Why younger investors need a Super Isa (Investors Chronicle)

Moira O’Neill of Investors Chronicle takes a look at Michael Johnson’s CPS paper ‘Put the Saver First‘.

“As an investor you probably have personal experience of plenty that’s wrong with the financial services industry, whether it is bad advice, poor products or high charges. But a new paper from the Centre for Policy Studies blazes a trail through the industry, demonstrating why financial services are widely, and justifiably, distrusted, while putting forward 104 recommendations for reform.

Michael Johnson, the author of ‘Put the saver first’, believes that only the industry can redeem its own reputation.

Mr Johnson, who is an outsider with no vested interests and has the ears of policy makers from all parties, tells me that he is not very popular with the Investment Management Association (IMA) or the independent financial adviser (IFA) community, the subjects of two of his more controversial proposals. He has recommended that the IMA cease its involvement in the labelling of funds, including scrapping ‘absolute return’ and ‘protected’ tags, not least because, as an industry body, it lacks a common purpose with consumers. He also recommends that the IFA label represents an irretrievably damaged brand and should be consigned to history, which has resulted in him receiving hate mail, mostly anonymous.

“The upset is a compliment,” he says. “It tells me I’m getting to the roots of the problems. The advice industry has not endeared itself to the public. People don’t enter the financial arena with a view to enriching their clients. Those outside the industry simply want the problem of pensions taken away. So it is easy to fool them.”

While he concedes that there is a small element of the adviser community that has high qualifications, ie the professional financial planners who have Chartered status, he concludes that “most of the adviser community is masquerading as a profession, which they are not”.

But there is a more serious problem underlying his recommendations. And that is the uncertain financial future of the so-called Generation Y (broadly those in their 20s and 30s), who could be the first generation to experience a lower quality of life than that enjoyed by their parents. “For 99 per cent of this cohort the word ‘pensions’ does not resonate,” he says. “The industry is in total denial that their next cohort of clients is not going to materialise.”

Most young adults don’t pay higher-rate tax, meaning pensions look less attractive. “From the Generation Y perspective, is the pensions deal worth it? You can have a 20 per cent bribe today to put your money away for 30 years and not touch it.”

Mr Johnson is in his 50s and considers himself in the last generation to get into the housing market. “My children will be saddled with debt, plus their priorities and value systems will be different because the way they communicate will be different – via social media. But policy makers are not of their generation.

“There is a societal schism opening up. It occurred to me that the Centre for Policy Studies is actually the Child Protection Service. We’re trying to counter a generational schism.””

To continue reading the full article, visit the Investors Chronicle page.

Date Added: Thursday 5th July 2012