Advice under RDR too costly for banks
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Source: Vismedia
It will not be financially viable for banks to offer advice to the mass market under the RDR, according to research by Ernst & Young.
E&Y has compiled a paper on the impact of the RDR, which is due to be published next week. It says banks would have to charge £200 an hour for advice just to recover their costs.
Director of financial services (insurance) Malcolm Kerr says: “The general expectation is that the banks will be the winners under the RDR but when you look at the average bank client and the cost involved in going through the regulated advice process, clients will not have enough money to make it justifiable.
“Our economic modelling shows that the actual cost of an adviser is very substantial. Banks would have to charge clients £200 an hour just to break even. That is not a realistic proposition for the banks.”
Yesterday, Money Marketing revealed that Barclays was closing its advice arm, Barclays Financial Planning, and exiting the advice market for retail customers. The bank aims to develop an online execution-only service for mass-market clients instead. Money Marketing understands that Barclays had carried out a review of its advice arm and concluded the business was not able to justify the investment needed due to the RDR and other regulatory changes.
Kerr says the research also suggests there will be more restricted advisers in the market than IFAs from 2013.
He says: “The restricted channel is empowering rather than restrictive because advisers can use as many or as few funds or providers as they want. They can use one or more platforms and they will be able to use distributor-influenced funds.
“I am not convinced that the IFA brand is sufficiently well known among consumers to justify the additional risk and cost of the independent route.”
British Bankers Association director of retail banking Peter Tyler says: “We expect the RDR to lead to a reduction in the overall supply of investment advice to consumers unless new mass market propositions emerge.
“There is a broad consensus that the number of IFAs will reduce and the increased time and cost of providing advice will result in only wealthier clients being willing or able to pay for it.
“There is the danger that unless there is a simplified advice option to fill the gap, many less affluent clients with straightforward savings and investment needs will simply not bother to save or perhaps, even worse, choose a product that is totally unsuitable for their needs.”
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Readers' comments (30)
Anonymous | 27 Jan 2011 9:05 am
Absolute madness - the rich will get richer and the poor poorer. If this is the effect of RDR why is it proceeding?
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Tom Scott | 27 Jan 2011 9:14 am
Until now, a lot of the comment about RDR has been from IFA's that have a lot to lose from it. In many ways our views will always be seen as biased.
E&Y don't have an axe to grind and now appear to be agreeing with what most IFA's have been saying. That the RDR will destroy access to advice by increasing costs.
It is time that the RDR was halted, a proper consultation arranged and a new way forward agreed by all parties, rather than imposed by one.
The positive aims of the RDR of increased professionalism and transparency have to be balanced with the cost to the consumer.
It would be possible to achieve the perfect, risk free, financial advice business. Unfortunately no consumer would be prepared to pay its fees. We need some balance here.
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Fraser Brydon - IFA | 27 Jan 2011 9:19 am
is this just a ruse, banks plead they will lose business and "clients" will suffer, ergo the FSAs soften the RDR proposalsto suit them. Does not matter IFAs will suffer, after all who cares about them.
On the other hand the number of complaints will fall and therefore our fees will tumble.....sorry just woken up, must have been dreaming!
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Anonymous | 27 Jan 2011 9:19 am
Thank goodness for that. The biggest cause of consumer dertriment leaving the market should mean we can scale down the FSA and let the magority of good IFA's to get on looking after their clients with lower ongoing costs.
Provided that is the FSA properly regulate these quasi product providers like Keydata.
Personally would suggest that the FSA's bonus pool should be included as a contributor to the FSCS levy so that they have to contribute where we have obvious regulatory failure such as this.
Why should we pay for what they didn't do.
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graham pogson | 27 Jan 2011 9:21 am
As one of the "better" UK banks, it seems unlikely to me that Barclays will simply walk away from this substantial business area - most likely they will designate a stand-alone marketing channel - or perhaps the purchase of one/more existing IFA cos...is there more to this than meets the eye. Will other banks do the same, or consider it an opportunity to take a greater market share ?
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Michael Fallas | 27 Jan 2011 9:37 am
Agree with Tom Scott.
The problem is is that if it is too expensive for the banks they what will the cost be to small IFA's?
Who will replace the advice offered by banks currently, as many IFA's will find some of their business unprofitable so where do these people go?
Even the "free service" that we all have to pay for thanks to this Government is unlikely to cope with such demand.
The whole issue is complete madness and why oh why we continue to have to discuss it staggers me.
Lets concentrate on what is best for the consumer at the minimum of cost, not some massive overburdened system that keeps our unaccountable regulator cocooned in the lifestyle they have become accustomed to unanswerable to no one.
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Anonymous | 27 Jan 2011 9:38 am
Irony as always... when you give less wealthy clients the sole option of a restricted channel does this not just mean they don't get the benefit of full independent advice and doesn't the FSA want the general population to receive the best???!!
Barclays route is interesting because it will take away a lot of their risk of advice, but really this just limits the client to non full advice.
Really the FSA need to stop being so entrenched... they have clearly got a lot of the scope of RDR wrong, but hey some of it is right, they need to listen and understand what they are doing because they are causing more problems than solving them
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Mr Fisher | 27 Jan 2011 10:04 am
The FSA having smashed the home service companies is now about to smash middle England providers out of existence
The UK has a huge saving deficit the savings gap has become larger and larger the gap between the very poor and average earner has grown wider and the gap between the rich and the maega rich has grown experientially under the Blair / Brown decade or so.
The RDR is set to exacerbate these divides further and faster.
In the end what we will end up with is a destabilised country and who knows what will happen.
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Colin Palmer | 27 Jan 2011 10:09 am
Oh dear Oh dear, SNAFU again!
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Dominic Thomas | 27 Jan 2011 10:25 am
It is disappointing that just 23 months before the "green light", parts of the industry are only just working out the cost of advice. An outsider would scarcely believe that number crunching was one of the main skills required by the industry.
We need good CPD, thoughtful regulation and a way to enable clients to become less reliant upon the State within a framework where the choice of investment A over B is about the investment, not about the commission level.
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