Neil Faulkner explains why he rarely comes across a financial product worth recommending.
This article was first sent to Fools as part of our Good, Bad & Ugly email campaign.
When it comes to pure reporting (as opposed to our role giving you wealth-building tips), we at The Fool write about what the industry, the economy and the Treasury are up to. That's why the majority of our Good, Bad and Ugly stories are Bad or Ugly!
There can only be a small number of possible reasons why we find more negative stories than positive. The least cynical is that most financial products have dozens of providers, and each provider might sell many versions of it. This gives us consumers loads of choice, but unfortunately just a handful of them can be the best. Therefore, Foolish writers tend to spend a lot of time saying `Avoid these products because they're average or terrible.'
Another reason for pooh-poohing a product is that, while it may serve a purpose, it is only suitable for a small number of people. We therefore spend much of our time talking about the pros and cons before saying, `But, for most of you, you'd be better off sticking with this old product for these reasons...' The nub is that we often point you back to the same types of product, and regrettably rule out many of the more exotic ones.
In addition, many of these niche products are sold to everyone rather than to those for whom they are best suited. We therefore need to fight this by saying how ugly it is that they are over-sold.
To get a further idea of where things go wrong in personal finance, it's easier for me to give you a few examples by type of product:
Green and ethical
I'll start with all products that are linked to good causes. We at The Fool specialise in analysing financial benefits, as opposed to comparing the charitable benefits of various products. This means we can't say whether one ethical credit card does more good than another, for example.
However, we're able to compare the financial cost of these good causes. It may be that you take out a green mortgage that costs £25,000 over two years, and the lender plants 50 trees in return. However, if you'd got the cheapest possible mortgage it might have cost you £22,000 over two years. With the £3,000 you'd saved, you could have planted a thousand trees. What's more you could have chosen for yourself which of the tree-planting organisations to use (e.g. one that takes into account how the type of tree will fit into its environment).
It is virtually always best this way: to buy the cheapest product and invest the difference in good causes yourself. That's why it's normal for us to say that these products are actually rather stinky.
Savings
With all sorts of financial products you'll see we have the same problems finding Good News stories again and again. With savings products it's no different. It's the problem I mentioned earlier: most products are average or terrible, having inferior interest rates or no guarantee that the rate will remain good. What's more, many accounts have big restrictions on when you can take money out. This isn't a problem if you are willing and able to leave your money locked up for a while, but you do need to earn a particularly good rate to justify that. This limits the number of good products we can talk about even further.
Investments
There's a huge range of attractive-sounding investment products, but the industry so far has kept up too many barriers for consumers to compare them as they need to.
Putting your money into funds is the `normal' way to invest. This usually means that a fund manager or a management team invests your money for you. You can quite easily find out how the fund has performed over the past five years. However, the key piece of information that people need to know is not how well the fund has performed, but how well the fund manager, or the management team, performed. Not only that, you need to know for a ten-year period or longer to ensure that they're consistently good.
This information is incredibly hard to come across. Consider, if the fund you've invested in has done well for the past three years, but the fund manager leaves the day after you invest, you could easily end up with one of the vast number of industry monkeys looking after your money. And you probably won't even realise it's happened.
That's why we are unable to recommend funds managed by stupid humans.
Retirement savings
There's always so much bad news about the cost of pensions and the state that the nation has let its public and private pensions get into. We constantly are obliged to report on worsening annuities (monthly pension income), tax rip-offs, Government let-downs, pension scandals and so on.
If you feel like crying now, hold on just a second!
Those are just a few examples of the bad and ugly things that we must try and work around, but it's not always unhappy news in finance. We alleviate the gloom with pieces to improve your situation and, as you'd expect from a website with our name, we also often have a rather more upbeat attitude than the industry.
We'll continue to try to deliver our bad news with a tinkling shake of our jester's hats. In the meantime, take a look at a few examples of good news and good money tips in the box at the top.
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