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MM leader: The uncertain future for bank advice

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The results of the FSA’s recent mystery-shopping of bank advice, which found significant levels of unsuitable advice, should come as no surprise.

What is more noteworthy is that the FSA appears so keen on keeping the issue of bank advice quality high on its agenda. This is something the IFA community has been calling for the regulator to do for years.

In combination with FCA chief executive designate Martin Wheatley’s very public crackdown on sales incentives, the regulator appears intent on asking searching questions of banks looking to operate in the advice sector.

This is the correct approach. The long list of recent FSA fines levied against banks for advice misselling, usually linked to poor training and/or unhealthy incentive structures, highlights the need for firm action and a watchful eye.

The dramatic effect the RDR changes will have on banks that still have advice capabilities mean these structures are untested and in need of careful supervision.

The mystery shopping of six big firms, published last week, was conducted between March and September last year, before they had finalised their post-RDR propositions.

Out of 231 mystery shops, the FSA found 11 per cent of cases offered unsuitable advice. Advisers in a further 15 per cent of situations did not gather enough information to ensure the advice was suitable.

As a result one firm, understood to be Santander, has been referred to enforcement.

The FSA says other firms have agreed to retrain advisers, change their advice processes and undertake past business reviews.

The regulator intends follow up work later this year to ensure things have improved. You would expect big penalties for those who have failed to take on board the regulator’s guidance.

With banks experimenting with new advice processes that have yet to be tested commercially, 2013 could be a year of significant decisions.

Since the FSA action, Santander has announced in is considering whether to exit the advice space, or refocus on high net worth advisers. A number of competitors have already exited advice or heavily restricted their offerings.

The “poor me” commercial considerations of banks should not be a brake on regulators cracking down on misselling and consumer detriment.

However, if we are left with no banks offering advice in a year’s time, serious questions around the social purpose and success of reforms such as the RDR and regulation in general, in terms of engaging the mass market, will need to be answered.

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Readers' comments (9)

  • I agree that RDR needs to be questioned as the need for advice has never been greater and yet the supply side is very restricted and getting worse. Our costs as a small IFA have jumped significantly but we have absorbed it - so far. However we have restricted who we are dealing with, some fees have gone up and a new clients potential income to our firm is high on the list of priorities. I know some will say that is commercial commonsense but I got into this profession because I like dealing with people. I like the problem solving. I get satisfaction from the praise our clients give us. I feel I am making a difference for the better.

    Post RDR that is not enought and that I feel is a bad deal for joe public

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  • As I posted on Nic C's article y'day - I've had a direct referral from a local bank for the first time ever... just after RDR co-incidentally....

    Pensioner went in to his Halifax branch with only a few thousand in his ISA. He thinks he wants a shares ISA as his Cash ISA interest is so low but he's only got v small savings so I imagine a Cash ISA signposting will be what we do. Pro bono if so.

    The branch gave him my name and number apparently and said I could help him, they can't (their min is £100k now isn't it) ..... pre-RDR never happened, 6 weeks in to RDR, they are sending the uneconomic small-fry to IFAs who I'm afraid won't be able to help either.

    I'm seeing this Gent but I won't be able to do this 'charity' work often.

    Is this what RDR was supposed to do?

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  • If nothing changes the banks will be out of giving financial advice and Ifas will pick up the slack on fees which will then price everyone out of the market with no one to pay for regulations. The end.

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  • It seems that the banks are reaching the conclusion that there is no commercially viable of them delivering advice. Surely, it would be a sad state of afairs if a major impact of the RDR was the withdrawal of advice from mass-market consumers. Wasn't it meant to increase access?

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  • An unintended result is the massive reduction in the FSA fees generated from the banks. I hope they don't come knocking on IFA's doors to "top up" our regulators shortfall!

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  • Whenever anybody asks me about entering a bank to get advice, I always tell them what the lady in the ticket-booth at the dog-track told me when I hopefully asked her if she had any tips.

    Yeah, she replied, keep yer money in yer pocket.

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  • Well done FSA yet another total cock up.
    Under the PIA things were simple for the public. They had a clear choice, an Independent Adviser or an Adviser that was tied to one company. If they chose the independent route they would then decide if they wanted fee based or commission based advice. It was really simple. Now we have a situation where the public haven't a clue whats going on,they dont know what type of advice they are receiving, they are forced to pay fees,advice from banks is dying a death and the life companies, platforms and fund managers are like kids in a sweet shop as they now have a totally free of charge distribution channel and their profits will rocket.We all saw this coming, except of course the FSA. Oh and Mr Sants gets a knighthood for ruining our Industry -Way to go FSA!!!

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  • The whole point of RDR was to reduce fees for the affluent - after all they are the ones with the strongest and loudest lobying voice.

    It is ironic that when we are all meant to be in it together RDR has resulted in the previous cross subsidy from the affluent investors being removed meaning that the less affluent, and most vunerable, investors are left to get their 'advice' from the man down the pub and the money sections of certain publications, investing in the most 'popular' funds irrespective of their suitability.

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  • If the banks were forced to make absolutely clear to customers the severe limitations to the range of providers whose products they sell, a lot more of those customers might realise that advice isn't what they're likely to get from any bank and take their custom elsewhere.

    How can any intermediary who doesn't charge an explicit fee for his pre-sale work claim to offer advice as opposed merely to selling products?

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