Major UK banks are beginning to return to the investment advice market three years after the RDR signalled the death of bank advice.
But at the same time, experts have raised concerns as to whether banks have truly done enough to ensure the fines for unsuitable advice will not be repeated, and whether they can now be trusted to service the mass market.
Santander kick-started banks’ journey back to the market with its return to investment advice last week, less than two years after it was hit with a £12.4m FCA fine for poor advice.
Money Marketing also understands Barclays Wealth is revamping its advice offering and will launch an “affluent platform” this year for passive clients with simple investment or pension needs starting at £50,000 of investable assets.
So are other banks likely to follow suit into the advice space? Could their return go some way towards helping to plug the advice gap, or is it more about targeting typical adviser clients, rather than the lower part of the market? And ultimately, have the change programmes adopted post-RDR really shifted the banks’ culture beyond pure selling?
The return to advice
Santander withdrew from investment advice in March 2013 after pulling its 800 advisers off the road for not meeting RDR standards. In April 2014 the bank was fined £12.4m over unsuitable investment advice.
It emerged last week Santander was returning to advice and expects to employ 225 investment advisers by the end of March.
The bank is also planning to launch a direct-to-consumer platform over the same time period. The Online Investment Platform will provide customers with access to more than 2,000 funds, including Santander funds, and will charge 0.35 per cent.
Rival HSBC axed its tied advice service in April 2012. It has since reintroduced a restricted advice service with 700 advisers, who advise on “specially selected products”, including the HSBC World Selection fund range.
Customers with a minimum of £50,000 in investable assets can undertake a full financial review and meet advisers at a fee of 0.7 per cent.
Lloyds Banking Group does not offer investment advice in branches to retail customers and only offers advice for private clients with at least £250,000 to invest. The bank says its products and services “are continually under review”.
PwC private banking and wealth management director Ian Woodhouse says: “Traditional players like retail banks have had to adapt to the RDR. Some of them are now coming back to the market with different models, which are more automated and with a smaller number of advisers.
“Some retail banks will come back to advice, while others might choose instead to tie up with platforms or wealth managers.”
Threesixty managing director Phil Young believes the news about Santander will tap into banks’ “herd mentality” and prompt a wider return to advice.
He says: “Every single bank will now be dusting off their plans and carrying out a strategic review into whether now is the time to go into investment advice.”
Technology firm Altus director Kevin Okell, argues banks are “perfectly placed” to go back to the investment advice space as post-RDR “a whole chunk of the market couldn’t pay for advice.”
He says: “Banks have the information about the clients. They sit on a gold mine because they have clients’ data.
“However, the question is whether they can harness that information and make sense of it for the benefit of clients.”
But Woodhouse says while banks have the scale to deliver mass market advice, they are still acutely aware of the regulatory risks involved.
He says: “Retail banks and insurers have to rebuild scale and add investment advice arms in a way that doesn’t increase costs.
“Compared to IFAs or platforms, banks have got the brand and the branch networks, as well as the small business arms, which tend to be privately owned. But they still need to meet the regulatory requirements.”
‘Fraught with risks’
The banks’ re-entry into the advice market has led some to question whether they are now geared up to adequately deal with the risks, and who these propositions are really serving.
Former FSA head of retail policy and regulatory consultant David Severn warns there is a risk this could mark a return to the misselling seen in the past, but says there are signs to suggest things might be different this time around.
He cites the introduction of a senior managers’ regime aimed at holding individuals to account, and the set-up of the independent Banking Standards Board, which will report on banking culture and conduct.
He says: “I don’t think the banks are now ‘comfortable’ with re-entering the advice market, given the long history of problems with investment advice and the fines imposed by the regulator.
“Banks will continue to see the investment advice area as fraught with risks, and whether they are successful this time in handling those risks depends not only on what they have learned from past mistakes, but on the new measures being introduced by the FCA and on the effectiveness of the Banking Standards Board.”
EY senior adviser Malcolm Kerr says banks have long been eyeing how they can best serve customers in the £10,000 to £50,000 investment bracket.
Kerr says: “In the past they couldn’t make that work. There are more than five million people with investable assets between zero and £50,000 and while many of them don’t need advice, the fact is they are underserved because they don’t represent an attractive proposition to a typical IFA. Possibly all they want is a cash Isa and/or an investment Isa. But that is all quite simple and can be done through basic advice. The Financial Advice Market Review could well reinvigorate the basic advice concept.”
But Young is less than convinced that banks are interested in that corner of the market.
He says: “The bit that I am deeply suspicious about is that this is about plugging the advice gap. Banks are servicing the same part of the market that advisers are – this is not about the lower end of the market. It is true that there is an advice gap, but there is no manufacturing appetite to come up with low cost products that are not out there already. I am suspicious about what incentives there are to deliver advice to that lower end of the market.”
A real change?
There is also scepticism around whether the banks have made substantial enough changes to their advice processes to warrant fanfare about their return to the market.
Adviser Advocate chief executive Richard Leeson says Santander’s decision to come back to advice would have been the result of a long period of strategic review and reflects the banks taking a more considered view of the RDR.
But he adds: “While banks have been subject to changes in regulatory regimes, they are still the largest contributor to claims successfully upheld by the Financial Ombudsman Service. Many are undergoing reviews of files internally, even where no complaint has been made.
“We haven’t seen or heard enough of the banks behaving in the right way post-RDR, which does not leave us with a lot of confidence. There is an uphill struggle in public perception, and particularly among advisers, for the banks to gain the confidence of the market.”
Young also argues in some cases changes have only been made on the surface.
He says: “Fundamentally, the bank culture hasn’t changed. Having done reviews on bigger institutions, they are good at documenting the advice process, and setting out how they have adapted their processes in clever PowerPoint presentations. But the fact remains that right at the top among senior management, it is ultimately about making money, and right at the bottom, among individual advisers, it is also ultimately about making money.”
Kerr does not deny that banks are eyeing advice to make money. But he argues banks can serve those consumers that advisers are not interested in.
He says: “It is perfectly understandable that people will be sceptical, and the proof of the pudding will be in the eating. But it is also true that while advisers give the best possible advice, there are those who can give the worst possible advice. The banks may not be offering the best advice but it is probably going to be fit for purpose.
“That said, it is very difficult if the culture is not right. Where the jury is out is on whether or not the culture in the retail banking sector has actually shifted.”
Severn believes banks could have a role to play in offering mass market advice, given that they have the branch network, the pre-existing relationship with customers through bank accounts or mortgages, and the capacity to invest in robo-advice.
But he adds: “What remains to be seen with the likes of Santander is the level of ongoing service provided to those customers who get investment advice. This was one of the failings for which the bank was fined last time. That said, there are plenty of restricted intermediary firms that fail to provide an ongoing service.”
How we are building our new advice service
It is important to understand that we never fully exited investment advice. Following the thematic review and FSA action in 2013, we maintained a team of 50 advisers, who worked solely for existing Santander customers.
From 2014, we began growing this team and offering advice to new customers. We will have 225 investment advisers in place by the end of Q1.
Since 2013, we have been examining ways in which we could re-enter the advice market fully and offer this service to our customers to meet their needs and those of the regulator and be financially viable. We believe our offer will meet these aims.
The Online Investment Platform will launch at the end of the first quarter, providing all our customers with access to more than 2,000 funds, including Santander Asset Management funds.
Once the platform and advice service are up and running fully, we will look at ways in which we can integrate the offerings.
The focus of the advice team is to help us build relationships with customers, rather than profiting from the service. All advisers and supervisors post-RDR had to attend a training academy and pass a full interview and paperwork assessment before interviewing customers.
Workshops are run to provide continual training to advisers on issues such as pensions and new fund launches. All our advisers are level four qualified with a full diploma.
The Training Academy mainly focuses on customer experience, conduct risk, market knowledge and interview skills, and there is no sales coaching.
We are supportive of the regulator’s efforts to clarify the regulatory and legal framework that governs the provision of financial advice through the Financial Advice Market Review and hope that through our continued engagement, real progress can be made.
Our financial planning managers all have a base salary. They are eligible for an additional discretionary reward payment but this is based on conduct risk metrics and service delivered to our customers. However, there is no link to sales in the assessment of this reward.
James Dunne is wealth management director at Santander UK
Martin Bamford, managing director, Informed Choice
It is interesting to look at the reasons why banks left the market originally. With Santander, it was a case of staff not being qualified to the required standards, and banks in general have got an issue in transparency of what they do and what they charge. Obviously the return of the banks is worrying if we also see the RDR standards around qualifications watered down. For banks it is not really about advice or closing the advice gap – it is just a sales channel.
It will be interesting to see how they do that compliantly with qualified people and transparency of fees.
Tom Kean, director, Thameside Financial Planning
It is pretty depressing for those who strove to raise the bar with all the exams they took and the expensive changes to their business models, only to be slapped in the face by a complete U-turn, allowing the greatest perpetrators of shady advice back into the marketplace. Santander’s offering will be different from an IFA proposition in that we can choose exactly what kind of clients we are after.