THE most significant aspect of the Bank of England's controversial new Financial Stability Report will be the stock market's reaction to it.

Shares recovered on Friday, but I suspect that investors may have not yet reached the more pessimistic later stages of the Bank's analysis, in which its authors admit “a possibility that the current disruption to the financial system continues for a more prolonged period”.

The Bank's Financial Stability Board fears the events of the past six months may repeat themselves through pessimists talking themselves into a self-fulfilling prophecy.

Such a scenario is unlikely, the report insists, but it nevertheless concludes: “Risks to financial stability remain elevated.”

So this hardly amounts to a green light to wade back into the stock market and start buying again.

Indeed, it sounds like the latest in a long line of attempts by governments and central banks to talk shares up, uneasily reminiscent of US President Herbert Hoover's remark that “While the crash only took place six months ago, I am convinced we have now passed through the worst.”

He said that on May 1, 1930.

That does not mean the Bank of England is wrong now, but a striking feature of the Bank's report is the contrast between its puzzlement that the prices of asset-backed securities are far lower than they should be on any rational basis, and the comments of market contacts that despite this professional investors and lenders don't want to play.

“Buyers should return to markets,” the Bank says. Of course they should, but that misses the point.

They don't want to return yet because they don't trust prices and they are not sure commercial banks have told the whole truth.

And banks' reluctance to lend is curbing the rest of the economy, and that is coinciding with dearer food, oil and other commodities. No one has begun to address that problem. It could turn nasty.

That is why it is important to heed the time element in the Bank's prediction that confidence will return gradually.

How gradual is the great unknown.

Duff advice

THE Financial Services Authority (FSA) is tying itself in some horrendously complicated knots over how it would like to rewrite the investment advice rules.

Last June, under a clumsy umbrella known as the Retail Distribution Review (RDR), the FSA proposed a three-tier plan involving full, primary and generic advice.

That has now been “simplified” - the FSA's word - into advice, sales and money guidance - the term for free generic advice that emerged two months ago from a separate study that Otto Thoresen, head of the insurer Aegon UK, conducted for the Treasury.

The FSA's latest scheme has clear losers, notably the banks, who make millions a year out of so-called tied advice - often just a dressed-up sales pitch for their own products.

And then there is the delicate question of how advisers should be paid. The report calls for the end of product providers playing any part in “the determination of advisory remuneration”.

That would kill the tactic I mentioned last week, where PruProtect upped its commission rate to get brokers to pay more attention to its offering - something which at least one adviser found distasteful.

Instead, the FSA envisages a sequence where the adviser and customer choose a product, then discuss how much the adviser is going to take out of what the customer intends to invest, and then report the outcome to the provider.

That would prevent providers from swaying advisers with alluring commission deals, but all sounds a bit unreal. The FSA is plainly afraid to make the public pay a set fee per hour in case business dries up. But it would be more grown-up than the strange charade now being proposed.

The onus is on you, the consumer, to agree to nothing until you fully understand it. Don't be bamboozled by cooling-off periods or fancy deals: walk away, think about it, do some research; but don't sign until you are completely confident you are doing the right thing.

100 not out

LIFE Trust Insurance, a new company backed by Royal Bank of Scotland, has stumbled on a strange paradox. While many of us have seen our parents surviving longer, and we confidently expect our children to live longer still, we don't think this trend will apply to us.

Andy Briscoe, Life Trust's chief executive, said: “People acknowledge increased longevity for younger generations, but do not realise that this is a very real issue for them today.”

Bizarrely, one in ten Brits do not expect to live as long as their parents. The truth is, though, that among today's 40-year-olds, the men have a one in three chance of reaching 90, and half of the women will do so.

Indeed, a tenth of 40-year-old women and one in 25 men will celebrate their centenary. Those numbers shoot up for younger people.

So it is becoming increasingly sensible to plan your long-term finances on the assumption you will live to 100. Harder to estimate are how long you will be able to work - and therefore add to your income - and how many of the next generation will push on to 110 or 120.

But one way or another, we are going to have to get used to saving far more than we do, to spread our spending over a much longer period.

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