I think going to university is now too expensive, time consuming, restrictive and potentially soul-destroying for people with talent to bother with anymore.

University has become a terrible deal, and most ambitious people shouldn’t go.

There, I said it.

I don’t know why it’s taken me so long to admit to myself that tuition fees, student loans, and the fact that any muppet who can write his or her own name now goes to university means it’s a waste of time to do so.

I suppose it’s because education is one of the central beliefs of being middle class in the Britain today.

Coming from a more working class background – with parents who strongly believed in education – it feels like pissing on the family photo album to make the case against going to university.

So be it.

I was among the first generation of my family to go to university. I benefited from a grant, and I didn’t have to pay fees. I invested my student loans.

My father, in contrast, got a scholarship to grammar school but when the time came to discuss whether he’d go to university – he said it wasn’t even raised. All his life he worked alongside people with degrees and Phds, wishing he had one.

That’s not an appeal to bring out the tiny violins.

It is to stress that I don’t lightly challenge the ubiquitous goal of going to university for youngsters with a bit of ambition.

And it’s to explain that I’m not some elitist snob for thinking it’s a positive sign that the craving for a university education may be fading at last.

Warning: This is a strident piece, aimed at provoking and inspiring those who want to do something different with their lives (whether it’s start a business, get rich, be financially free, or something unrelated to money). If you want to be normal, go to university and get into debt.

How I wasted my time from 18 to 21

It’s not as if I didn’t have a strong hint from my own university experience that it could potentially be a waste of time.

Having never enjoyed school, the first thing I did when I arrived at my top-flight university was to confirm I didn’t need to show up everyday in order to stay there.

No class register, no need to turn up!

I then proceeded to spend most of the next three years discovering women, music, poetry, and London. I read the NME over lecture notes, and created my own magazines and fanzines.

When I did go to lectures, I was spectacularly uninspired by all but about three of my tutors. Most were nice, smart people, but they spent a long time getting through a small part of the vast volumes of textbooks the university obliged me to acquire. There was also lots of diversionary tutorial-style stuff which wasn’t in the textbooks or on the syllabus – theoretically an advantage of a top-tier university education, but not great for passing exams.

“I was spectacularly uninspired by all but about three of my tutors.”

I didn’t waste my time with that. Instead I mainly crammed three or four weeks before the exams, and came out with a good degree.

I did a science / engineering degree, by the way – a terrible mistake for me, personally, which is another reason why you shouldn’t ask a 16-year old to decide where they want to waste three years of their life at great cost. Anyway, it wasn’t a less time-consuming arts degree, let alone something deeply spurious like a photography course or a diploma in fashion, so I had plenty of lectures to go to.

I just didn’t attend them, and it has never mattered since.

This isn’t a story about how I’m so smart that I didn’t need to be educated by lecturers. I was an idiot who sometimes didn’t know what exam I faced that day. I thought I knew more about life through literature than living it, and I made plenty of mistakes. But I was smart enough to realise it was more efficient to learn what I needed to know to pass my degree from books and friends than by sitting in lecture halls.

I’m also not ranting against a bad education. My alma mater is regularly named as among the best couple of dozen or so places in the world to go to university.

I ate caviar from the top table of the education system. I would have been better off skipping it for noodles from a Thai street vendor.

You don’t skip three years of life if you skip University

What about the wider university experience?

You know, quoting Oscar Wilde to bosom buddies under the clock tower at midnight, or meeting pioneering researchers, or simply learning not to be a teenage moron?

I think educated people mistake the progress they make growing up from 18 to 21 or 22 or 23 for the virtues of attending university.

You’d have made most of that progress anyway, as long as you weren’t stuck stacking shelves or masturbating between World of Warcraft sessions.

You can listen to inspiring people at the free lectures that happen in London and elsewhere every single day, or simply watch the TED lectures.

There’s an embarrassment of material out there that’s better than you’ll get in 95% of universities. And the Internet has made it easy to connect with like-minded individuals, too, whatever you want to learn more about. Why study alongside the third-rate when you can learn and even work with the best?

It’s true I met really interesting and stimulating people when I was in university.

However, they were also all idiots, just like any other 18-year olds and just like I was. Better to have met them in a job when they were older and wiser, or better yet in the field pursuing the same passion as me.

True, I did extracurricular activities in university that eventually helped me escape my dumb degree choice.

But were those opportunities a good reason to go in the first place? Why not cut out the middleman?

Too smart or too dumb to make education worth it

I’m not saying you don’t need to go to university because life is easy.

The truth is it hasn’t been so challenging for the young to collect and pay for the baubles of a supposedly respectable life – money, a house, a life partner, kids and a pension – since at least the 1940s.

What I am saying is that for most young people, university is no longer useful in helping you get there.

• Smart and tenacious people will waste three years when they could have been learning useful stuff in the real world (such as making contacts, and learning how to answer a phone in an office and be nice to workmates).

• Average people will be helped in the short term, but at the cost of £50,000 or so of student debts and spending most of their 20s and 30s paying it off, when instead they might have been discovering how not to be an average person.

• Intellectually mediocre people are probably better off chasing money from the start. There’s plenty of money out there in sales, various trades, or starting your own business and employing smart people who don’t know any better, or taking on average people with huge debts to service.

• Lazy people will find £50,000 buys a lot more food and beer in the Far East.

Note that if instead of going to university you simply doss about town or take a minimum wage job and do nothing on the side, then it’s possible – though not guaranteed – that you’d have been better off getting a degree and a lot of debt.

The world is tough, and you need to compete in it.

I’m just saying a degree isn’t anything like a free pass to success anymore.

The people who SHOULD go to university

There are a few people who should go to university – even though everyone who tries a bit now goes, and even though it’ll cost most of them a small fortune they can’t afford and stifle them with debt.

People who should go to university include:

• Rich kids without any better ideas.

• The poorest kids who get much of the costs paid for them.

• Anyone with a scholarship that pays for university, provided they are passionate (talented classical musicians, for example).

• Someone who is ABSOLUTELY CERTAIN a particular career is for them, and that it needs a degree (would-be doctors, for instance).

• University lecturers who get paid to turn up and teach students.

• People who get paid to clean up after students and university lecturers.

• Pretty girls with sugar daddies, to avoid being dull.

• Anyone attending the conferences that universities host to make extra money.

• Foreign students who help bring down our deficit by spending money here.

Almost everyone else should do something else.

Over-burdened bright young things

What if you’re especially academically gifted? Surely you should go to university?

If this were the 1960s, 1970s or even the 1980s, then I’d wholeheartedly agree.

Back then society, recognising your brains and your potential, would pluck you from the conveyor belt that was taking the others from cradle to grave via a mundane job for life, and expose you to new ideas, people, and opportunities.

And you wouldn’t even have to pay for it!

That’s the cherished cultural ideal of universities that makes it so hard for older people to admit that you shouldn’t rack up 5-10 years of your likely disposable income to pay off the debts you’ll get for going there today.

It was great back then. But it’s not like that anymore.

Today’s smart kids are so thoroughly brainwashed by the myth of educational excellence, so terrified of doing anything other than collecting qualifications and certificates, and so secretly fearful that everyone around them is cleverer and working harder than them, that they’d make a slave in a Siberian labour camp blush with guilt.

“That’s the cherished cultural ideal of universities that makes it so hard for older people to admit that you shouldn’t rack up 5-10 years disposable in debt.”

I’ve met these clever kids at the end of their university careers. They’re a weird mix of bewildered and arrogant, insecure and self-entitled. Many are borderline unemployable for a bit, and are more or less humoured in their first workplaces.

Oh most still go on to get decent jobs and so on, eventually. I’m not saying university is deadly, just that it’s dangerous, delusional, pointless, and wasteful – getting a degree is in that sense a bit like recreational drugs.

I can’t help thinking many of them would have been better off – certainly happier – if they’d skipped the whole farce.

I’m not sure what society gets out of it all, either. The innovation keeping us ahead of the Chinese and the Indians is mostly achieved by creative mavericks and dropouts, not by well-educated drones.

Maybe the mavericks need well-educated drones as workers? Or maybe we’d do better to encourage more mavericks.

Anyway, who cares what society needs.

This is your life we’re talking about, or the life of someone you care about. Think hard before you plump for over-education.

The rich dropouts

On the subject of mavericks and outsiders, I used to think university dropouts like Bill Gates, Steve Jobs, Mark Zuckerberg, Richard Branson, and the many others who achieve enormous wealth despite not learning to pass exams were the exceptions that proved the rule.

But as I’ve got older I’ve met a lot of self-made millionaires. I even count a handful among my friends.

Off the top of my head I can think of three millionaire friends or close associates who either went straight into work at 18 or else dropped out of university.

In contrast, I have one millionaire friend who dutifully did the super-educational thing. But he became a millionaire by being a banker, which is about the only way university still pays really big time, in the short run anyway.

Of course I know other people who completed university and became rich. My last boss is one, although the tens of millions he’s worth has nothing to do with his first class education.

He started his business on the side, while still at university, and that’s what made him rich.

Most of the other millionaire graduates I’ve met trace their success to taking a risk and doing something different – going into business, mainly – rather than to a degree.

Nearly all of these entrepreneurs could have started the careers at 18 and got the initial experience and contacts they used that way. A few could have simply read some books, got networking on the Internet, and skipped a first job in an office altogether.

University challenged

There are so many objections to the notion that university is a bad idea that it would take a university lecturer three months to drone through them all.

Let’s consider some.

How can I get a job without qualifications?

The sad truth is getting any job worth having is hard, and mainly comes down to experience and contacts. The sooner you can get those the better.

Kids choose fun but futile degrees in media or photography or fashion to try to get interesting jobs, but employers will still demand you work for free for months – if you’re very lucky – anyway.

Ignore the glossy university brochures. I’ve met many people who did these degrees, at great cost, who now work in the accounts department or similar.

Start doing what you want to do at 18, and be brilliant, if you must have a 9-5 job. Personally, I’d try finding some other way to make money.

What about jobs that demand qualifications?

It’s true that many businesses now recruit ‘graduates only’.

Given nearly everyone who can write and pay for a pint of milk is a graduate these days, that’s not exactly an intimidating hurdle – unless you’ve followed the advice of this article and skipped getting a degree altogether, in which case you’ll be momentarily stumped.

Ideally, I say avoid these sorts of jobs.

I saw on the news yesterday that Nestle is building an ‘academy’ at its new factory. If a chocolate maker feels it needs to train its own staff rather than leave it to universities, you should seriously wonder about the usefulness of what you’ll actually learn at them, as well as the competency of any company demanding evidence of a degree from you.

But if you must get a degree to do what you really want to do (are you sure?), then do it cheap by living with your parents, and having a part-time job instead of going to lectures. Read textbooks instead.

Or perhaps buy a degree on the Internet.

I want to do something that REALLY needs qualifications!

Okay, certain professions require teaching: I don’t want to have my heart operated on by someone who bluffed through exams using Wikipedia.

If you really want to be a vet, a doctor, or an architect – and I mean REALLY want to be one – then university is worth the cost.

You don’t need to necessarily start at 18, though.

One of my best friends did something really inspiring the other day. He left his cushy job in engineering – and a salary – to pursue his dream of a career in medicine.

At the age of 40! I was blown away.

How much better though that he does this at 40, when he knows what he wants, rather than sleepwalking at 18 into becoming an embittered box-ticking NHS robot who wishes he’d chosen to do something other than sticking his finger up bottoms all day.

I’ve met these lordly consultants and registrars, and I suspect many would be better for having lived a bit before becoming doctors, or at least for taking a career break.

My friend was an idiot at 18. No matter, I was there, and I was an idiot, too.

If you’re not taking advantage of what being 18 means and being a bit of a moron, then you’re doing something wrong.

Much more wrong than choosing not to waste £50,000 going to university.

I want to meet interesting people!

I have nothing against this aspiration, and I should pursue it more myself.

But it’s not a good reason to go to university.

You’ll notice heavyweight magazines like Prospect or The Economist or The London Review of Books don’t stuff their pages full of interviews with 18-year olds. Charlie Rose does not interview undergraduates. The opinions of first-year students are not called upon at economic summits, or celebrated by the Nobel Prize committee.

That’s because 18-year olds who’ve done nothing but study all their lives are pretty boring. Rich in many ways, but dull.

Reality TV programmes like Big Brother feature young men and women sitting about dissecting their mundane sexual woes while drinking endless cups of tea all day.

If that’s your idea of interesting people, you’ll love university.

You earn more if you’ve got a degree

This one is hard to argue, in that it’s statistically true. However, it’s also statistically meaningless. Only someone with a university education could think it was important.

Given that most of the brightest, ambitious people – not to mention the most privileged – go to university, it’s hardly surprising that the same cohort goes on to earn more money.

But this tells us nothing about the bright and ambitious people who do something else. We can only look to anecdotal evidence, like all the self-made entrepreneurs who seem to do just fine without spending three years being lectured by people who can’t do but do teach.

Besides, the education pay gap is shrinking every year. At this rate people who avoid university will end up financially ahead, once you take into account the cost of a degree.

That’ll be pretty funny – I can’t wait to hear the excuses.

Much-quoted data from the pre-fee charging era suggests an income premium over a working life for degree holders of £100,000. But that data didn’t factor in debts or fees, even before the recent massive hike.

So the jury is out on whether degrees will pay in the future, especially if you’re a man:

If tuition fees rise to £7000, degrees in the arts, humanities and non-economics social sciences will be bad investments for men. The cost of getting them will exceed the uplift in future earnings.

What’s more, at a higher discount rate on future earnings, or in the bottom 25% of graduate earnings, even degrees in science, technology and engineering will have negative pay-offs for men.

Most degrees still result in higher salaries for women according to the same research, but there are clearly a host of other factors at play here.

If you are set on getting a degree for money, do law or economics or similar, and try very hard to get a First!

I am passionately into something weird

There’s been this big invention in recent years. It’s called the Internet.

You no longer need to go to university if you’re a bit different or want to learn more about something weird. So don’t bother.

Being weird is brilliant and marketable these days, but it can’t be taught.

I want to transcend my poor / limiting background

I feel for you, I really do. There is still a class divide in this country, and I believe social mobility is declining.

Young people who grow up in wealthy households in the South East or in the privileged enclaves dotted around the country really have no idea how lucky they are, or how the other 90% live. If they are privately educated it’s even worse.

If you’re in a ‘bog standard’ comprehensive school on the outskirts of Middling Town, UK, your family probably doesn’t know lawyers or company CEOs – let alone the investment bankers, media geniuses, and entrepreneurs who are really doing well these days.

It’s very different for the lucky kids with high-flying aunts, uncles, and neighbours.

The rich are pulling away from the rest of society. The denigration of university education has taken away one of the few ways a clever, poorer young person could vault up the rungs.

From internships for the children of mates to crippling rents in London where the action is, opportunity is being closed down, not opened up, by these social trends.

I agree with all that. I just question whether a degree and a shedload of debt is going to help you. Especially if you do an arty degree and plan to work in media, fashion, music, design, or anything like that.

Your best bet escape route degree-wise is to do the most solid degree you can – preferably law, economics, science, or engineering-based – at one of the top universities in the country.

A degree in social science from somewhere nobody has heard of is going to land you back home on the shopfloor at Debenhams quicker than you can say: “Three years, £50,000 in debt, and all I’ve got is a chip on my shoulder”.

I want to be a grown up

The final recourse of the university defenders is it teaches kids how to be adults, and to live in the real world.

Such a laughable idea, I don’t know where to start.

Besides being grossly unfair to those poor dolts who skip university yet still somehow manage to drive cars and be polite to checkout assistants, it’s a pathetic justification for spending £50,000 moving from one town to another only to hang around with similar people learning lots of things you’ll never need to know again.

There are many more interesting ways to bridge the gap between self-obsessed 18-year old and a slightly less self-obsessed 21-year old than attending university.

There’s the now-ubiquitous gap year, for a start. I have come full circle on this – I thought it was a waste of time and money when I was a student, but 20 years on it seems like brilliant value.

People work all their lives so they can retire and take the trip of a lifetime. Why not take the trip when you’re 18, and learn to wash your own socks and make other people cups of tea along the way – just like in a hall of residence, but with better scenery?

Enjoy yourselves, then get a job, and count yourself £40,000 up on the deal.

University: A poor investment

I should have twigged the notion that everyone should go to university was a bad idea when it was championed by the last government.

Almost the definition of a good idea blown out of proportion is a modern socialist party’s manifesto – whether it’s state pensions, the NHS, worker’s rights, anti-discrimination, or the idea that everyone should be an A* student with a degree.

All brilliant ideas in theory – but absurd in extremis.

Cynics may say the Left’s championing of university is all part of some political game, but I’m prepared to give politicians the benefit of the doubt.

Most well-meaning people still think we need to send everyone possible to university. Practically everyone thought so 20 years ago, including me.

But times move on. The very popularity of the idea that everyone should get a degree has become its own downfall, by making degrees too expensive to teach and too trivial to count for much.

About the only thing that gives me pause in writing this piece is, as I said at the start, the thought of my parents, who glowed when I graduated and who spent some money on supporting me there, only for me to abstain from the whole debacle.

“The very popularity of the idea that everyone should leave school for university has become its own downfall.”

But we all make mistakes when we’re young.

It would be a bigger mistake to encourage more young people to waste their time and money getting a degree, out of some sense of guilt.

Remember: I didn’t even have to pay for my university education. Tuition was free, and a grant (and frugal habits) met most of my living expenses. Yet I still think it was a bad deal.

Imagine if I’d spent £50,000 on it!

Compound the £50,000 you’ll spend on university in a tracker fund for 50 years earning a little less than the average real return from UK shares of 5%, and you’ll have nearly £600,000!

Good luck beating that with your superior qualifications.

Unqualified opinion

Most young people won’t listen to me, which is fine – it leaves more room for those prepared to think different to seek the many other genuine opportunities out there.

Most of us are too old now to benefit from making a different choice anyway, whether you agree with me or not.

So it’s up to us to help the young at least think about their options.

Got children yourself, or plan to? According to research from the financial firm rplan, a child born this year will likely cost £123,000 to put through university.

My advice is to move somewhere vaguely affordable that has a decent university nearby, build your kids an annexe with its own entrance for when they’re 18, and encourage them to stay and study at home. You might just turn a liability into an asset.

Oh, and have one fewer child than you planned to. (You’ll be happier, anyway.)

If you agree with my argument that more young people shouldn’t go to university – not with all of it, but enough to give someone pause before starting adult life in hock to The Man – then please press the ‘Like’ button below, or Tweet it, or send it to some young person you know. You might just save a life!

Further reading:

1. Are you richer than your kids, or poorer than your grandchildren?

I see Halifax, the bank that brought us Howard the singing clerk – and brought to its shotgun suitor Lloyds a load of duff Irish property loans – is now offering spread betting.

Previously, spread betting has been the preserve of companies like IG Index and City Index. Large firms, sure, but hardly household names.

As I write, Halifax is devoting a key spot in its share dealing home page to promoting its spread betting product. I don’t know how many share dealing customers Halifax has, but its service – which I use and like – has regularly won awards, and given the size of the parent I’d imagine it’s significant.

Halifax's spread betting promotion, yesterday. (The bank calls it 'spread trading').

I think we can therefore say that spread betting has hit the mainstream.

What is spread betting?

When you spread bet on a company’s shares, you speculate that their price will go up or down.

The more the price rises or falls in line with your bet, the more money you make – and vice versa.

Invariably spread betting firms enable you to ‘gear up’ your position if you want, so the same amount of money can go further than if you had bought (or sold) shares in the firm the traditional way.

• This increases the potential reward you make from a correct bet, without the need for more money.

• But it also greatly increases the risk, since you can easily lose more than your initial deposit if your bet goes wrong.

You don’t explicitly pay commission when you spread bet, but to cover its costs and make a profit, a spread betting firm defines a price ‘spread’ that the share price must move above or below before your bet begins to pay out.

The chief benefit of spread betting – besides the ability to borrow to bet on shares, for those who want that – is that spread betting gains in the UK are currently free of capital gains tax.

What then is ‘spread trading’?

You won’t find the words ‘spread betting’ featured prominently on Halifax’s site.

Instead, the company calls its new service ‘spread trading’, rather than ‘spread betting’.

The bank might argue that it’s a more understandable term for its customers. But I’d cough and suggest ‘trading’ is probably also a rather more respectable-sounding term for a bank to be associated with than ‘betting’.

The Inland Revenue isn’t confused, though. Spread betting is exempt from Capital Gains Tax precisely because it’s judged to be gambling, not investing.

Presumably Halifax ran the term ‘spread trading’ by the authorities before launching its service. But it will still be interesting to see what name it uses in the long-term.

There may even be existing spread betters who would be drawn to opening an account with a financial giant like Halifax.

It’s important to note, though, that Halifax’s spread betting service is provided by City Index – and I presume it runs a version of that company’s own platform.

More importantly, the bank also states that: “Halifax Spread Trading is provided by City Index Ltd and therefore your contractual relationship is with City Index.”

Risky business

Halifax is also offering the same encouragement you see in most adverts for spread betting in the media: free credit to get new customers started.

It’s widely quoted that something like 80% of spread betters lose money, so I’ve always presumed the credit offers were there to hook people into the habit.

But perhaps the bank will be spinning its £100 of free credit as more of an introductory bonus type affair.

To give Halifax its due, the bank does state very clearly and multiple times that spread betting is not for everyone.

The website frequently states it is “for the more experienced trader”.

The bank also states prominently on its “What is spread trading?” page beneath ‘Understand the risks’ that:

Spread Trading is a high risk product. Please remember that it’s possible to quickly lose substantially more than your initial deposit and you may be required to make further deposits at short notice to maintain open positions. Spread Trading is not for everyone so please ensure you understand the risks.

The follow-up page on those risks is pretty clear, too:

Halifax Spread Trading is a product which you can use to speculate on the price movement of an investment, whether it’s rising or falling. It is important to remember that Spread Trading is designed for experienced traders and carries a high level of risk to your capital. You should only trade with money you can afford to lose. It is possible to quickly lose substantially more money than your initial deposit.

There then follows a long list of the various things that can go wrong with this type of service.

I haven’t signed up for this service, so don’t know if any vetting is applied to ensure only “experienced traders” are given accounts.

When I opened a spread betting account with a different firm in the past, the chief requirement appeared to be a credit card.

What would you bet on?

I am not adamantly anti-spread betting, unlike many old school investors.

Back in the good old days when making big capital gains was still a problem (little joke), experienced investors with fairly large portfolios could use spread betting accounts to avoid accruing taxable gains, even while running fairly traditional portfolios – as opposed to the typical day trader betting on the value of the FTSE.

Properly explaining how they do this would require an article in itself!

But to simplify, you take small, leveraged positions of the companies you want to hold in your portfolio in your spread betting account, and keep the bulk of your money in cash to offset the ongoing costs of leveraging up your positions.

You must also have cash available to meet margin calls.

Like this, you can theoretically replicate how a ‘normal’ portfolio of shares would rise and fall, without incurring a tax gain (or loss) – although at today’s low cash deposit rates I think it would be difficult to offset all the costs of borrowing.

But I don’t think this is how most spread betters behave.

Rather, they make short-term bets on anything from the gold price to the Dow Jones Industrial Average to the price of Shell to how many runs England will make in their next Test Match.

And they leverage up those positions without a cash reserve, which means they are wiped out by small moves against them.

It is therefore probably only a matter of time before a tabloid paper finds someone made into a pauper by spread betting and publishes a “Should our taxpayer-owned bank be supporting this gambling?” type story.

That might be unfair, like most tabloid sensationalism.

Yet I would question whether this is really a sensible product for a mainstream bank to be getting into.

Average investor: Not a hedge fund genius

Another thing to consider is what the evident appetite for spread betting tells us about the psychology of investors today.

It seems you can hardly open an investing magazine or newspaper without finding an ad or pullout supplement for one of the big spread betting firms.

The ability to go short (i.e. bet against) companies and the indices seems to be very appealing to the many who are sick of losing money as the markets bounce around.

But remember, the average investor is very poor at timing the market.

Therefore, as with so much else since 2008/2009, I see this evident desire to short the market as probably a pretty bullish contrarian indicator, suggesting that markets are more likely to go up than down from here.

Further reading:

1. Spread betting tax avoidance strategies
2. Shortsandlongs.com offering £300 if you switch your spread betting firm
3. Think you’ve spread your risk? Think again

What would Scottish Independence mean for your investments?

It’s not something I’ve heard much discussed, even as the political accent has turned decidedly Scots recently.

Other consequences of Scotland doing a bunk – such as perpetual Conservative rule over the remains of Blighty, or what the Scottish would do with the US nuclear deterrent – get a lot of airtime.

But there could be far-reaching effects for UK investors that stretch beyond what to call RBS or Scottish Widows south of the border afterwards.

Your investments in Scotland

RBS (aka Royal Bank of Scotland), Scottish Widows, and HBOS (Halifax Bank of Scotland) are just a few of the big names associated with the large Scottish financial sector.

Scots hoarding their money may be a myth, but it’s been happily taken to heart by generations of fund managers and bankers.

No offence to any Welsh readers, but the departure of the Principality Building Society and the car insurer Admiral from the ranks of UK PLC wouldn’t be anything like as wrenching as a change of domicile for Scotland’s financial sector.

According to the Fundwatch website, some 14% of total assets under management – about £550 billion – are managed in Scotland. What’s more:

There are also six FTSE 100-listed companies headquartered in Scotland (Aggreko, Cairn Energy, Royal Bank of Scotland, SSE, Standard Life and Weir Group) and a further 15 in the FTSE 250 (Aberdeen Asset Management, Aberforth Smaller Companies Trust, Alliance Trust, AG Barr, British Assets Trust, Devro, Edinburgh Dragon Trust, Firstgroup, Monks Investment Trust, Personal Assets Trust, Scottish Investment Trust, Scottish Mortgage Investment Trust, Stagecoach, Templeton Emerging Markets Investment Trust and Wood Group).

According to the London Stock Exchange, there are 116 companies listed on the main exchange and the Alternative Investment Market in total (including a number of investment trusts and investment companies) that call Scotland home.

This does not include other companies with significant business in Scotland or those owned by other companies, such as HBoS.

I’m personally in Caledonia Investments, which is the family vehicle of a colourful bunch of Scots and also in the FTSE 250, but which seemingly doesn’t count (perhaps they all live in Mayfair?) There’s also the Edinburgh Investment Trust, which presumably escapes inclusion on the grounds it’s run by a sassenach, Neil Woodford.

Let’s leave aside whether it’s likely that Scotland will overturn the Act of Union with the aplomb of a distant relative down from Kilmarnock for a Home Counties wedding who upends a table after one too many whiskeys/snotty jibes.

What are the issues for investors that could arise from Scottish independence, for investors on either side of the border?

Stock market listings

The good news is I don’t see any immediate problem in owning Scotland-based companies now on the London market. Scotland might want to resurrect the Glasgow Stock Exchange someday, but at first Scottish companies would surely continue to trade alongside the many Chinese, Russian, and Kazakstanian companies listed in London. So neither Scottish or ongoing British (let’s call them British from here) would be left with hard-to-shift holdings.

Currency

The prevailing view is Scotland would stick with Sterling in the short-term, although before the Euro became as popular as a Greek at a plate factory, many Scottish Nationalists sang its praises. Whether the two countries using the pound would work is arguable, but there’s a grander experiment going on over the Channel. In the long-term, if Scotland was to adopt the Euro, Scottish-based investment trusts and OEICs might offer a choice of currency-denominated shares, as some other multinationals already do with say dollars and pounds.

Taxes on dividend income

If Scotland won the right to tax and spend on its own account after so many years, I don’t see why foreign investors in Scottish companies would be let off the hook. Presumably, withholding tax would become liable for UK owners of Scottish investments, and vice-verse. Hopefully, our shared history would encourage brokers and other platforms to make managing the tax far more straightforward, or even automatic.

Regulation

Scotland won’t be able to properly police its financial services from day one. Though the UK hardly does a perfect job either, I’d guess Scotland would ‘rent’ the services of the FSA and others, for a few years at the least. It would be important to keep an eye on where and how your investments (including cash accounts) were being regulated, who would stand behind compensation claims, and so forth.

North Sea Oil

Ah, the black gold that will have Peak Oilers decamping to Aberdeen at the first sign of Scotland becoming a commodity economy! How exactly the oil reserves would be divvied up would be crucial. If Scotland got a per-capita allocation to rights to the oil, then with less than 10% of the UK population it would hardly be a bonanza. However, if the SNP and others got their way, it could receive over 90% of the reserves according to geography, which Reuters estimates is worth about £13 billion a year. Useful, given some argue Scotland is receiving a £16 billion or so subsidy from the rest of the UK today.

UK debt

Despite wanting most of the oil, the SNP only wants its population’s share of the UK’s enormous national debt. And who can blame it? We’d be getting into the realms of politics here, but needless to say neither country – or its investors – is going to get a treasure-filled settlement as a result of the divorce.

The UK state-backed banks

Another thing the SNP apparently doesn’t want a share of is the UK State-backed banks RBS and Lloyds, or the £66 billion bill for investing in them. It says the banking crash is London’s problem. Former chancellor Alistair Darling disagrees, saying that the RBS and HBOS fiasco was made in Edinburgh, and that they only survived because the whole country supported them. The Scottish economy is only worth £140 billion, so it would be even less able to shoulder the £1.5 trillion or so in assumed liabilities of the banks than the UK.

As a Londoner, I’d personally be happy with Scotland leaving these debts and assets to us. I think British taxpayers will eventually make a profit on our by-then foreign owned banks.

The UK gilt market

Another elephant in the room. Dividing up the UK gilt issuance by population on a roughly 8:92 basis between Scotland and the ongoing UK would be nightmare, and would trigger a credit event in bond market terms. It’s more likely the new governments would create some kind of debt facility that the Scots would have to pay-off in lieu of their share of gilts.

Scotland’s credit rating

According to the specialists at M&G’s Bond Vigilantes blog, Scotland would be unlikely to get a AAA-rating for its debt, mainly on account of its spindly GDP growth. The UK might still warrant a AAA rating on fundamentals, but the turmoil merely hinted at above of splitting Scotland from the UK could see our debt downgraded anyway on sentiment grounds.

A re-rating for England and Wales?

Still, I wonder if the remaining UK would actually enjoy an upgrade in the wake of Scottish independence? The markets might react favourably to perma-Tory government (even if many citizens wouldn’t) as well as the loss of the drag from the heavily public sector-weighted Scottish economy and its liabilities.

The loss of the UK’s oil reserves wouldn’t be the disaster they’d have been 20 years ago, and I’m not some oil groupie anyway. Give me the more vibrant and creative South East over a bunch of black gloop that’s boiling the planet.

These are just some of the issues for investors that might emerge from Scottish independence – please do share your own thoughts in the comments below!

Further reading:

1. Investing in Caledonia Investments
2. Cash and bonds are different investments
3. The risks of buying mark to market investments on margin

“Such an exercise in architectural uniformity, however, could never succeed. London was too large to be dominated by any one style or standard. Of all cities it became the most parodic and the most eclectic, borrowing architectural motifs from a score of civilisations in order to emphasise its own position as the grandest and most formidable of them all.”

– Peter Ackroyd, London: The biography

One thing that struck me when I went to see the St Paul’s protests a few weeks ago was all the building going on nearby. Like all good Londoners, I tend to ignore the apparatus of the mammoth conglomeration around me – i.e. most of the 607 square miles of London – preferring to focus instead on my own little travails, and the local cake shop that has started selling Lamingtons. It’s how you stay sane in a city of eight million people.

Walking around the City’s streets on a Sunday, however, with time to look up without being hit by a cab or an Australian on a mountain bike, the construction work is obvious. If capitalism is in crisis, then somebody has forgotten to tell the commercial property developers. They are investing in new London office space like hippies are going out of fashion.

True, some of the sites were mothballed after the 2008 downturn. But plenty have already been dusted off and restarted. Some schemes, like Heron Tower and the upcoming Shard, were never halted.

The result is that London is going to look quite different in five years time, as the digital artist’s impression in the little picture in the top right shows.

London is getting ready for the next boom

Reinvention and thumbing its nose at history is what London does – ironically for such a great historical City. Those who’d preserve every sight line to St. Pauls are trying to turn unplanned and sprawling London into something it’s not.

This is a mercantile mega-colony, thriving on trade, competition, and opportunity. Everything else comes after.

Now, I’m not suggesting there should be no rules or planning guides governing development. Nearly all of what has survived, from the little Wren churches dotted about the Square Mile to the Huguenot terraces of rejuvenated Spitalfields are testament to the importance of that.

But cities need to keeping moving, or like sharks they die. Go to Paris if you don’t believe me.

In some strange way, these new buildings rising across London convince me even more than rational analysis that the world isn’t ending, that the West is not dead, and that I should not swap all my shares for gold. The animal is alive, even if its spirits are still breathless and it’s acting on instinct.

Next week I’ll look at some specific ways to invest in London property. Many of the listed commercial property firms look good value again, after coming down from the post-2009 surge that (happily) followed when I last bought commercial property. Indeed some of the reasons for buying then still look good today.

First though let’s set the scene with an eyewitness tour of the property development going on right now.

Think capitalism is dead? Let me take you by the hand and lead you through the streets of London…

The Walbrook Building

Just a few minutes walk down Cannon Street, the new Walbrook Building (owned by Minerva) is offering nearly 400,000 square feet of space. Some say Walbrook Street was named after a stream that used to run through the City of London walls here. Like most London rivers, it was long ago buried underground.

Bloomberg Square

Far more depressing than skyscrapers – or even buried rivers – is the modern ability for corporates to rewrite place names in their image. Thus Walbrook Square (just over the road from the building above) is to become Bloomberg Square, after the media giant acquired the site for its new UK head office. The developer is unlisted Stanhope PLC.

20 Fenchurch Street

A few minutes walk further east brings us to 20 Fenchurch Street. This will eventually house the bulging 160m Walkie Talkie tower, the first of London’s big four new skyscrapers on our tour, and the one that most divides opinion, even among high-rise aficionados. Its developer, Land Securities, had planned to have the tower up by now, but the credit crunch squashed that timetable. It’s now due to be finished by 2015, though I didn’t see any evidence!

The Leadenhall Building

Anyone familiar with this part of London will find themselves drawn to the iconic Lloyds building on 1 Lime Street – still one of London’s most intriguing. The Leadenhall Building just across the road will at least physically put the Lloyds building in the shade, however. Better known to Londoners as The Cheese Grater, this 225m tower was designed by Richard Rogers. Work was halted by owner British Land in 2008, but it’s apparently restarted in conjunction with Oxford Properties. (Wikipedia claims 900,000 sq ft of office space, which makes me wonder if I’ve photographed the wrong corner!)

Heron Tower / 110 Bishopsgate

Here’s one they finished earlier. A short walk from Leadenhall Street, Heron Tower stands 230m tall if you count its mast, which makes it London’s third tallest building. To be honest, it’s not very exciting – people who complain about walkie talkies and cheese graters should come and see what sensible looks like.

The Pinnacle / Bishopsgate Tower / Helter-Skelter

Yep, it’s so far just more skips, cranes, and a snazzy font from the 1930s. But The Pinnacle looks set to be one of London’s most attractive super-buildings, with its swirling organic shape that you can see on its Wikipedia page. The building will be coated in solar panels, and like the nearby 30 St Mary Axe (aka The Gherkin) it will have a double-skinned layer to improve climate control. The unlisted developer, the Union Investment Real Estate fund, is promising nearly 1.5m sq ft.

Broadgate Tower

While you’re up this end of the City you could walk a few minutes further north to check out the 164m high Broadgate Tower. This is another British Land effort, and it’s notable for a variety of reasons, not least of which is that construction was delayed for years by the discovery of archeologically significant ruins. Much of the tower is built over the incoming train tracks to Liverpool Street station, with now-defunct Railtrack having granted the company air rights.

Nearby Occupy graffiti

This graffiti on a nearby building faces Broadgate Tower and the City. It’s nicely done, but in the context of all this development it sounds like a child refusing to eat his peas. But besides my ongoing sympathy with anyone frustrated at the banking blow-up and the huge rewards earned for such a monumental cock-up, they also got an extra vote because the gentrification around here is breathtaking and a little out of control. Traditionally it’s been a shabby area on the City fringes, with special areas like Folgate Street protected by anonymity. But as Spitalfields rolls into Brick Lane, it’s becoming tediously shiny.

30 Old Bailey

This isn’t anywhere near the other sites, but I’ve included 30 Old Bailey as an example of one of countless smaller building sites strewn between the City and Stratford, via the Isle of Dogs. According to Land Securities, it’s another 300,000 sq ft of new space on the way. If there’s truly another headcount cull in the financial sector, London is going to be THE town for cheap offices!

The Shard / London Bridge Quarter

Finally, at the other extreme, The Shard – or as nobody but the developer calls it, London Bridge Quarter. Differing from the others here in being (just) South of the River, The Shard will be the European Union’s largest building at 308m when it’s completed in May (although only 45th tallest in the world).

The scale when you get up close puts your heart in your mouth. I was there on a Sunday, and everybody I saw walking past looked up, like they were marveling at some super tall alien spaceship. I suppose this was what it was like in New York when they built the Empire State Building. Remarkable.

Make sure you come back next week for some practical ideas on how to invest in London property and offices via UK-listed property firms, especially if you are looking for income.

Further reading:

1. Mayhem in London
2. Warning: buying a flat in West London will cost you thousands a year more than renting
3. Online financial advice in the future

I wasn’t even able to enjoy George Osborne’s miserable 2011 Autumn Statement with a dash of schadenfreude.

The forecast for UK GDP growth has been lowered to less than 1% for both 2011 and the 2012. I can’t pretend I foresaw such a dramatic downgrade.

True, it’s been nearly two years since I correctly called Britain’s exit from recession, in stark contrast to invariably gloomy pundits elsewhere.

Yet even then I concluded…

Growing public and private debt will constrain consumption and tame future expansion. We’re richer now than we expected to be 12 months ago, but we’ll be poorer in five years than you might imagine.

… which sounds about right today.

I also thought markets would rise – which they did for a while – and predicted higher inflation. It’s over 5%, so I’ll take that as a win, too.

My big miss was on UK government bonds, where I expected gilt yields to rise and that – together with inflation – to send interest rates higher.

Not so far! As it’s turned out, UK government bonds have been a superb investment as yields have steadily fallen. And they’ve been much less choppy than shares.

You can bank on bankers

The truth is I was looking for a return to sustainable growth to drive the key variables I just cited, whereas what we’ve had is more like gentle stagflation.

Partly that’s down to the bludgeoning of embattled animal spirits by a succession of further shocks. In particular, I thought Europe would sort itself out sooner than it has.

I believe Europe has what’s required to deal with its problems. Don’t believe the hype! Italy, as a nation, is loaded. Germany is the sovereign equivalent of Rich Uncle Monty from Withnail and I.

But while its members tussle to discover if that’s true, Euro zone fear has hit all the banks hard (even the UK ones) and confidence has seeped away, which has compounded my bigger error – I underestimated the impact of financial deleveraging.

It’s ironic that having bemoaned the UK credit bubble for many years and predicted its messy end (though I certainly didn’t foresee the US epicenter, nor the exotic machinations), I’ve been too optimistic about how quickly we can return to ‘normal’ (whatever that means).

I partly blame the bankers. It turns out bankers, in aggregate, are even more valueless than I’d previously given them (very little) credit for.

For most of the past decade, they’d lend millions to anyone with an Irish accent and a building site. They geared their banks up to a level that would make a card shark wince.

Now, though, they’re hoarding money like Ebenezer Scrooge caught short at a misers’ convention. Financing for everything from houses to investment to factories has vanished, even for those who look a good credit risk. Today you have to be a great one.

I suspect most of the old-fashioned bankers who actually knew how to assess a loan were long ago put out to pasture. Instead, today’s rocket scientist bankers spend their days trying to figure out how to game capital ratios, and not making very much money for their employers. Meanwhile their prop trading desks have been unmasked as directional punts on the herd (or simply fantasists, in light of fraud at UBS and Societe Generale).

Why we as a society (and as shareholders) still pay these bozos billions more than they deserve for the measly value they add (in aggregate) is for another day.

The point here is that their excessive profits puffed up UK GDP even higher than we previously thought in the boom.

Now the tide has gone out, we’re even more pasty and skimpily-clad than we’d feared.

Unemployment benefits nobody

Bankers would say deleveraging is a problem for society as a whole. Some might even add that excessive debt got us into this mess.

Which is pretty rich, but true.

While I think bank lending is more subdued than it needs to be – I’d happily borrow £1 million today at 4% if I could get it – there’s no doubt many households need to pay off what they’ve already wracked up. With falling house prices outside of London cutting off the other main supply of fantasy money, consumer spending will be stifled for years to come.

While some will lose out more than others, clearly it’s not going to be a great time to be a worker in Britain. Hundreds of thousands more public sector workers are going to be dropped now we’ve belatedly realised we can’t afford them, and their pay is falling fast in real terms, which may be good news for the UK in the long term, but is terrible for the individuals concerned, as well as for GDP and the job market.

Blogger and Monevator reader ermine has posted some comprehensive stuff on dealing with these dark times, writing:

It’s time to get a personal finance tin hat – you need to electively choose to start living on less that your income even if it means doing without things, so you have space to deal with this loss of purchasing power. There’s no point in burying your head in the sand – deal with reality, otherwise reality will deal with you in its own way.

You might also read The Accumulator’s thoughts on cutting spending where it matters least to you.

Whether the government should also be quite so obsessed with its timetable for austerity, given the tiny interest rates it currently pays, is another matter.

I’m not suggesting we don’t need to hack down our debt over a reasonable timeframe and get away from the previous culture of higher taxes and higher public sector spending.

But surely now is the best time to invest in high impact infrastructure, like new railway connections and energy supply, as well as more social housing? Bold and targeted government action could create far more jobs now, when they’re needed, and many of the assets, especially housing, could be sold off in better times.

I’d far rather my taxes went on that than on higher unemployment benefit bills – let alone the other nonsense we still spend too much on.

Don’t bet on GDP

From the standpoint of a private investor, too, I also maintain that panicky action would be a mistake.

While things look dark for Blighty PLC, some of the measures being taken – such as the modestly higher infrastructure announced by Osborne – might help certain UK companies.

I wrote the other day about why housebuilders might make attractive investments, for example. Admittedly it’s already harder to see house price inflation taking off anytime soon, but interest rates also look even less likely to go up. And my main point was housebuilders are already making profits on today’s much lower volumes and prices.

More importantly for investors, though, national GDP growth has been shown to be a very poor predictor of that country’s stock market returns. The lowered outlook for the UK therefore doesn’t say diddly about what to expect from the FTSE.

I plan to write more about GDP growth and equity returns, but here’s a taster of the reasons behind the lack of correlation:

• GDP estimates national output, whereas listed company output comprises just a subset of output
• UK listed companies get most of their sales overseas, anyway
• Slow growth usually means interest low rates (good for shares) and little pressure on wages (good for margins)
• Companies may also be more careful with their cash, reducing wastefulness and empire building
• In contrast, investors get over-enthusiastic in the good times, bidding up multiples to earnings

The last point, valuation, is the critical one. Buying when shares look cheap to fairly-valued (like now, in my view) is much more important than buying when higher GDP growth – or smiling UK politicians – makes it feel good to do so.

UK companies are doing fine, on the whole. They have low debt, and the amount they pay out as dividends is already back above crisis levels. And on a P/E rating of around about 10, they’re still good value.

Further reading:

1. What is GDP?
2. Six reasons why Britain is booming again
3. What are growth investors looking for?

After revealing it will charge new fees for holding HSBC index trackers and certain other funds from December 31st, some customers of Hargreaves Lansdown seeking cheaper alternatives are looking more closely at the switching fees it levies for exiting its platform.

We have now clarified with the company that the fee is charged on a per fund basis for ISA and fund & share accounts, but it is a flat £75+VAT fee for SIPPs.

Hargreaves Lansdown switching fees

One Monevator reader has reported that the company told him it may ‘refine’ these charges depending on customer response.

In the case of the per-fund fee account types, you may want to investigate consolidating multiple funds into one fund – or even into cash, if you’re prepared to risk missing a move in the market – before making the switch, to bring down your fees. I’d suggest you check the small print and for look for additional fees – and also give Hargreaves Lansdown a ring – before taking any action.

Personally, I’d also wait for the dust to settle before deciding to move from Hargreaves Lansdown and paying these switching fees.

At the least, do the maths to work out the impact of the new platform fees on your total expenses before making any move – it will be substantially less for larger portfolios, due to the fixed per fund nature of the platform fees.

Also keep in mind that any ultra-low cost platform today is likely to be pricier at some point in the future, as providers seek to recover the revenues they’re set to lose from the end of trail commission following the upcoming implementation of the Retail Distribution Review.

Further reading:

1. Hargreaves Lansdown slaps new fees on index funds
2. Hargreaves Lansdown bags Vanguard funds
3. Is it worth sticking with Hargreaves Lansdown to get Vanguard funds?

I suspect The Iron Lady – a biopic of Margaret Thatcher’s rise and fall – will be as divisive as her career, even among Monevator readers (and writers!)

I am a political pariah among my family and most of my friends in thinking the woman did the right thing for Britain, albeit in brutal fashion at times.

Nobody under 30 can imagine how economically crippled this country was in the 1970s, when it was known as the sick man of Europe (though looking at Italy today might give you a clue). Bodies of the dead piled up in the streets was perhaps the most famous incarnation of a Britain that was truly bust.

Thatcher didn’t just confront the ability of organised Unions to cripple the country on a whim – maybe motivated by their own ultra-leftist ideals as much as to achieve anything for members.

Ironically, she also did more for social mobility than Labour achieved in its decade in power (or that Cameron and Co will begin to achieve today) by freeing up enterprise and working against the clubbable nature of 1970s corporate Britain.

Countries like France and Germany can still only look on enviously at our entrepreneuralism – or their young can move here, of course.

Margaret Thatcher the milk snatcher

On the other hand, I’d agree insufficient attention was given to the likely impact of shock and awe Thatcherism on industrial and mining communities in, for example, Wales and the North of England.

Proud traditions in those areas had served Britain well for generations, and after decades of difficult, dangerous work they deserved more notice than they got from London-centric, market-obsessed Whitehall.

Remember, these were working communities then, not the early retirement homes for the 40-year old perma-jobless that some have now become.

I’d agree their subsequent marginalisation is partly down to the political element of Thatcherite restructuring, though to some degree it would surely have happened regardless (consider similarly moribund industrial areas of the US).

Even in London – where the right wing’s laissez-faire attitude towards free financial markets in the 1980s was eventually embraced by Labour – the so-called Big Bang of deregulation and the subsequent banking bonanza helped blow up the economic system a quarter of a century later.

So her record is mixed, but ultimately I admire Margaret Thatcher and her achievements, and I think Britain is better for them. I miss the politics of conviction, too – on both sides of the political spectrum.

What do you think? Will you be taking popcorn into the cinema to see The Iron Lady come January – or sneaking in a bag of rotten tomatoes?

Further reading:

1. David Cameron’s curse: To save the UK economy and be hated for it
2. Cameron and Clegg must make a suicide pact
3. Ask the Chancellors: The verdict

In this guest article, Adam Price, founder of VouchedFor.co.uk, reviews the new wave of start-ups looking to shape the evolution of online financial advice.

There has already been much written about what effect the Retail Distribution Review might have on the investment and pension market.

The abolition of commission and the introduction of advisory fees is thought likely to cause the IFA¹ sector to shrink. Fearing the impact on sales, life companies, wrap platforms and asset managers are expected to launch numerous ‘direct-to-consumer’ offerings.

The question is, what will the next generation of direct offerings look like, and will they engage, educate and inspire the average ‘mass affluent’ consumer?

Consumers are today presented with a bi-polar choice. They can either take matters entirely into their own hands, spending significant time (months?) learning about investments before visiting an online brokerage (as many readers of Monevator will do), or they can delegate everything to a financial adviser who they meet maybe once per year.

For the average consumer, who is used to fast, efficient and engaging online solutions, neither prospect is particularly appealing.

Online financial advice start-ups

Perhaps the best indication of what the future has in store for internet-savvy consumers comes from the new wave of tech-based start-ups.

The approach these companies take to online financial advice falls into three categories:

1. The Virtual Adviser – Online tools that seek to replicate what financial advisers do today. Discover, educate and advise.
2. The Remote Adviser – Leveraging technology to connect financial adviser and client, regardless of location.
3. The Social Adviser – Crafting online communities capable of educating and advising one another.

1. The Virtual Adviser

“Could technology replace advisers?” is a question I’ve heard a few times. The idea is that an online financial advice service could:

• Aggregate your finances from various sources
• Take you through a fact-finding questionnaire
• Algorithmically design a portfolio that fits your attitude to risk and cash flow requirements
• Execute that portfolio for you (likely using low-cost ETFs)
• Monitor and rebalance it as time goes

PersonalCapital.com has recently launched in US, with Bill Harris (former CEO of PayPal and Intuit) as its CEO and with $24m of Venture Capital funding. It is the most credible offering I’ve seen that pretty much promises to do all of the above. That said, it also comes with a human adviser for a 1% p.a. fee.

Similar propositions include Betterment in US and RPlan (currently in private beta) in the UK.

Will they replace advisers? I don’t believe so, even on a ten-year timeframe.

Instead, I could imagine in ten years’ time financial advisers being called upon by a broader base of people, but with more specific and advanced advisory requirements.

With adviser and client both having access to the same platform, different clients would bring advisers into their ‘journey’ at different stages, depending on their individual need.

2. The Remote Adviser

In the view of the future I just outlined, I see financial adviser quality and niche-specialism becoming more important than geographic proximity to the client.

This will no doubt be aided by online video conferencing and co-browsing technologies. Indeed one start-up, Virtual Advisor, has already designed such a technology, which overcomes the regulatory challenges associated with distance-selling of financial products.

This leads me to my own category of start-up. VouchedFor.co.uk along with Brightscope in US and AccretiveAdvisor in Canada, all promise to help consumers find the right financial adviser for them.

VouchedFor takes a Trip Advisor user-review approach to comparison, while Brightscope takes a MoneySupermarket-style data-based approach, and AccretiveAdvisor takes a Match.com profile-matching approach.

Today, these websites promise to offer those seeking an adviser a better route than the Yellow Pages or similar. In my longer term view of the future, I can see such models becoming the market place for consumers seeking specialised advisers who can connect with them and their portfolios online.

3. The Social Adviser

Increasingly, individuals are turning to blogs and forums for financial advice.

It scares me how many people post “what should I do with the £500k I just inherited?” on MoneySavingExpert! Fortunately, somewhere among the answers is usually some sensible advice.

What these communities typically lack though is a ‘financial graph’. With Facebook and Twitter, we know who we’re listening to – defined by either their ‘social graph’ or ‘interest graph’ respectively. If I were to take financial advice from an online community, I’d want to be connected with people of similar financial situations, goals, attitudes (such as passive vs active), as well as to be confident of their credentials (if any).

Covestor (US) is an interesting start-up. It allows you to see different individuals’ investment portfolios, and their performance. When you see one you like, you can follow it – i.e. set your portfolio to replicate theirs. In so doing, a small fee in effect flows from you to them. At its extreme, the concept threatens to do to fund managers what Zopa (peer-to-peer lending) threatens to do to banks.

A very different social advice concept is Lovemoney. This site enables you to form groups based on financial goals (e.g. pay off the mortgage, or retire early) and share experiences.

Rplan (mentioned above) also promises to leverage this concept. Once you have set up your portfolio, they then plan to connect you with similar investors and relevant experts.

None of these is yet the Facebook of Finance, but nonetheless it is an interesting space to watch.

To wrap up…

I’ve painted here a picture of how I see technology shaping the future of financial advice. Like any prediction, I can at best hope that I’m directionally correct albeit precisely wrong.

My intent is to help stimulate the debate. Whatever form it comes in, I’m convinced this market is ripe for technology-led disruption.

No mention in this article of any online financial advice product or service should be taken as an endorsement by Monevator – it’s early days for most of them, so please do your own research. For more from Adam, follow him on Twitter (@VouchedFor).

1. IFA is an acronym for Independent Financial Adviser

Further reading:

1. Financial advisers: Swindlers and leeches
2. Weekend reading: Financial (ill) advisers shun ETFs
3. Weekend reading: Another tale of a woeful financial adviser

A few days ago I paid a visit to see the St Paul’s campsite protestors who are demanding… well, something.

They don’t know exactly what they want and neither do I. Yet we all believe some changes are required – doubtless very different ones.

I had a pleasant enough time at St Paul’s, and thought the protestors were a genial bunch. It felt far more like the fringes of the Glastonbury Festival than Paris in 1968 – besides the tents and the harmless nutters, I was even met by a fire-tossing juggler.

Perhaps that’s the problem. The US protestors have their clever We Are The 99% slogan, which imperfectly points to financial elites as a symptom (and perhaps a cause) of today’s dysfunction.

In contrast, the St Paul’s mob seemed to be the same crew with the same varying agendas who have been cropping up at these things since I first moshed as a left-leaning student to The Levellers two decades ago.

It didn’t feel like a movement, or even a stalemate – just a bit stale.

Their flag said ‘capitalism is crisis’, and I don’t doubt their (often misguided) convictions. But the wider lack of energy, ideas, or leadership in the response to the SNAFU of the past four years suggests it’s socialism that’s in peril.

To me the camp almost felt like a dumb animal response to a hurt, some sort of festering that reveals a deeper wound, but no sign yet of a precise cause or cure.

As George Carey writes following yesterday’s resignation of Giles Fraser, the Canon Chancellor of St Paul’s and surprise ally of the protestors:

As the story developed, thermal images of empty tents seemed to illustrate the hollow nature of the protest movement. The emerging picture of spoilt middle-class children returning home at night for a shower and a warm bed begged questions about their commitment to their cause. It also seemed to suggest that the cathedral authorities in their initial welcome had been duped.

And what was the cause anyway? “This is what democracy looks like,” claimed Occupy’s opening statement. It explained that it was engaged in a process of public assemblies in a democratic process. But it is making up its demands as it goes along – truly rebels without a cause.

In some senses this is what our society now looks like. We are all protesters, even if we don’t take to the streets. We all have an inchoate sense that something is wrong and we have any number of culprits to blame – from Europe, to immigrants, to the banks, to politicians and media barons. Public distrust of the institutions of a civil society has reached an all-time high as the performance of some bankers, public servants and even recently some sections of our media has sunk to the lowest depths after waves of recent scandal.

This protest is distinctly lacking a Martin Luther King, a Bob Dylan, or even a Billy Bragg. But then so did all the uprisings of the Arab Spring. We seem to be everywhere morphing into a split society of ultra-elites and amorphous also-rans, and perhaps that’s part of the problem, too.

Anyway, here are a few photos of the St Paul’s camp for those who wouldn’t be seen dead near a hippy.

(All photos shot on my lovely new Panasonic TZ10).

St Paul's, from the heavily policed Paternoster Square direction

Clever. Big future in advertising for this student.

They say "is" crisis, I say "in" crisis, but let's not call the whole thing off.

Big Buddha is watching them, too.

Sun-powered salvation. I'm just *guessing* they've done this before.

Most of the walls had messages respectfully taped (rather than graffitied!) onto them. They varied from the sublime to the sub-Socialist Worker.

Real global democracy demanded: A hung parliament highly likely.

I was curious how they kept their tents rooted to the ground.

No London paving was injured in the making of this protest.

Have multi-purpose protest sign, will travel.

A bit like Camden market on a Saturday, without the smell of petunia oil and fried onions.

I'm not going to knock recycling bins. Shame they put so many ideas through them.

I bet this conveniently located branch of Blacks did a great trade in tents with the anti-capitalists. Presumably on the barter system.

...and bin the bankers?

Even the toilets were revolting. (Geddit?)

Further reading:

1. Phil Carret: Another great old investor
2. Weekend reading: What matters and anti-matter
3. What should a new investor be told to do?

Thursday’s 4.7% fall in the FTSE 100 is the largest one day loss since the collapse of Lehman Brothers. I don’t have the record books to hand, but I’d guess it would be a top 20 Top of The Drops contender.

Ouch! Still, you don’t expect me to write that the sky is falling, and I’m not about to do so. The sky certainly isn’t blue and sunny – but it will still be there tomorrow.

I’m conscious I always seem to write positively about the stock market, which might seem at worse insincere, and at best useless. Remember though my view that most investors in equities should have a long-term horizon (10 years or so) and that they should be properly diversified.

Furthermore, valuation is everything when it comes to risk in the market, not news headlines. Headlines can surely move markets, but they’re unpredictable. Over-priced shares will always get you in the end.

I’m in this for the long-term – investing, and this website. I fully expect to one day write here that I’m concerned shares have gotten too dear, and that I’m putting more money into bonds or cash.

But I don’t expect it to happen with less than five figures on the FTSE 100. I’m still very bullish on shares on a ten year view.

Here’s five more thing to keep in mind after the FTSE 100′s falls:

1. Sharp share price falls mean nothing

Over the long-term it might be bad if shares stayed depressed for years. Companies could find it hard to raise money, some investments would turn sour, and the appetite of individuals to invest for the future would be stultified.

Generally though, big share price rises and falls are innocuous. Compare a big swing in the FTSE 100 to the price of petrol soaring 20% at the pump, or house prices falling 20%, or salaries dropping 10%, or an inflation rate of 10%.

Those are numbers that matter much more, day-to-day.

2. Politicians don’t exist to please stock markets

I’m as skeptical about the political system as the next cynic, but the fact is politicians don’t exist to serve the market’s whims.

European politicians will eventually bungle through a solution for their troubled periphery, because the money is there to do so, and because failure would be far more costly. But they’ll do it via their usual protracted banter over the bouillabaisse.

Bond markets – and especially credit markets – are different. A breakdown in inter-bank lending, for instance, is definitely something politicians must help sort out. And this latest economic wobble has come with a dash of that thrown in.

But stock markets? Meh.

3. You should be focused on income

Most investors are best off targeting income not capital gains. Yes, I understand that one can sell a rising share price to harvest some gains, or that taxes may sometimes favor investing for rising prices over a regular yield. And long term total return is theoretically the only metric to judge an investment’s success by.

However most investors are far more scared of capital fluctuation than they let on, and most of them actually desire an income, too – usually in retirement, but sometimes as a second stream to spend on the good things in life.

And I doubt a single income investment trust has yet cut its dividend outlook as a result of these recent stock market gyrations. Trusts like City of London and Caledonia have raised their dividends every year for more than 40 years, through wars, strikes, recessions, and political scandals.

4. Most of us should welcome cheaper shares

Just because I say it all the time doesn’t mean it’s not true. Anyone investing for the future benefits from low prices today.

If you’re a young investor in your 20s and 30s, a fall in the FTSE 100 index back to 4,000 would be like your birthday and Christmas rolled into one.

Even if share prices don’t eventually rise far above their old highs (and I’m 99.9% sure they will, sooner or later) you can buy a lot more income when prices are low due to the relationship between price and dividend yield.

Make sure you’re diversified – a tracker is the best start for most of us – then sit back and reinvest the income into a falling market.

5. The time to act was yesterday

This is true of politicians, who should have been trimming budgets and paying off deficits in the last boom, rather than increasing spending like they did. Now we need the spending, we risk instead being caught in Keynes’ Paradox of Thrift, as everyone catches the frugality bug at exactly the wrong time.

It’s also true of European technocrats, who should have listened to all of us who derided the Euro as an accident waiting to happen before wheels came off.

It’s true of Central Banks and regulators. I know how rare I was warning against the global property bubble (the tail end of which you can catch among the first posts on this blog) because all my friends were buying houses and calling me an idiot. The boom was the time to dampen down credit supply and to regulate the banks, not now when we desperately need them to lend.

Finally, it’s true of us as investors. You should get your asset allocation right in calm times, not panic and wonder whether you should abandon equity investing during a slump. If you’re going to be retired in 15 years and know you’ll need an income, start thinking about the shift as you age, not six months before you get a gold clock and a P45.

Whatever your plan – even if it’s to hold no shares when you think the market is overvalued by some measure such as PE10 (though I wouldn’t recommend it) – you should be figuring out the details on a sunny Autumn day with a glass of Chablis, not when the news pundits are going bonkers.

Which brings me to…

6. Nobody knows, and nothing is certain

I said I had five reminders, and here’s a sixth. What d’ya know!

All those sage voices on the television telling you what the markets will do next haven’t got the foggiest, either. Nobody knows what will happen in the short-term.

I’d also argue nobody knows much about the long-term. To give just one example, even a few years ago the idea that China and India and Brazil could keep the global economy afloat wouldn’t have been ridiculous – it would probably not have been mentioned!

Now it’s apparently our greatest hope (especially as everyone has forgotten countries like the US and Germany are still growing…)

Equally, nationalised UK banks and Apple being the sometime largest company in the world weren’t on anybody’s radar a decade ago.

Do a little reading about the history of the stock market, and you’ll find pages – no, chapters, in fact entire books – that are nearly 100% wrong about what will happen next in economies and the markets!

Their authors weren’t incompetent, just over-confident. They forgot that nobody knows.

Stay safe. Stick to your long-term plan, seek diversification, keep an eye on valuations, save a lot more than you earn, and avoid excessive fees and costs.

Don’t let anyone be more responsible for your financial future than you. It’s not a guarantee that the market will go up next week, but it’s your best bet for being a lot better off in 20 years time.

Further reading:

1. Plan to invest as shares fall
2. Low rental yields suggest house prices will fall
3. Four easy ways to get my latest articles

Angry men have been wreaking havoc across London. Fueled by aggression, fear, and a disregard for the long-term, they’ve been destroying value that’s taken years to build.

No, I’m not talking about the riots on the streets of Tottenham, Hackney, and Ealing, and the fires in Clapham, but rather the share traders that have sent the FTSE 100 index down around 20% from its high of the year – most of it in a record-breaking run of 100+ point declines.

Traders in suits and hoodlums in hoodies have more in common than just testosterone, however. Both justify running rampant on what seems like a convenient excuse, rather than any changed reality.

• At the heart of the London riots are ugly truths – poverty, racial tension, an alienated underclass, police bungling, and the death of a man with loved ones.

• At the heart of the stock market crash are ugly truths, too – the US deficit, the unprecedented downgrade of its AAA bonds, the contagion in Europe, unemployment, and a lack of political leadership.

Yet in both cases most of this was true last month, too.

Rather than rationally responding to new information, youths looting electronic stores and traders dumping holdings are behaving like animals.

Cheap, and getting cheaper

I can’t see any good reason for the FTSE 100 to be trading on single-digit current and forward P/Es, based on what’s emerged in the past week. It implies a change in earnings expectations from very strong growth next year to a sharp decline. The data doesn’t yet support that.

But take my opinion for what it’s worth. True, I was worried about the US downgrade, and I’ve been tilted much more defensively this year – but I was still absolutely overweight in equities. I was holding Unilever, Diageo and the like on valuation grounds, not because I saw a big correction was imminent, let alone a crash!

Even last week I quickly put my recently liberated cash back into equities. Needless to say, everything I bought has fallen further!

It reminds me of the old stock market joke: A long-term investment is a short-term trade gone wrong.

Equity income on sale

I am in this for the long-term, though, and if you are too then you’ll agree it’s hard not to salivate at some of the apparent bargains on offer.

The markets look utterly oversold, at least in the short-term. Yet once this kind of panic sets in anything is possible. You have to assume anything you buy now could fall a lot further.

If you’re looking for long-term income from quality shares, however, now looks a great time to buy. Even the FTSE 100 index will probably be yielding 4% on a forward basis by the time you read this, and its dividend-paying companies are generally in great shape. The 4% yield is more than a 1% spread over 10-year gilts – very high. Ideally, you’d buy a high yield portfolio and ignore the capital fluctuations.

Having said that, some of the real bargains appear to be at the more speculative end of the spectrum – small cap miners, little oil explorers, and the like.

What I suspect is happening here is both private investors and bigger leveraged funds are having to dump holdings to meet margin calls or as stop losses are triggered.

We’ll probably also discover in the months ahead that one or more big funds have completely failed, if history is any guide.

Further reading:

1. New London skyscrapers a big bet on the City of London’s future

This is the second of a two-part series on summer shenanigans in the markets. Read part one first.

A fellow blogger and Monevator reader named Ermine recently noted that I have been much more nervous in the past few months (although I did a bit more actual selling back in August 2010).

Recently, I’ve been worried about the unintended consequences of US Treasuries losing their AAA status. I still am worried, and will be until it happens without consequence, although the very low yields on these bonds shows I’m in a minority. Most investors couldn’t give two hoots about a ratings downgrade.

As an aside, the following graph from Business Insider shows yields have actually tended to fall recently after downgrades from AAA ratings!

S&P downgrades: A very contrarian indicator, recently.

This doesn’t say S&P is wrong to downgrade – only that the market anticipates the rating change by selling off, and then buys once the deed is done. But the wider point is that downgrades haven’t been doomsday by any means. (Mind you, things might be different when it is the world’s reserve currency that gets downgraded).

Another reason UK and US government debt has done so well is sovereign default fears in Europe. In other words, it’s a beauty pageant among ugly sisters. Forget doomed Greek bonds and the like, I’d even rather buy our debt than German bunds. I think the Eurozone crisis will be resolved, but it will be at the expense of higher German interest rates as the pain is spread around a more closely-integrated Europe.

German bonds would surely be vulnerable in such a scenario.

Right problem, wrong time

The real irony is that the UK and US governments are so committed to debt reduction in the near-term, even as they can finance spending more cheaply than ever before.

I first wrote in November 2008 that while I’m no fan of paying taxes to pay for other people’s laziness, I am all for smart investment in infrastructure.

With the government able to borrow at well under 3%, that’s doubly true today.

Sean O’Grady wrote recently in The Independent that:

Right now, British business is sitting on a £60bn cash pile, some 4.5 per cent of GDP, too frightened to spend it on new kit because they don’t know what’s round the corner.

What’s more, business investment is in long-term decline, on a quarter-century view, and that is not promising. In the past decade or so it has been hidden by some substantial government investment, but that is now set to shrink sharply. According to the CBI’s latest forecast private sector investment is due to grow by an annual rate of about 9 per cent over the next year or two – if companies can summon up the gumption to do so, and on a low base.

But the really startling trend is in government fixed investment. While certain high-profile projects such as the fast link to Birmingham will be protected, many others, not least the Building Schools for the Future programme, have been cancelled. So government fixed investment is due to shrink by an annual rate of 10 per cent plus in the coming months.

It’s a similar situation in the US. But sadly, in both countries government spending on useful infrastructure has been pretty weak compared to spending on what the Americans call ‘entitlements’, which aren’t half so good for boosting productivity, and on tax cuts, which are probably neutral.

With GDP faltering, the resultant public backlash against government debt couldn’t have come at a worse time for making the case for governments spending more, even though in both the US and the UK it’s easy to think of massive job-creating projects that could boost our nations for years to come, from railways to windfarms to nuclear reactors.

It’s not hard to get a decent return on capital when you are borrowing at less than 3%!

Betting on a mid-cycle slowdown

The final twist therefore to the present situation is that even as the US moves towards reaching a resolution about its debt ceiling – and so potentially staves off a meltdown – equities are selling off because of a fear that the consequent reduction in US government spending will choke off global growth.

There are already jitters that more companies have started to miss earnings estimates, although personally I think that’s more due to a mid-cycle slowdown exacerbated by Japan’s earthquake. But as we saw in part one, US earnings are close to their previous peak. They are undeniably vulnerable to a setback.

I’ve even found myself researching strange indicators such as the share price of auction house Sotherby’s! The theory is it peaks before a recession, due to all the excess cash sloshing about. That particular rune has indeed looked a bit toppy, although I wouldn’t say it’s brought the hammer down yet.

But on balance, I’d still prefer to be overweight shares than anything else. I don’t think UK shares are fundamentally dear, and I think that stock markets will be a lot higher in 2020 than they are today. I also think equities offer better-priced inflation protection than most alternatives (though I prefer to keep cash in NS&I index-linked certificates).

According to Bloomberg, the FTSE 100 is on a current year P/E of just under 10, falling to less than 9 on next year’s estimated earnings. The famed single digit P/E ratings beloved of bears! Even the S&P 500 is on a reasonable looking 12.5, falling to 11 on next year’s estimates.

True, the US housing market and unemployment remain mired in the doldrums and the UK and much of Europe is struggling, but equally I’d say that makes today’s earnings more credible than say 2007, coming off such an unpromising backdrop.

Finally, I think that most trading in equities is currently done by hedge funds and the like at the margins. Private investors never truly came back to shares, and nor have institutions like pension funds. As such, any choppiness in share prices could turn on a dime: I don’t take these summer gyrations as profound indications of a change in sentiment.

One caveat: like hedge funds, I’ve been actively trading more than ever. My passive allocation has been at an all-time low point since early this year, as I’ve tried to position myself more defensively through globally-focused dividend paying shares like Diageo and Unilever, and seemingly mispriced securities like the Caledonia Trust. I’ve also realised about 4% from selling vulnerable or illiquid holdings, mainly to give myself a little war chest to cheer myself up if things turn really bleak!

It has all helped recently, but it obviously won’t protect my net worth in a rout. If we see one, it’ll be time to dust off the bear market survival guide again. As a 30-something I’d much rather take my chances with equities for the long-term than government bonds at 300-year old lows. If you’re 60 you might take a different view, although you should be thinking about rebalancing as you age, not as the market wobbles.

Just as I believe the UK government should be investing for the long-term given it can borrow so cheaply, I still believe these past years will eventually prove to have been a great time for us to build up an income for the future. If you’re looking to someday live off investments, bear markets are to be welcomed.

As ever though, the sensible thing to do is to buy a diversified portfolio, periodically rebalance, and not try to be too clever!

Readers, what do you think of the recent market wobbles? Let us know what you’re doing below (saying “nothing different” is entirely acceptable…)

Further reading:

1. The bull market hits a speed bump
2. Should you be investing more in technology?
3. The hidden cost of not saving and investing because you’re in debt