As the internet continues to bring the latest news, views and offers straight to your door step, many people are now asking about the role of Independent Financial Advisers, and whether they are actually worth the money they charge. Surely it is time to “go it alone” and look after your own affairs online?

While those with substantial experience of the financial markets themselves may well be able to “cut out the middle man”, the financial markets are still very dangerous for those who do not fully understand them.  What level of pension are your after? What can you really afford? Should you use up the equity in your home? Which tax free investments should you consider?

For many people these questions may as well be written in a foreign language, as they may mean nothing - where do you start? Who do you blame if it all goes wrong? What protection do you have?

For those who are not up to date with the financial markets and the vast number of products on offer, it is still highly advisable to go through your own Independent Financial Adviser.  They do have the experience, they do have the knowledge and above all you are protected if they give you the wrong advice.  Cutting corners with regard to your future financial well being can be incredibly risky, and should be averted unless you know what you are talking about!

Recent events in the money markets have shown that once you sign that mortgage / loan deal, do you really know what happens, and where your liability may end up? Unless you have done some major research into the sector, you will probably not be aware about what goes on behind the scenes.  Let us tell you what happens…….

Once you sign that mortgage or loan deal, there is every chance that your agreement could be split up into many pieces and sold to a number of financial companies around the world.  But how is this done?

Simple!

When you sign a financial agreement you will create two separate income streams, interest and capital, which will be stripped and bundled up with a variety of other financial elements.  By bundling many different qualities of income stream into a new financial instrument, it is possible to create a customised vehicle for any requirement.  Risks and the duration of the instrument can be varied simply by taking on different “strips” of any other agreement.

So in effect you take your mortgage out in the UK and within a matter of days your agreement could be scattered to all areas of the world.  This is part of the problem with the ongoing credit crunch in that nobody really knows who is at risk until the pack of cards start to fall, then A cannot pay B who cannot then pay C, and so on.  After a short period of time, liquidity dries up, finical institutions need to retain their funds, and the internal money market is dead.  Step forward Northern Rock for 75% of that last mortgage they agreed, in the form of a commercial loan, but the funding is not there!

While the above description may sound a little simplistic , it really is that simple.  A lack of confidence in the money markets can lead to banks withdrawing their finance from the markets, which results in other companies not being able to function normally, which results in Northern Rock like situations.

Northern rock is a little different than most banks as it borrows a large amount of mortgage funding from the market, rather than being in a position to use its own assets.  The likes of Barclays, Lloyds, etc are total different in that they are more likely to use their own asset to back 75% of a mortgage agreement, and borrow 25% from the money markets. 

While the credit card industry has spent billions of pounds developing and introducing Chip and Pin technology, why have Mastercard now decided to introduce the so called PayPass technology into the UK, for transactions under £10?

The PayPass system operates in a similar way to the Oyster system which is used on the London Underground, whereby the consumer simply passes their card across a reader and the funds are taken from their account - no Pin number, all automatic.  While the system has the potential to have a major impact on reducing queues in a number of retail outlets, there is also the potential for fraud.  

The operators of the system admit that while the system is only available for individual purchases up to £10 in value, there will be no security checks at all until the £50 level has been reached in quick fire accumulated purchases - at this point the user will need to input their PIN number.  While the £10 limit does offer some limitations for fraudulent activity, the £50 security barrier is a little higher than many feel comfortable with.

The system itself is used in 19 other countries across the world, and the technology currently has a client base in the region of 16 million.  Many are now questioning why the industry spent so much money developing Chip and Pin in the UK, only to revert to PayPass for smaller purchases? 

Initial research has shown that it may take some time for the UK consumer to actually accept the system - a consumer who over the last 10 years has been constantly reminded of the need for security!