Financial scandals, freelancer finances and investing in wine
FT Money Show presenter Claer Barrett talks to Moneybox presenter Paul Lewis about how to spot a financial scam. Also, with more of us working in the so-called 'gig economy' what are the money matters that you need to know about, and finally on the show we discuss the pros and cons of investing in wine.
Presented by Claer Barrett. Produced by Lucy Warwick-Ching. Edited by Paolo Pascual.
Could you spot a financial scandal before one spots you? Paul Lewis tells us how. Finance for freelancers. With more of us working in a so-called gig economy, what are the money matters that you need to know about? And investing in wine. Is this year's Bordeaux En Premeur season a case of glass half full or glass half empty? Welcome to the Money Show, the FT's weekly podcast about personal finance and investing. I'm Claer Barrett, FT Money Editor, bringing you this week's money news.
What are the warning signs that you could be stung by a financial scandal? Paul Lewis, our columnist and the BBC Money Box presenter, held forth on this topic at the FT Weekend Festival last weekend, drawing on his decades of scam-busting to identify things that should ring alarm bells for savers and investors. He's written about these in his FT Money column this weekend and joins me now in the studio. Welcome, Paul.
So hindsight obviously is a wonderful thing, but foresight is even better. Several of the points that you've made in your article relate to the high-pressure sales tactics used by those selling investments, so give listeners a flavour of what they should be wary of.
Well, the first thing is offering you too big a return. Bernie Madoff, the biggest fraudster ever in America, conned people out of billions of dollars. He only promised 10% or 12%, so it wasn't a huge amount that he was offering. And now, people are being offered 8%. That is probably too much. If you're offered even 6%, some financial advisers say 6% is impossible. And of course, if it's promised or guaranteed, it is definitely impossible. So anything over 6%, be very, very cautious of. And the firmer the promise, the more likely it is to be a scam.
The other thing is, people are encouraged to invest in things they know nothing about.
What do you know. For example. About shipping containers? What do you know about the market in what they call storage solutions? What do you know about who buys graphene or rare earth metals? Well, if the answer is nothing, then why believe the research that the people sent you in glossy brochures that shows you can make a lot of money? So most of the people I've come across who've been conned say I realised very quickly. Think of these things and you could realise in advance. Is it overseas, for example?
Now on the other side of the world, what on earth do you know about holiday homes in Costa Rica or rain forests in Brazil? Nothing at all. So why do you believe that you can invest there. You've got a foreign language, foreign contracts, foreign legal system. It just all says no.
And another thing is restrictions placed on whether you can sell the investment that you're buying.
Yes, absolutely. That's the big thing, because it's very easy to buy these things. You just send the cash and you've got some bit of paper that says you've got them. But is there a market in them? The great thing about shares and traditional investments is you can always sell them. There's always someone who wants to buy them. But all these other things, these obscure things like car parking spaces or something like that-- will anybody ever buy that off you? What is the market in those? You don't know. All you know is that you've bought it. Is there a secondhand market? Almost certainly not.
And another point that you make that I thought was particularly good is about the way that sales people find and approach you and how you should think that through.
Well, this is really the first way you can stop any of this, because if you get a cold call, a cold email from someone you don't know, a cold text or anything on social media offering to help you make a lot of money, there is only one answer-- no. Assume it's a scam. It almost certainly will be, and that's the point to stop having to make all these other judgments about whether shipping containers are a really good place to invest your money or whether storage solutions are a really good place to invest your money.
So just say no. And the government has said we're going to ban cold calls. Well, no it's not, not least because it doesn't know when it's going to do it. It's going to do it when parliamentary time allows, and you're right OK well that's
They're a bit busy right now.
A, they're a bit busy, but it's a way of saying the civil servant thing well, we'd love to do this, but we'll do it at some point in the future. I said pencil in the 12th of never in your diary and provisionally it might happen then. So there isn't going to be a cold calling ban for the foreseeable future. And even if there is, the question I've never had answered is this. These people are thieves. They're going to steal your money. They risk gaol if they're caught. Are they going to be put off by the thought of an investigation by the Information Commissioner for making an illicit call? I don't think so.
Good point. But finally, one of the biggest consumer scandals, both in terms of the compensation paid out and the number of people it's affected is, of course, PPI. A bit different. This one.
Yes. Payment Protection Insurance. I started my talk at the weekend by pointing out that the banks have paid out 264 billion pounds in the last five years. The top banks in the world, in what they call the cost of conduct, which basically is fines for doing things that are wrong. And a big chunk of that was the British banks and a big chunk of that was payment protection insurance. They've already paid out about 30 billion pounds in compensation
And there's at least another 10 billion waiting to be paid out. Probably more. And they were the ones who missold it to us over a long period of time. I stood up at conferences years ago and said PPI was a very bad idea and there were huge profit margins. No one should touch it, and I was booed by the banking industry. They said no, no, it can be valuable.
But they've been caught out, and they have engaged in, as you rightly said, one of the biggest misselling scandals ever. And now the regulator, the Financial Conduct Authority, says well, a lot has been paid out over the last few years. We think there should be a deadline on it. So to protect us-- maybe to protect the banks-- the FCA has said no more claims after the 29th of August 2019.
So get your claim in. Don't go with the claims management company. You can do it cheaply and quickly yourself using which.co.uk/ppi or Money Saving Expert has got a very good site through resolver.co.uk. Do it free, get the money, and enjoy it. It's like your very own quantitative easing.
Oh no. I'm just ruing the day that I ticked no to all these PPI things. I've been through all whole of paperwork at home this weekend and thinking that I might finally get your credit card bill.
I don't think I have either, though yeah brackets checked. But right now I am sure I haven't got it but the thing is it's not just you would be getting money back that you should never report it within the first place. You will be getting 8% interest on that from the time the payments were made. So it comes to more than you laid out in the first place. Quite significantly more. So PPI's turn out to be quite a good investment.
Yes, the only financial scandal that you could say that of. Well, thanks very much to Paul Lewis. You can read his column How to Spot a Financial Scandal Before One Spots You in the Money section of the FT Weekend newspaper this Saturday, or read him online now at FT.com/money. If you're interested in attending FT Money's only investing events, we have two coming up in October. The first one just in a cost of Seven Investment Management and the second with all US investment columnist Ken Fisher paying me an email headed Reader Events to Money@FT.com, snf we can send you the full details plus terms and conditions.
Going freelance starting a portfolio career or entering the gig economy. Whatever you call it, the trend of working for yourself is reshaping the UK labour market. There are now around 5 million of us who do, an increase of about 45% since the turn of the Millennium. But this brings about growing financial challenges for workers who mismanage their own tax affairs and also the chancellor. Joining me now to discuss is the FT's Vanessa Holder. Welcome. So let's start with the good news for any freelancers listening. If you are a highly paid consultant or creative, there are often big tax advantages to working for yourself.
Well, that's right. The numbers are big, really big. The average tax subsidy that comes with self-employment is over 1,000 pounds a year, according to the Institute for Fiscal Studies. And those who incorporate and sell their work through their own business get a tax saving of over 9,000 pounds a year.
Now, there are some state benefits that you don't get if you're self-employed. For instance, you don't get the contribution-based jobseeker's allowance, and you do not get the same parental benefits. But the tax advantages, particularly for the higher earners, such as barristers, are pretty big.
At the lower end of the freelance scale, perhaps less consultant creative more career, works face many disadvantages. Job security, zero hours contracts, and lack of a company pension, for starters.
Yes. Have been a spate of scandals and even lawsuits over workers' rights, and that's fueled concerns that the gig economy, the online platforms that provide works for couriers, taxi drivers and the like, is viewing a precarious class of workers who are denied the protections of normal jobs. So much so that the government commissioned a review into modern working practises. It reported this summer. What happens remains to be seen.
There's one bit of good news, though. Since April 2016, the self-employed have built up exactly the same state pension entitlement as the employed.
Well, that is a rare piece of good news. But overall, the huge rise in self-employment is worrying the treasury, because it's reducing the tax take. So what kind of measures are they deploying to help nudge it back up?
Yeah, that's right. Again, it's the IFS, which has done this calculations, and they say that by 2022, the tax breaks would be the equivalent of 16 billion pounds a year. So that is worrying the Treasury a lot. And you'll remember the government's humiliating U-turn in March, when a backbench rebellion meant it had to abandon its attempts to raise national insurance rate. Now following the election, given the parliamentary arithmetic, Philip Hammond has indicated he won't proceed with that package, but over time, I think we have to expect him to come back to it. And in the meantime, they've done a lot of other things to try and eat away at these tax advantages.
Fiddling. Fiddling around the edges.
Fiddling around. And it's all sorts of things. It's the squeeze affecting the self-employed who claim universal credit. Activity rules for very small businesses have been changed. Freelancers who work for their companies have been hit by higher taxes on dividends. If you took 40,000 from your company, you'd be paying an extra 1,000 pounds a year as a result of some tax changes that came in last year. And next April, there's going to be further changes, a cut to the dividend tax allowance.
But perhaps the biggest change is a squeeze on what they call disguised employment. And this only affects the public sector at the moment. It's trying to crack down on people who the government says are really employees but they're being taxed as freelancers. And although it's had anti-avoidance rules in place since 2000, there really is a very big push, and that's having a huge effect on all sorts of people, ranging from the BBC to health care workers.
Well, thanks very much. That is Vanessa Holder you can read her cover feature financer freelancers which is packed with information, not just about what we've talked about but lots of other tips. If you are in the gig economy yourself buy a copy of this weekend's newspaper or read online from Friday FT money.
Finally, there's always time for a glass of wine. Well, there in the FT Money office. We know that investing in wine is something that many of you are really interested in learning more about, as it's the kind of investment that you can still drink if its value plunges. So joining me in the studio to discuss the Bordeaux En Primeur season is Alan Livsey, the Lex writer and the FT's resident wine buff. Welcome.
So for the benefit of those wannabe wine buffs, listening, can you start by explaining what En Primeur actually means. And also tell me if I'm pronouncing it properly.
I think you are. It is essentially a futures market for French wine. The Bordeaux wines, which-- Bordeaux is the biggest producer of wine region in France and possibly the world, and it offers a chance for buyers to buy early. So the 2016 vintage, in this case, was offered around May, April, May, June, early on. Before that, there will be some tasting. And the reason to do this is to get the wines early, because if you could lock them in and you thought the prices were going to go up, which was the case in the past, this was the chance to do so and locks them in for delivery later next year.
OK. So this year's en Primeur season in Bordeaux was a case of glass half full or glass half empty?
It depends whom you ask. I would say half full, and here's why. We had probably better wines than in the previous vintage, and some would say some of the better, best ones we've had since maybe the really, really good year of 2010 and also 2009. Prices were a bit better, so looking at, for instance, Liv-ex, which runs a wine exchange.
It's like a wine stock market.
It's a wine stock market, exactly. It's a big wine exchange. And so they surveyed their members about what to expect in terms of price increases for this season, and it turned out they were looking for around 7% pick up. What we're really measuring is from where the chateau offer the price to where they're going to actually sort of close out by the summer. And in fact, it's come out to about 16%, maybe a little higher. So it was better than expected.
Ask other merchants, though, further down the chain, and you get a mixed response. In Hong Kong, Alyaya, one of the bigger, better known wine merchants and investors out there, says they didn't have such a great en Primeure, and en Primeure is not that important to them anymore. It used to be quite important in '09 and 2010. Now business is way off in this bit of the market.
So indeed, one of the reasons that its annual event in Bordeaux is such a big deal in the well just because it shows that the appetite or more likely thirst of international wine buyers, and the Chinese have been really, really important part of driving prices up. But these days, they don't seem to be as many people prepared to pay top dollar for a fine wine.
I think that what's happened is maybe the report of the emerging market the newer wine investors who've come in with a lot of money have matured. They've recognised that it's not a good idea to rush into the Primeur market. These futures markets too early it might be better to wait a little bit they were also probably burn buying very expensive wines in '09, in 2010 after which we had several years of essentially a bear market in board winds so that's part of the reason. I wouldn't say the demand is gone. I would simply say that it's perhaps matured.
And what would be your key takeaway for FT Money listeners who are thinking I quite like wine, I quite like investment. How can I have a go?
Well. I think you can do a couple of things. I think it's better to try some wines. Find a merchant that you feel comfortable with maybe. Do your research. There are a number of well-known and reputable wine critics that rate wine,
Not least Jancis Robertson.
Jancis Robinson. Very, very good. Also the wine advocate, Neil Martin, specialises on Bordeaux. But there are others, and I don't want to ignore all of them. What's interesting actually also is that this season, 2016 the 2016 vintage-- actually the ratings were pretty good. They were as good as they were back in the stellar year of 2010, but average prices were a little lower, suggesting there is an investment opportunity if you can get the wines. And here's where the half empty aspect of the glass is, that sometimes the big makers are the ones like chateau have not released as much wine as they said they might do at the prices they initially stated.
It's just a wine bottle neck.
There's a wine bottle neck. Exactly, and they're holding back a bit of supply possibly to push up the price, so that's something to keep in mind. But yeah, I'd say the value is probably there if you can find the right ones.
Well, thanks very much there to the FT's can read his fantastic article in the money section of the Weekend FT, perhaps whie savouring a generous glass of red.
I recommend it.
That's it from the Money Show this week. To get in touch with our team of financial experts, you can email us money at FT.com, tweet us @FTMoney or comment online on articles at FT.com/money. We will be back next week at the usual time. Goodbye.