ‘pre-owned’ variety. And within this glut of unsold housing stock lurks many dangers, and not always in the form UK focused homebuyers may anticipate.

Here are a few tips from someone who has been there, read the book and got the tee shirt.

  • It is a sad fact, in my experience, that the Spanish, particulary on the Costas, have a habit of telling you what you want to hear rather than what you need to hear.
  • Despite a lot of corruption being stopped with many ’bad boy officials’ being locked up for it, some buyers have been caught up in serious property problems leading to emotional distress and loss of home, personal effects and financial fortunes.
  • Poorly policed urban planning laws have resulted in some 300,000 illegal homes being built in Spain. In the UK a new build very rarely gets to a completion and sale without many checks and balances. This was not the case in Spain.
  • A question asked of me on numerous occasions was, ‘can you trust your lawyer’? A question not often a consideration in the UK, but many property frauds and miss-buying has come about as a result of poor legal representation, conflicts of interest linked to less than reputable estate agent practices, especially by expat Brit agents who see ‘Wild West’ business opportunities. Agents fees are huge, 3% upwards for a sole agency, sometimes as much as 10% can be charged on a multi agency basis. The total legal costs associated to a property purchase transaction are normally between 10% and 14% of the purchase price, with a mortgage involved it will be more.
  • The banking processes do not help prevent fraud opportunity as monies from a sale of your Spanish property can take 2-3 business days to travel between your lawyer and your bank account. By this time a crooked lawyer could have closed shop and disappeared with your cash.
  • New properties that were subject to bank repossession from busted developers flooded the market from the beginning of 2013. They were cheap, very cheap. Why, because Spain decided to put these ‘repo’s’ into a ‘rotten bank’ with the aim to sell off cheaply to recover the losses quickly by way of the mixture of low purchase prices and newly increased taxes on that purchase. Tax is set at 10% of the purchase price, 21% for land.
  • The unintended consequence for many who had been trying to sell ‘pre-owned’ homes was that their prices were hit or their general salability voided.
  • Spain now sees second homes as a good source of taxation revenue. Some of these are quite cunning. For example, no property can be rented out without a licence to say it can be. This costs. Second homes are now assessed with a rental value to allow taxes to be raised whether or not you rent it out or not. Many may ignore this but eventually the system catches up with them, mainly when they try to sell.
  • There are many hidden costs involved in owning a home in Spain. You have wealth tax, property tax, local council taxes, rubbish collection tax, utilities (of course) and something called ‘community fees’ if you live in an apartment complex.
  • Community fees vary, but for an apartment complex of say 50 properties this could be anything from around 3,000 Euros upwards to 10,000 Euros per property a year. This money is to allow gardens to be maintained, pools maintained, security (yes it is often needed) utility costs, cleaning, communal furniture, staff, administration, legal costs etc.
  • Second homeowners, especially non-Brits in my experience, have a cavalier attitude toward paying these. Without these fees being paid by all, in full and on time, the services cannot be provided. It is not unusual in apartment communities for over 50% of owners to be in arrears with these fees. The legal system makes it very easy to not pay and it can take years to get the fees paid via the courts. Non-payment is made worse as often these errant owners rent the properties out and keep that revenue. Property content and building insurance is vital.
  • The most sought after properties in Spain are ‘frontline beach’- full ocean view. These require extra maintenance, and of course extra cost is attached to do it.
  • New build properties in Spain look fantastic in every way. But often danger lurks beneath the gloss. They are many and varied. Electrics are often not too good, poorly finished construction can cause subsidence and when it rains, water can come in from some very strange places- above, below and from the sides.
  • In my experience property developers in Spain flew very close to the sun, warranties and guarantees may exist but trying to get them enforced takes years and often a court intervention is needed.
  • Crime is a problem, especially in Southern Spain. It is in part a result of huge local unemployment problems, illegal immigration, drug running as well as other organised crime. Historically this was seen as a ‘British’ exclusive, but today the sophistication of eastern block criminal activity, linked to a Spanish passport for that 500k Euro property spend, has exposed some extraordinary cunning, violence and in extreme cases death. Last year a Costa del Sol turf war broke out and police fear more bloodshed
  • Legal system, language and notaries. The legal system in Spain is dreadful, it is slow and laborious. In Spain, if you are unlucky enough to find yourself in the legal system, criminal or civil, allow for huge tactical delays, high costs and the need for professional representation. You absolutely will need to pay for interpreter services because the legal system and process is Spanish with the language written and spoken being Spanish. Buyers and sellers will need a lawyer and a notary, and ideally a ‘Power of Attorney’.
  • A local representative you can trust. Vital if you only intend to visit a few times a year. They can deal with all those niggling little problems of life in Spain that occur at a cost that is far cheaper than last minute air fares. Think: problems with water, electricity, repairs, deliveries, burglary, taxes etc.
  • Police, now that is interesting. In Spain there are three kinds of police: local, national and ‘green’. Local are just that and their activities are confined to policing the town they are employed by. National is ‘Guardia Civil’ who have access all areas. The ‘Green’ police take care of beaches and boundary enforcement matters between private and civil property. The police can be very heavy handed; fines can be imposed on the spot and if you are unlucky enough to be arrested, do not expect the police to deal with you in English. Again, you will need an interpreter and at your cost.
  • Driving. The roads are generally fantastic unless they are not. Speeding fines are imposed on the spot, if you have no money to pay you will be driven to a cash point or your car impounded until you can pay.
  • Property rentals. If you rent out your property on a short term, an agent is needed, you will be taxed on the rental. Agent services are generally very poor and cost far more than they are worth. The reason you need an agent is that many owners who rent see their rental properties in a very different way to the owner occupier. Trashing of property by holiday renters is not unusual in my experience and so you need somebody close to the action to deal with it. Long-term renters are a bigger problem as they often tend not to pay the rent after a short while and the legal system makes it very difficult to get rid of them quickly. And when you do, again, expect a trashed property.
  • Neighbours. As above really, as you cannot choose your neighbours and you certainly cannot choose who they rent to. Make sure of the rules that apply in your ‘Urbanisation’, who enforces them (if they actually do) and how they deal with the idiot element.
  • Councils are a nightmare. Taxes must be paid to them and if you buy a ‘pre-owned’ property you will need to make sure any unpaid taxes are paid before you buy or you will be liable. Tax demands come to your property in Spain, not to you in the UK.

I hope this has given an insight into the realities of owning that dream home in the sun. Spain is a beautiful country, the people generally very welcoming and tolerant. But before you buy, do consider the above points.

And if you want a good and reputable lawyer, I can recommend this firm, Manzanares, who represented our community for over 10 years and acted for many buyers and sellers there too.

They have produced this useful guide to home buying in Spain that you can download, they speak excellent English, although there is a legal protocol in Spain that legal documents and formal legal discussions are conducted in Spanish.

There is a Spanish proverb; De ilusión también se vive”. In English it means roughly that ‘we live in hope of our dreams becoming a reality’. But dreams can become nightmares too.

Remember that before you buy.

No problemo!