Alternative line to avoid rock bottom

AS THE weeks turn into months following the scare at Northern Rock, the public might still be worried about their savings, both in Northern Rock and more widely across the banking and building society sectors. They might also be concerned over why the 'run' started and surprised that there have been so few scalps.

To date, the only public head to go is the chairman of Northern Rock. The building society's chief executive remains, despite the fact that he took the decision to borrow funds on wholesale markets to gain a competitive advantage on mortgages and in the process brought Northern Rock to its knees.

The governor of the Bank of England's explanation is unconvincing and it is unlikely he will be invited to complete a second term. His deputy, who sat on the Financial Standards Authority (FSA), was asleep on the job and should have gone. The FSA dithered and failed to carry out a strategic review.

Northern Rock saw the first run on a British bank since the Overend Gurney crash of 1866. With the incident affecting confidence in the savings sector, the clear message to investors is that they should to assess their attitude to risk and review their portfolios with an independent financial adviser.

"The FSA has been exposed with egg on its face again" says Michael Stokes, a leading Edinburgh IFA with his own firm. "[It is] a vastly expensive bureaucracy with a shocking track record."

The debacle revealed how some savers had placed most of their money in just one organisation. Facing queues of voters trying to withdraw their cash, the new Chancellor, Alistair Darling, rushed in a plan to give greater protection to savers.

While such moves were welcome, the Treasury should have had in place a scheme to regularly uplift such levels, rather than wait for a crisis. It is also unclear who is to fund such protection.

"Few banks or building societies seem to publish their independent financial strength ratings," says Iain Wishart of Wishart Wealth Management, adding, "Many of these ratings are historic and take no account of the recent crisis in world banking."

"In real terms, investors' capital left on deposit is gradually eroding through inflation," warns John Barry of Edinburgh Risk Management. Instead, there are other investment vehicles that can be recommended after a detailed risk/reward analysis has been carried out.

The best advice is to meet with a trusted and experienced IFA, discuss financial goals and examine alternative routes, taking into account the risk element. While some advisers accept payment through commission, "the individual should always ask if the fee option exists when talking to any adviser", says Alistair Blyth of Edinburgh based AB1 Financial Planning.