TONY HAZELL'S LAST WORD: Level the playing field

Twenty years ago, building societies dominated savings and mortgages. Now, they account for around one-fifth of each and many are fighting for their lives.

The biggest converted to become banks, giving windfall payments or free shares to their members creating a demutualisation frenzy. Every one of these has since been taken over by a rival bank or, in the case of Northern Rock, been nationalised.

A strong building society sector is vital for consumers. Building societies provide competition for the banks but, more than this, offer essential local services often where banks do not deign to tread.

Lloyds

Crushing the competition: State rescued banks are improving with government aid yet building societies continue to struggle

Until recently most of the remaining societies were thriving, managing to expand their businesses while offering a friendlier alternative to their members. But over the past two years they have been steadily undermined by both government and regulators who have put ever more daunting barriers in their way.

The Government has burned billions of pounds saving banks such as RBS NatWest that arguably should have been broken up - indeed, large parts of the non-retail side should have been allowed to go bust.

Yet it has largely ignored the growing plight of building societies. Indeed, far from helping building societies, it has made their job more difficult.

National Savings & Investments' one-year bond paying 3.95 per cent may be a fantastic deal for the consumer, but it would not be economically sustainable for an organisation operating in the commercial world. Building societies cannot hope to compete with an interest rate like this being offered by a government- owned bank.

Nor can they compete with the persistent marketing of Best Buy deals from Northern Rock, a bank that has been rescued by the taxpayer and now carries a government guarantee on all savings.

Building societies have also been forced to pay more than their fair share into the Financial Services Compensation Scheme to save failed banks. Some of this money has gone to Spanish banking giant Santander, to aid its purchase of another failure, Bradford & Bingley. Now we consistently see B&B and Alliance & Leicester (another Santander bailout) at the top of Best Buy tables.

Many building societies can no longer compete in the saving stakes nor can they afford to lend you money. To all intents and purposes they have become businesses closed to new custom.

Of course, building societies are not all blameless. Some embarked on ludicrous lending policies, doling out money to small businesses which had little hope of success and to homebuyers who simply could not afford to borrow.

Why these building societies were allowed to become involved with subprime lending in the search of supposedly easy profits is a question for the directors, non-executive directors and the Financial Services Authority, which regulates the sector.

Nationwide created its own problem by tying its standard variable mortgage rate directly to Bank of England base rate. But even this was an attempt to appease the Government. At the time this administration was pushing the idea of stakeholder products which were simple and easy for consumers to understand.

Nationwide obliged by tying its standard mortgage rate to 2 percentage points above base rate. That left it with no room to manoeuvre as base rate fell. Now savers are paying the price.

But we are where we are. If the Government wants a strong building society sector to survive into the future then it must recreate a level playing field where they can compete in a fair environment.

Failure to do this could mean that in two or three years time we are looking at a much reduced building society sector and a savings and mortgage world dominated to an even greater extent by a handful of big banks. That will be disastrous news for the consumer and it is an outcome we should strive to avoid.

Ducking the blame

Our war on Hidden Charges campaign has turned up some nasty examples of financial firms ripping off investors. But the case of David Jones, which we feature today, is perhaps the worst so far.

One year before retiring he was advised to move his money out of the stock market and into cash funds. There is nothing wrong with that advice - in fact it was eminently sensible.

What was objectionable was a massive commission taken by his financial adviser paid through charges imposed by Lloyds TSB's investment subsidiary Scottish Widows.

More than £18,000 was stripped from his lifelong pension savings - an amount he had no hope of regaining. The amount taken would have equated to more than two weeks fee-based advice for the financial adviser involved, Kevin Packebusch of Ladycross, based in Tunbridge Wells, Kent.

Scottish Widows washed its hands of any responsibility, saying: 'We can only do what the IFA tells us. We do not ultimately assess the suitability of an IFA's advice - we provide the product and offer a charging structure but

ultimately the commission taken is up to the adviser and policyholder to agree.'

This encapsulates much of what is wrong with our financial advice system. Surely when Scottish Widows received these instructions it was obvious that the investor had no hope of recovering these charges in the one year he had left to retirement.

In these cases there must be an onus on the investment firm to ask questions and, if necessary, refuse the instructions or demand that the commission levels are cut.

Take note here that while abnegating responsibility, Scottish Widows does admit that it supplies the charging structure. By supplying a generous charging structure it increases the chances that a certain breed of IFA is more likely to use its products.

There is also the question of how Scottish Widows can justify a 5 per cent charge for moving money from one of its funds to another. Surely this does not reflect the real cost of the exercise.

It can only be pure profiteering at the expense of its loyal, longstanding and long- suffering customers.

The Financial Services Authority is considering regulating products as well as advice - this is a case where some regulatory onus on the product provider might have prevented one consumer being severely ripped off.

t.hazell@dailymail.co.uk

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