Why European bankers would make terrible financial advisers!

User Written by Trevor Keidan on September 02, 2015.

Why European bankers would make terrible financial advisers!

In yesterday’s post I wrote about how Greece had made some bad financial decisions which have led it into the sticky mess it finds itself in. But the blame for the woeful situation cannot be placed solely at the door of the Greeks. The bankers who originally lent the money which created Greece’s insurmountable debts must be held accountable too.

Based on the decisions they have taken during the whole sorry affair, the bankers involved needn’t bother sending their CVs to me for a job as a financial adviser! In my view, they made three crucial mistakes which our advisers here at Infinity would never do.

1. Failed to do a proper fact find

The fact that Greece cooked its books in order to join the Euro is well documented. According to the Maastricht Criteria, to join the Eurozone nations had to have a budget deficit of less than 3% of GDP. Greece only achieved this with some ‘magical’ accounting which could have been spotted had the bankers looked hard enough. Or perhaps they turned a blind eye on purpose (see point 2)…

A thorough fact find is the first step carried out by our financial advisers when a client comes to us. Only by having a very clear picture of a client’s financial situation can we work to find solutions which are appropriate to both their financial goals and their budget.

2. Ignored the fact find

It is widely speculated that European politicians and bankers knew that the Greek economy was not suited to joining the Eurozone but they let it anyway.

This is the equivalent of a financial adviser recommending that a client embark on a regular saving plan in the full knowledge that they cannot afford it. Sometimes financial advisers have to tell clients unpleasant truths that they don’t really want to hear but facing up to the reality of one’s financial situation is the first step to sorting out problems and starting on a more positive path.

3. Ignored expert advice

The IMF produced a report in June stating that Greece needed massive debt relief and that even if it agreed to the austerity measures on tax and spending proposed for the bailout, it would still have an unsustainable level of debt in 2030. The IMF estimated debt of 118% of GDP in 2030 compared to the 110% it considers to be sustainable, and that was a best case scenario when in reality Greece is facing a current level of debt of 175%.

In spite of this warning, the European Central Bank ignored the IMF and pressed on with a bailout deal miring Greece in further debt. Recently, the IMF reiterated its belief that the terms of the latest bailout are unsustainable and said it would refuse to participate under the current terms. And so the drama rolls on.

Drama and finance are two things best kept apart when it comes to your own personal situation. A good financial planner can help you achieve that but make sure you choose carefully. You’ll find some tips on how to do that here.

Trevor Keidan

Trevor Keidan

Posted on September 02, 2015 in Financial Planning.