Inflation is a convenient scapegoat. It sometimes allows the behemoths of Britain to ramp up prices to the detriment of advisers and their clients.
Whether it is a comparison of wages, prices, benefits, investments (especially in environmental, social and governance), it can appear – rightly or wrongly – that a number of firms are ‘dicing and slicing’ index measurements to put their performance in the best light.
Indeed, there is a lack of transparency when it comes to the end user, be it an adviser or a client, on just why a particular index from RPI to MSCI is chosen as that all-important benchmark. And regulators have limited powers when it comes to excessive profits, from utilities to bankers, in inflationary times.
Some discretionary investment managers tell me they do not use FTSE indices on their client reports as usage fees cost too much money, but opt for MSCI indices instead.
Are both sets of indices strictly comparable? And how can you measure ESG-linked funds, as the concept of a 'green index' is so subjective?
Drilling down FTSE and MSCI indices to highlight inconsistencies is too big a task for an opinion columnist like me, but I can shine a spotlight on simpler services to show how providers appear to ‘game’ the system. Let’s stop this practice now.
Action replay
The study of inflation fascinates me. I am a rarity; one of the few people in financial services to have been at the eye of the UK inflation storm, twice – today as financial journalist and in the 1980s as a junior employee at nationwide adviser, Julian Gibbs Associates.
Inflation then peaked at 18 per cent. I sold guaranteed income bonds, yielding 12 per cent a year, from some of UK’s biggest insurance companies. That was the going rate. Astonishing today. My phone number, advertised in six national newspapers, never stopped ringing.
Panic-buying ensued but sadly I was not on commission. Despite decent pay for a junior, in real terms I was worse off at the end of the year. A harsh lesson in economic reality I have never forgotten.
Watch out for stinging April price hikes
Advisers and personal customers alike will shortly face huge inflation-linked broadband price increases from April 2024. The whole concept of inflation-linked contracts is wrong. These price hikes bear little relationship at all with the actual costs of providing the service.
Energy prices are going down internationally, yet utilities still ramp up standing charges for pipes etc on top of massive energy hikes – just one more example seeking profits at all costs.
An inflation-linked price rise, even on a fixed term contract, is just about tolerable. What is verging on the usurious is the adding of a further 3 percentage points above inflation. And with no rights of free cancellation.
Automatic inflation increases above inflation should be illegal, if there are penal exit charges.
The actual broadband charge may bear no relation to inflation if the provider has made efficiency or productivity savings.
