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Financial advisers should be prevented from calling themselves “independent” if they receive commission from firms, a City watchdog has proposed.

The Financial Services Authority (FSA) said commission-based sales can lead to consumer detriment, with people given inappropriate advice in order to generate income for the intermediary.

The regulator also called for the advice market to be split into two camps, with higher end financial planning for wealthier clients and less expensive primary advice for a wider audience.

House prices rose by more than 1% in June, according to new figures.

The news will put further pressure on the Bank of England to increase interest rates.

Nationwide said that property values increased by 1.1% during the month, more than double the rate of increase seen in May.

Annual inflation picked up for the third consecutive month in June and now stands at 11.1%, up from 10.3% in the previous month. The typical home in the UK now valued at £184,070, more than £18,000 higher than the same period last year, the report shows.

It means that prices are increasing at around £50 a day, according to the UK’s largest building society.

The resilience of the housing market will heap further pressure on the Bank of England’s Monetary Policy Committee to raise the base rate when its meets next week.

Fionnuala Earley, chief economist at Nationwide, said: “While we expected interest rates to increase to 5.75% in August, this news, together with the revelation that rates remained on hold by only the narrowest of margins in June, will set the stage for that rate rise to move forward to July and for the risk of a rise to 6% to increase significantly.”

Despite the bounce in June’s data, the economist believes that the underlying trend in house price growth is softening.

Negative real earnings growth and higher borrowing costs are expected to dampen home buyer demand in the short term and reduce the rate of house price growth in the second half of 2007, according to the UK’s largest building society.

Ms Earley added that lower economic growth would also keep a lid on demand in the medium term. As such, Nationwide said it was sticking by its prediction of 5% to 8% growth in UK house prices in 2007 as a whole.

City watchdog, the Financial Services Authority (FSA), has published the first proposals (regarding financial advice) for discussion from the Retail Distribution Review (RDR).

The Discussion Paper (DP) represents ideas from the market and consumer representatives involved in the RDR and seeks to improve the current standards of professional advice; find more cost-effective ways of making advice available to a wider range of consumers; and improve consumer understanding of what they are getting for their money.

To achieve this, the key proposal is that the regulated investment advice market could be divided into two parts giving choices to firms and greater clarity to the consumer.

These could be summarised as:

1 - Professional financial planning and advisory services - which could be offered by highly qualified advisers serving those consumers who need the full range of advice.

There could be two types of adviser. The most highly qualified could agree their remuneration directly with the customer and not with the product provider as is often the case with commission now. They could then call themselves ‘independent’.

Those firms not meeting these conditions might wish to use provider-driven remuneration (i.e. commission), but if they did they would not be able to call themselves independent. The FSA would then seek to address the risks of lower professional standards and potential conflicts of interest through increased regulatory requirements. This would provide regulatory incentives to all firms to operate with higher standards.

2 - Primary advice - providing advice on more straightforward needs using simple products. This advice could be less costly and more easily explained to a consumer than full professional financial planning and advisory services.

It could be aimed at a wider consumer audience than the existing Basic Advice regime, with a wider range of products and without charge caps. It could build on the work of the Thoresen Review of generic advice.

During the DP’s six month consultation period, which ends on December 31st, the FSA says it will be actively seeking the views of industry, consumers, professional and trade bodies, ss well as undertaking further research on the impact of the ideas in the DP.

The regulator aims to publish a feedback statement in Q2 2008.

© Moneyextra.com

Stock markets have become dangerously obsessed by takeover deals when global profitability may be nearing a peak. So says Resolution Asset Management.

James Smith, chief investment officer of specialist funds at RAM, is concerned that markets may be eschewing fundamental stock analysis in their efforts to identify companies which may become subject to a takeover approach.

Although he believes multiples have been justified by economic growth, he questions how much further profits can rise from current levels, arguing that an imminent short correction might be beneficial to markets’ longer term prospects.

He says: “The current situation reminds me of the UK market in 1986, when everyone had to own the next big takeover candidate. Like then, the market is being led by the takeover theme.

“The question is: how much further can profits rise? We’ve seen some economic slowdown in the US already - there is no guarantee that it won’t get worse.”

Smith is particularly concerned about the role of private equity firms in the clamour for takeover targets.

He believes current generosity towards private equity - chiefly in terms of their willingness to offer ‘covenant-lite’ loans - is a worrying trend, although he thinks the potential problems could apply to all acquisitive firms.

Smith adds: “Credit seems to be very cheap to the private equity firms. The tail is wagging the dog. One of the more concerning aspects now is that it is not just the poorly-run firms which are being taken over it is also the good firms with little scope for restructuring.

“You wonder where the private equity firms are going to squeeze the extra profits from.”

© Moneyextra.com

Home information packs (HIPs) could be rolled out across the whole of the housing market by October.

Government figures showed that the number of accredited energy assessors has jumped by more than a quarter in the space of just two weeks - to 1,340.

And with a further 1,200 inspectors expected to be in place by the end of July, supporters of sellers’ packs said there was no reason why all homes could not be covered by the new regime by the end of the summer.

HIPs - which are being introduced in a bid to slash the number of collapsed housing transactions and help cut carbon emissions - are due to see a staggered launch from August 1.

From that date, sellers of four-bedroom and larger homes will be required to provide upfront information about the property and an energy performance certificate (EPC). The regime will then be rolled out to the rest of the market as and when enough inspectors become available.

Packs have been opposed by a large section of the housing industry, with critics claiming that they will increase the cost of selling a home and distort the market with little benefit to the homebuyer.

An original deadline for implementation of June 1 was put back after ministers admitted there were insufficient numbers of accredited energy assessors to enable the regime to be rolled out. A total of 3,000 assessors are needed before HIPs become mandatory for all houses on the market.

The Government has confirmed that since June 11, the number of accredited energy inspectors and assessors has risen by 28%.

A Department for Communities and Local Government spokesperson said: “We have made clear we will provide routine updates on numbers of energy assessors and home inspectors as part of our plans to bring forward HIPs and EPCs.

“We can confirm that there are now more than 1,340 accredited energy assessors and home inspectors. This is up by nearly 300 from 11 June when we last provided an update.”

Offset mortgages have experienced a surge in popularity among borrowers, according to new figures.

The Council of Mortgage Lenders (CML) said that last year 170,000 offset mortgages, worth £29.3 billion, were taken out - representing 7% of all new lending.

In the 12 months to March the total value of offset home loans recorded a 49% increase on the previous year. This compared to a year-on-year increase in the rest of the market of 15% over the period.

Offsetting works by combining a mortgage and savings or current account into one product, with excess money going towards lowering the overall mortgage balance. For example, a homeowner with a £200,000 mortgage and £20,000 in savings would pay interest on £180,000.

It offers the ability to make over and under-payments on the loan and gives a borrower the flexibility to reduce mortgage interest costs through savings accrued.

It can also lead to lower total interest payments and a shorter mortgage term because the interest is charged against a lower mortgage balance. Any savings the borrower has will earn a rate of interest similar to the mortgage rate, but savers will not be subject to a tax on that interest.

Phoebe Zhang, CML statistician and author of the report, said: “(This) research reflects the dynamic nature of the UK mortgage market.

“Mortgage lenders are constantly developing new products to meet the needs of borrowers and the fact there are now 250 offset products available in the market illustrates this.

“Going forward, continued innovation by lenders will help to increase consumer awareness of offset products and expand the market potential for offsets in the future.”

Research from the CML also found that the profile of a typical offset mortgage customer differs from other borrowers. The average age of someone taking out a product is 41 and they are likely to be remortgagers.

Credit card firms could be forced to improve the information they give customers to help them better understand the costs involved.

The Office of Fair Trading (OFT) announced that it is to work with the industry and consumer groups to make pricing simpler to comprehend.

It follows concern that too many people are choosing credit cards without understanding all the issues that affect the cost of the card.

Which? lodged a “super-complaint” in April over the lack of transparency in credit card interest calculation methods.

The consumer campaign group said there were six key features other than the APR which affected cost but were not sufficiently explained to the consumer. As a result, customers were prevented from making an informed choice on the basis of price, leading to a consumer detriment of £0.4 billion a year, according to Which?.

The programme of work announced on Tuesday by the OFT will explore the issues surrounding the cost of credit on credit cards cards including purchases, cash advances, introductory offers and payment allocation.

It is expected to take six months and will involve consultation with the credit card industry, consumer groups, Government bodies and regulators.

John Fingleton, chief executive of the Office of Fair Trading, said: “Credit card pricing has become increasingly complex, with many new dimensions such as interest free periods.

“While these new pricing dimensions give additional choice and value to consumers, they can make it harder for consumers to make informed decisions.

“This work will consider how pricing information might be improved so as to enable better product comparison by consumers without stifling valuable competition and innovation that benefits consumers.”

Lenders are continuing to raise the cost of fixed-rate mortgages ahead of a further base rate hike expected next week, figures showed.

At least two firms have now announced a second rise in their rates on fixed deals since the base rate went up in May.

It comes after all ten of the leading mortgage providers increased the cost of their fixed-rate products following the last interest rate hike. The move will further squeeze those coming off deal periods this year and add to the woes of first-time-buyers struggling to get on the property ladder.

Last week Abbey upped its rates on a range of two and five-year deals by 0.2%, taking their fixed-rates up by 0.25% since May. The UK’s largest lender Halifax followed suit on Monday by increasing the cost of its fixed rate products for a second time.

It comes amid higher swap rates - the institutional borrowing rate used to determine the price of fixed-rate mortgages. It also anticipates next week’s meeting of the Bank of England’s Monetary Policy Committee in which the bank base rate is widely expected to go up to 5.75%.

Louise Cuming, head of mortgages at moneysupermarket.com, said: “Borrowers needing the stability of a fixed-rate product should reserve their next deal now if their current mortgage term is set to end soon.

“While fixed rates have been looking pretty good in relation to the base rate, they appear to be going up and fast.”

The mortgage expert is expecting other big lenders to follow Abbey and Halifax in increasing their rates further.

Despite the rising cost, fixed deals remain popular with home buyers.

Recent data from the Council of Mortgage Lenders showed that in April 88% of maiden buyers and 72% of home movers opted to lock in a rate for a set period rather than have a variable rate.

Subdued wage growth coupled with robust spending and higher interest rates has left Britons saving the smallest slice of their pay packets since the beginning of the Sixties, a report released on Friday showed.

In a flurry of data examining the UK economy, the Office for National Statistics said that the household saving ratio – the proportion of disposable income not spent by consumers – fell to 2.1 per cent in the first quarter of this year.

This was down from 3.9 per cent in the fourth quarter of last year and is the lowest savings ratio since the start of 1960.

“The fall in the saving ratio for the latest quarter was driven by reduced employers’ special contribution payments into pension funds, following high payments in the previous quarter, a rise in tax and interest payments and higher consumption expenditure,” said the ONS.

For 2006, the savings ratio dropped to 5 per cent from 5.6 per cent the previous year, reflecting “slower growth in gross disposable income set against faster consumption expenditure”.

Analysts said the savings numbers were significant because they suggested household finances are stretched and a drop in consumption may be required to return saving to more normal levels.

“This reinforces our belief that the consumer will have to tighten his belt to some degree over the coming months and spending will consequently be relatively muted going forward, particularly given that he is also facing rising interest rates and increased debt levels,“ said Howard Archer.

However, in the mean time, signs that household spending remains robust is likely to embolden those on the Bank of England’s monetary policy committee who see a need to raise the cost of borrowing further still.

The more hawkish on the MPC will also have noted that a measure of inflation, the GDP deflator, was up by 3.2 per cent in the first quarter compared to the same period a year earlier, and is at its highest level in more than three years.

This and other data were contained in the ONS report of the Quarterly National Accounts. It confirmed the economy expanded by 0.7 per cent between the fourth quarter of 2006 and the first quarter of 2007, giving growth of 3 per cent on an annual basis.

The ONS also published its “Blue Book”, the annual overhaul of the UK national accounts. The main revision in the report was the inclusion of a new method for measuring investment in software. “This adds £8.3bn, equivalent to 0.6 per cent, to the level of current price GDP in 2006,” said the ONS.

Balance of payments data were also released on Friday. These showed that the City of London helped boost the UK’s trade in services to £8.5bn in the first quarter, the highest on record and equivalent to 2.5 per cent of GDP.

After adding trade in goods, income from abroad and transfers, the current balance of trade gap fell from £14.5bn in the fourth quarter of 2006 to £12.2bn in the first quarter of this year.

Separately, the Bank of England said there were 114,000 mortgage approvals in May, up from 109,000 in April. Last month’s number was softer than the recent six month average of 117,000. But it was above analysts forecasts of about 105,000 and confirms the housing market remains healthy.

Adding to inflationary concerns was another strong reading of the UK’s money supply, a measure whose elevation is causing consternation at the Bank of England. The final calculation of ‘M4’ money supply for May showed an annual increase of 13.9 per cent, said the Bank.

Economic Secretary to the Treasury, Ed Balls, has announced that the Government intends giving City watchdog, the Financial Services Authority (FSA) the responsibility for regulating the selling of travel insurance sold along with a holiday. The FSA at present only regulates travel insurance sold on a stand-alone basis.

The decision means that consumers of travel insurance sold along with a holiday will be protected by a core baseline of statutory protection provided by FSA regulation.

These protections include a requirement on firms to abide by the FSA’s principles, including requirements to conduct their business with due skill, care and diligence; and to treat customers fairly. Consumers will also have access to the Financial Ombudsman Service if things go wrong.

The FSA says it will implement this change in a ‘principles-based and proportionate way’, minimising the burden on those travel firms that do become FSA authorised.

Travel firms that decide not to seek FSA authorisation will be able to sell travel insurance through an appointed representatives route i.e. the travel firm will be able to sell travel insurance on behalf of a FSA regulated company.

There are additional options available to travel firms that may allow them to provide information on insurance for remuneration and, as part of the Government’s consultation; it will be seeking views on whether these freedoms offer travel firms a viable alternative to continue offering insurance services to their customers.

The Treasury says it will implement the new structure in a transitional way, giving the FSA and the industry time to adapt to the new regulatory environment.

It has also exempted from regulation the selling of certain types of insurance by certain sectors, for example, certain additional insurances sold by car hire firms, where the evidence shows that the risk of consumer detriment is low.

Consumers have a ‘knowledge gap’ in understanding travel insurance as a product and the cover it provides.

Evidence shows they make less informed choices when purchasing travel insurance than other insurance products because: although the travel insurance market is highly competitive, policies tend to be more complicated than a simple household or motor policy. Meanwhile, as a secondary purchase; consumers are less likely to be focussed on the details of their insurance policy than through a direct sale and; the majority of consumers only really seem to consider price, not the details of the policy, in deciding which policy to purchase.

© Moneyextra.com