13th June, 2022
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Welcome to the Idiot Money newsletter. This week, becoming wiser with money by understanding that desperation for The Answer (so common in personal finance) should be a warning sign, not a reason to go looking for somebody to sell you a solution, including:
recognising that what draws people (possibly you!) towards shifty salesmen is the very thing that should make you run from them;
a nudge to question what unintended consequences may come from your own desires to ‘just get <this financial thing> done’…
…wrapped up in a mad story from a mad country.
Desperate times draw us towards desperate measures, and there’s no more desperate measure than money.
I’d like to tell you about a former prospective client. Let’s call him Mr Murphy, because that’s his name, and the chances of him finding me are pretty damn remote.
I’d like to tell you about Mr Murphy because when it comes to our personal finances, there’s a little bit of Mr Murphy in all of us. And this is not a good thing.
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Though Mr Murphy’s psychology couldn’t be more common, his circumstances when I meet him in one of Doha’s ubiquitously soulless hotels are not.
Mr Murphy is desperate, and in debt. He’s hiding in the Middle East, having run away from the UK: the unhappy home of his ex-wives, his ex-lives, and the ongoing consequences of the luck that finally ran out.
Mr Murphy is an honest-enough man trying to make an honest-enough buck. He’s one of those middle-class souls who’s offensive to no one save his own long-lost childhood dreams. He slips through time in the type of timid perma-embarrassment that drives a man to spend his days in a safe-as-houses 9-to-5 career and his nights in a characterless-as-a-9-to-5-career house.
Unfortunately for Mr Murphy, the safety of his career was shorter-lived than he was himself, the house disappeared in a divorce, and his savings got sucked into the void known as ‘investments that friends tempted me into.’
However, all was not lost.
For Mr Murphy possessed one of those precious old-school ‘final salary’ pensions – the sort that pay you an income until you die, rather than give you a big pot of cash that you invest and from which then draw an ‘income’ as and when you feel like it. The trouble was, he was still a few years from being legally able to access it.
This sort of trouble can compound. A nice guy who’s a bit lost, a bit confused, and a bit more than a bit desperate is perfectly primed for being exploited by unscrupulous financial salesmen. And that’s exactly what’s happening when I meet him.
In Mr Murphy’s case, options A and B related to that valuable final-salary pension he had. Could he somehow use some of that value to propel him out of his pit?
A shark dressed in a financial adviser’s suit has promised he can. It’s a promise that’s got Mr Murphy very excited. Turn the pension into a pot of money. Clear the debt. Start again. Sleep at night. There are, so the shark has told him, a couple of ways he could do this (of course!): the only decision Mr Murphy has to make now was did he want A or B?
Even leaving aside the fact that both A and B are completely illegal (which Mr Murphy cannot be convinced of) the fees these bastards charge, which can easily top 10% of their victim’s life savings, may not be illegal, but they bloody well should be.
Not that Mr Murphy seems to have noticed. Not only has the fee been ‘disclosed’ in a way that deforms the definition of disclosed to a point not even its mother would recognise it, but people aren’t exactly brilliant at calculating the value of a secure income for life (most of which is non-monetary) at the best of times; those mathematically compromised by the dollar signs flashing in their desperate eyes have no hope.
Even amid the junkyard of shifty sales techniques perpetrated by the various vision-narrowing salesmen slithering around this great Gobi of morality, this type of pension-breaking is a really shitty move.
This is something I try to explain to Mr Murphy when he comes to see me armed with the report the snake (or rather one of the snake’s back-office bugs) has prepared for him.
I’ve rarely seen anything so shocking.
Even more shocking was what Mr Murphy hadn’t seen when he’d read, or at least skimmed through, it. Shocking, but not surprising. Because, Middle East or Middle England, who ever reads personal finance stuff with a view to understanding what they’re doing, rather than how to just get it bloody done? Wherever you are, this is asking for trouble, and worth dropping every desperate attachment to finding ‘The Answer’ to avoid it.
To Mr Murphy, as to so many others, ‘pension’, like ‘investments’, or ‘markets’, is a trigger to believe that everything is too complicated and scary to understand: a reason to turn off, rather than tune in. The fact that in this case his life savings are at stake is, apparently, no reason to change this.
This is understandable: faced with the choice between amplifying its potential customers’ perceptions that everything is scary and complicated and impossible to deal with without professional help, and pointing out that it’s really not, which option do you think the industry plumps for?
However, the fact there are people that want to exploit you is not a great reason to let them.
I open Mr Murphy’s report.
‘To the extent that this is a decision you need to make based on the numbers (which it really isn’t),’ I tell him, ‘there are only two that are important. The first indicates whether this may possibly be worth considering; in effect the conversion rate used to turn your income into a pot. The second is the fees.’
I find the first.
Sort of.
I find where it would’ve been, had the report’s author bothered to replace the old ‘underscores before a percentage sign’ (__%).
‘If you do nothing else,’ I plead, ‘and assuming you remain convinced this is even legal, or wait until it actually becomes so, then please at least ask them to fill that bit in before you come within a thousand miles of signing on the dotted line.’
Mr Murphy looks reluctant. The underlying insecurity that had been peeking through with each misplaced ‘yourself’ and ‘myself’ was now on full display with every movement, and every breath.
If financial decisions worked how everybody acts as if they did, pointing out the missing numbers would’ve been enough to end the sorry saga there and then. Of course, they don’t, and it wasn’t.
This may be an extreme, but it’s illustrative of a relationship with personal finances that’s incredibly common. The percentage of people that are in a position (psychologically, not mathematically) to verify that they’re not being taken for a ride rounds to nothing.
Desperation is a powerful filter, one that catches anything resembling nuance, doubt, and unwelcome realities. Scared people don’t tend to make great life choices. A man who's lost hope doesn't want sensible advice. He wants more hope to lose. ‘All lies and jest, still a man hears what he wants to hear / And disregards the rest…’ And alas, bemoaning the existence of rat-bastard salesmen taking advantage of this doesn’t change any of this.
In all, I spent two hours walking Mr Murphy through the illegality, the insane fees and their effects on compounded returns, the psychological mess that surrounded everything, and the whole horrible history of how this situation had even arisen… how illegality did not mean impossibility and how people who didn’t believe this at the start tended to find out only when it was impossible to go back.
I hoped that by slowing right down, explaining how the whole sorry system had been designed with the sole purpose of ripping people like him off – people that couldn’t possibly be expected to know any better – I’d save Mr Murphy any sense of embarrassment, get the message to sink in with a ton of repetition, try to get him to a space of thoughtful calm, rather than desperate dreamy panic…
Did this work?
Did it bollocks.
For a second, it looked like it had. Mr Murphy looked crestfallen. Disconsolate. Resigned. All sure signs, or so I thought, that the penny had actually dropped. He left our meeting with a sullenness suggestive of giving up on the quixotic quest for the quick fix.
And then…
All of a day or two later, I’m at the golf club, and I see Mr Murphy leaving. I think he saw me but pretended not to, though I may have made that up. I look to see where he’s come from. I see one of my ‘colleagues’, Chris, a man who lies so effusively you can sense them from the other side of the golf course.
Chris comes over with a big grin on his face. ‘Just landed one of those gold-mine overseas pension transfers. Took about ten minutes for what’ll be a 20 grand fee! Some other outfit had already done all the hard work persuading him. But he’d got a bit wary. Just needed a bit of a shove, and a pretend fee discount. Easiest money ever.’
Unscrupulous financial salesmen, , prey on those desperate for ‘The Answer’. They don’t create or exploit desires, ; they narrow visions. They get you to compare obviously-awful A to obviously-better B in a way that makes you blind to C through Z, as well as the rather important context of your life in which any option should be seen.
