The Banks and our clients

It is almost impossible to absorb the slew of press releases and public utterances from our beloved High Street Banks, and make sense of them - or at least draw sufficiently robust conclusions in order to devise sane, workable financial strategies.  Here we have a stab at some diagnosis of what the current crisis might be meaning to our clients (and also to us if we require financing):

• it appears to be the case that the banks have adopted a policy of taking whatever handouts the Government is prepared to give them, but with an absolute determination not to grant any concessions by way of recompense.  We'll probably see some flexibility as the Government racks up the pressure, but only then.
• it looks very much now as if the High Street Banks are effectively operating as a cartel.  This means that customers who are being hit with penal terms will be unlikely to be able to refinance with a competitor.  A clear understanding is emerging that these institutions will only be able to emerge from this crisis as viable entities if they can squeeze their customers until the pips squeak.
• we ourselves may have well-managed businesses, but when it comes to refinancing we should not expect to receive what could reasonably designated as 'fair treatment' from our banks.  TCF?  Forget it!  We are receiving reports of existing bank customers being charged 3% simply for a review of existing facilities - and with borrowing rates linked to LIBOR, this is now a licence to print money.

The banks will rebuild their balance-sheets, but it will be at the cost of a double-whammy for their customers - firstly for funding the bailout via the taxation system, and secondly through this kind of opportunistic charging.  As IFAs, it may be that there are skills we can bring to the table to help our struggling clients:

1. through the practical application of budgeting strategies, IFAs may be able to help business clients progressively reduce their dependence on bank finance
2. in circumstances where refinancing is required, IFAs may be able to liaise closely with the client's accountants in order to present the best possible business plan and cashflow to the lender
3. the obtaining of better-value protection insurance in order to underpin borrowing - which could well reduce outlay as well as ameliorating the degree of control the bank has over their customer
4. refinancing (where possible) with lenders outside the narrower range of the 'usual suspects' - this may well be one of those cases where diversification really does reduce risk
5. where there are cases of clear mistreatment by lenders, or practices which simply run roughshod over any rudimentary concept of TCF, there is a role for IFAs to act as 'white knights' to represent their clients' interests. 

Remember!! It's our belief that the banking crisis effectively spells the end of indemnified initial commissions for regular premium contracts.  After all, product-providers depend upon bank finance as well.  Our strong recommendation is that you use the present situation as sufficient justification to switch away from, or minimise your dependence upon, indemnified commissions.  Indemnity commissions are bad news if you want to build a recession-proof business!!