Despite the best efforts of the Regulator, Government, consumer groups and reputable IFAs, it looks as if the great commission rip off is alive and kicking.

For many investors, it will come as something of a rude shock to discover that their ‘Independent’ Financial Adviser is being bombarded with tantalising end of year commission offers from supposedly reputable insurance companies (an oxymoron?).  Take this one, for example; a Scottish Insurance Company is offering commission of 6% on pension contributions or transfers in.  Now, many advisers will not be tempted by such huge sums, £3,000 on a typical £50,000 transfer, but how does an investor know what is driving the advice?

In my view, the Regulator should be querying the appropriateness of these inducements, especially when research shows they lead to bad advice.  Sadly, for those choosing an adviser who takes commission, it is still a case of buyer beware.

Driving to Perth Zoo this morning, we were listening to MIX 94.5 FM Radio Station, which is pretty much as you would expect and much the same as many pop stations in the UK.  Whilst the music is patchy, the station clearly expects its listeners to take an interest in matters financial.  At the end of a news bulletin came a piece of the current state of the Australian stock market and the benefits of overseas diversification.  It is hard to imagine a similar station doing the same in the UK, I would expect the audience to be almost universally uninterested.

Now, this hardly constitutes exhaustive research allowing us to conclude that Australians are more sophisticated than their British counterparts when it comes to investing but it does form part of a consistent picture, as I have commentated before.  Australia is very different to the UK in many ways, not all of which are better, but they run a budget surplus and seem to take pension funding very seriously as a nation.

 Of course, it helps to be sitting on top of a disproportionately high amount of the world’s natural resources but they do seem determined to make the most of their good fortune.

Whilst we in the UK are in the throes of Retail Distribution Review by our Regulator, it is interesting to see that Australia (apparently, home of the Wrap) is facing up to similar issues.  The Australian Securities and Investment Commission found in a survey last year that consumers were six times more likely to receive bad advice when an adviser had a conflict of interest over remuneration, even if it was disclosed, and that most investors were unable to tell when they had received bad advice.  Now, you could dismiss this on the grounds that Aussie investors must be considerably less sophisticated than their British counterparts but I would not be too complacent as the average news bulletin in Australia carries much more financial news than those in Britain.  Clearly, the existence of commission has a hugely detrimental effect on the quality of the financial advice received, a fact not lost on the British Financial Services Authority, the Government, the Consumers Association and some financial advisers.

“The question remains as to whether full disclosure is enough to deal with the potential conflicts of interest associated with commission-based fees, or whether there is merit in the industry moving further in the direction of offering advice on a fee-for-service basis.’

Keeping tabs on news from the UK whilst I am in Australia, I see that the headline on the BBC Business News is that Northern Rock faces ejection from the FTSE100, the index of the shares of the leading companies listed in London.  It is odd what is deemed to be newsworthy but it surprising that this Bank is still limping along at all as an independent entity.

Unfortunately, the Government, having found itself forced to preside over a fire sale following its mishandled bail out, looks to be fumbling the process of offloading Northern Rock.  All efforts to find an acceptable solution, where the bank will carry on roughly as before, look to foundering, squeezed between the demands of existing shareholders and the need for taxpayers to receive their money back at a commercial rate of return.  Hovering in the background are the European authorities, keen to ensure that no breach of their regulations takes place, who have imposed a deadline of February for the state aid to be withdrawn.

Notwithstanding the damage done to the UK’s financial services industry by having to go cap in hand to the Government for funding, the spectre of intervention from Brussels is almost as worrying.  The European Commission is struggling to prevent State intervention in industry across a number of countries, which have been rightly criticised by our finance sector, who look to benefit from increased genuine competition and it ill behoves us even to appear to indulge ourselves in similar practices.

Anyway, back to the plot.  Despite the expectation of a number of bids, once the first one, from a consortium lead by and labelled as Virgin, dropped through the letter box, it was immediately accepted as the preferred bidder.  To an outsider, this did seem a little strange.  You would not have thought that a wait of a few days more to see what the others would bring to the table would have been a problem.  Now the shareholders are kicking up a fuss and threatening to prevent any sale which they would perceive as robbing them of value.  I should have thought that the shares are virtually worthless as, in the event of foreclosure by the creditors, shareholders come some way after in the division of the spoils.  However, were I a shareholder, I might spot an opportunity in the Government’s increasing desperation and discomfiture.

Politicians are always somewhat in thrall to Virgin’s boss, Richard Branson, and I am sure that the prospect of this self-styled champion of the people bailing out Northern Rock has much to commend it to them.  There is also the likelihood that Virgin would retain more of the precious jobs in the North East than would some of the other bids.  The powers that be must be praying that this affair is resolved quickly and cleanly.  They most certainly do not want to spend years fighting court cases.

From here in Perth, capital of Western Australia, where I am visiting, the residential property boom looks somewhat different from the one we have experienced over the last ten years in most of the UK.  In the UK, we have become accustomed to explaining away the furious rise in the prices of homes in terms of supply and demand, i.e., there is insufficient supply to satisfy the demand, which is rising.  There is plenty of land, it is just that we will not let anyone build on the bits of it which are sited where people want to live.  We have surrounded our cities with greenbelt, and very nice it is too, but it does nothing to alleviate the lack of supply.  That lack of supply when coupled with a seemingly limitless supply of easy credit, secured against ever rising prices, has fuelled a tremendous boom.  Now that one of those elements may have been removed as the credit crunch takes hold, it may be that the market will grind to a halt.  The fact that supply is inflexible makes the residential property market inefficient, amplifying the boom and bust cycle.

In WA, some things are similar; the economy is booming creating a surge in demand and mortgages are relatively easy to obtain.  The residential property market in WA, and probably most of Australia, is dominated by new homes.  Not for Aussies the problems and expense of living in a home built for the needs of a different century.  Also, WA is hardly short of land; an area the size of Western Europe accommodates just two million people, mainly around Perth, which is growing at a frightening pace.  Of course, some suburbs trade at a premium as the rich prefer to congregate together but bulldozers carve out new land for building every year.  Want a home?  There is a plot ready and waiting for you to build upon.  This ever increasing urban sprawl brings with it other problems but short of land they are not.  Those hoping for a home in WA may have to wait up to two years for a builder to get around to them, though.

So why have house prices in WA and the rest of Australia been booming much like the UK (and the US, amongst others)?  I put it down to confidence in the economy and easy credit.  It does not really matter what you pay for your home so long as you believe that someone will buy it off you for more (the greater fool syndrome) and the borrowing is cheap and expected to remain so.  No one cares that they are paying twice as much for their home as they would have done ten years ago so long as it doubles in value over the next ten years.  Thus do asset prices lose any connection with the fundamentals.  What’s more, the more they go up, the happier we feel.  Warren Buffett has spoken rather disparagingly of those buyers who wish up the price of investments and it does seem a little irrational to draw comfort from the fact that you will have to pay a great deal more for your next purchase.

Whilst we were in the throes of the boom, here, as in the UK, those who should know better explain things away as being different this time.  If, as seems increasingly likely, this boom derails next year, the same commentators and economists will be telling us how it was all so blindingly obvious that it was going to end in tears.  We wait with bated breath.

If your investment manager does not share the same timescales as you, can they really deliver the performance you need?  When the tenures of fund managers are measured in months rather than years, it is no surprise that their strategies do not suit investors, for whom investment horizons may be measured in decades.

It is important for investors to realistic about the investment objectives set by their fund manager who is much more likely to be focused on their CV than most investors would believe.  To the average fund manager, an above average return every three years delivers headline grabbing performance for long enough to draw in more funds and to enable them to feather their nest; that career move will leave most of their investors way behind.  However, a good year followed by a couple of poor years does not give them the type of consistency most of them seek, however well it is marketed.

It is certainly worth being a little cynical when assessing the suitability of a fund or investment management service as moral can be sapped in the face of personnel turnover, often bottom of the list of selection criteria.

I had intended to make my own modest comments about the recent cut in the Bank of England base rate but did not get there before the announcement and was travelling to Australia post-announcement.  Since arriving here, I have been suffering from the brutal jet lag that only travelling half way around the world with small children can induce.

Anyway, I have also had the chance to catch up on the podcasts of some of the business radio programmes I enjoy and it was interesting to note that sentiment seem to swing from no expectation of a cut to its seeming inevitability in just a few days.  Economists, and those putting themselves forward as economic pundits (perhaps, there is no difference) are an odd lot, they seem to revel in being negative.  For them, it makes much better copy if they propound all of the reasons why the outlook for inflation, in particular, is poor and appear to have little faith in those steering the economy, or trying to, to make the correct decisions.  For the wannabe policy makers, the risks of being optimistic are too high and they have the benefit of being able to apply hindsight to events after the fact. 

For those of us beavering away in the private sector and faced with the effort of building up our own retirement pots, it is a little galling to hear that we are each going to have to pay, in addition, for a public sector pension liability of around £30,000 each.  For this analysis, I am indebted to Steve Bee of Scottish Life who publishes an excellent blog on all matter relating to pensions.

Now, the good news is that this will be painlessly extracted from us in future taxation.  The bad news is that the Government seems unwilling to tackle the problem.  It did try to reform the Civil Service Pension just before the last election but backed down in the face of untimely threatened strikes just as they were asking for our votes.

Of course, the real problem is partly that most public sector schemes are deeply in the red (not great news for Council Taxpayers) but mainly that the Civil service Pension is unfunded.  There is no Civil Service Fund, as such, retiring members simply continue being paid on a reduced salary, so there is no chance of investment returns helping in any way.  The Government is set to introduce a poorly designed National Pension Scheme in the next few years and to exhort us to contribute, it would be well to think of nibbling away at the Public Sector deficit by starting to save towards that as well.  In the short term, costs rise,but the longer term savings should make it worthwhile.  The other option is for Civil Servants to have ordinary pension schemes like everyone else but that seems unlikely for now.

There is some evidence (courtesy of the IMF) that the economy in Sub-Saharan Africa is growing faster than the world as a whole.  Not by much but when you consider the considerable effort some of its governments put into preventing any growth, this has to be seen as good news.  It still lags behind the Developing World, taken together, but a case is starting to emerge for including the continent in a portfolio.  I expect that this resurgence is a little fragile; were China, for example, to lose its need for African raw materials, things could take a turn for the worse.

Also, despite the enthusiasm of some fund management companies, it is not an easy place to invest and the local stock markets will not have much capacity for major inflows of capital.  In investment terms, Sub-Saharan Africa tends to mean South Africa plus stocks in companies involved in mining, for instance.  The political risks are considerable in much of the continent and it is probably a long way off being seen as a new China were, for all its faults, the government is seen as stable and not wholly irrational.

Anything Warren Buffett and his investment firm, Berkshire Hathaway, do is bound to attract attention.  Buffett has been a famously successful investor for a number of decades now and investors would be advised to pay attention to his methods which have survived many different fads and economic environments.

I am not putting myself forward as an expert on his techniques, although Buffett makes no bones about sharing these with the rest of us.  His philosophies are seemingly simple; buy when no one else wants to, securing a good price and buy for the long term, Buffett famously said that the ideal holding period for an investment is forever.

We should all probably pay attention then when we read that Berkshire Hathaway has acquired $2.1bn of 'Junk Bond' debt in TXU, a Texan utility.  Of course, when you are sitting on $47bn of cash, that may seem like a reasonable gamble but other buyers have been scarce in this market.  Buffett has probably made a nice little investment and, knowing that he can hold to redemption (i.e., final repayment), will consider the risks to be worth taking.  From a bondholders point of view, utilities make sense because they are unlikely to go out of business and own valuable assets.

As I have said before, we may look back in a couple of years' time and wish we had made more of this credit crunch, such are the bargains that fear creates.

In a move that most would see as self-evidently the right way forward, the FSA says that it is looking at capping commission paid to intermediaries.  I shall have to declare an interest because I am unequivocally opposed to commission for the sale of financial products but, unfortunately, restricting it is fraught with problems.  The FSA cannot, for example, restrict competition nor can it destroy an industry over night but it does seem to recognise that we will not get the financial services industry and the advice we need and deserve without a radical change to its structure.

Reducing commissions and ensuring that some products are not unfairly favoured over others would certainly be a step in the right direction even if most of us would want it to go further.