Can banks successfully re-enter the financial advice market? This question has come increasingly to the fore over the past year or so, as more and more high-street banks announce a return to trying to meet the wider financial needs of their customer base.
Last week, SimplyBiz chairman Ken Davy asked himself the same question in the pages of a magazine I was reading. In fact, his two-pronged query was subtly different: can we trust the banks to deliver good advice and, separately, should advisers be concerned at their re-entry into the marketplace? His answer was in the negative.
Davy reminded his audience of the many misselling scandals involving banks over the past two decades. His conclusion was that “banks will never be able to emulate the quality of service, advice and care of advisers”.
I will come on to the core of Davy’s argument in a minute. But what is important to note is that the banks’ return to the advice space comes barely three years after they abandoned the sector, following a spate of heavy fines for misselling of financial products, as well as the impact of the RDR five years ago.
Advisers at the time saw the RDR’s demands for a better-trained and higher-qualified workforce as impacting on their own survival. Many did not realise the effect would be even greater on financial institutions with large semi-skilled pools of labour and a huge need to ramp up sales regardless of genuine customer need.
That said, barely had the retreat been sounded than Santander announced back in January last year it would be rolling out a small network of about 225 advisers in branches to provide investment advice to customers.
Santander’s return was all the more remarkable as just three years previously it had been hit with a whopping £12.5m FCA fine for misselling by its salesforce. Other players were hit by similar sized penalties from the regulator for the same type of offences.
Since then, more banks have been dipping their toes in the market. In January this year, the FCA revealed that Lloyds, NatWest and Nationwide had joined Santander in working with its financial advice unit on robo plans that aim to simplify the sales process.
Technology is in place to make it easier for both cheaper and broadly appropriate – if occasionally uninspired – advice solutions to be provided to meet the more basic end of customer needs
Presumably, robo-advice will also make the process more economical and less possible to claim (as Santander’s humanoid advisers did back then) that a particular investment “will likely double”, that another “would beat cash by 87 per cent over 10 years” and that no commission would be payable on an investment when, in fact, the commission on one product was 7.75 per cent.
In his article, Davy asked whether the leopard really has changed its spots, before stating: “I believe the jury is still out and it will probably be at least five years before we can start to make meaningful judgments.”
Davy’s reminder of the banks’ long history of misselling is timely, although a little more humility might also be in order. My own recollection is that almost every network and national IFA in the late 1990s and early-noughties, including Davy’s own DBS, was clobbered by the regulator for pensions misselling and, subsequently, for failing to ensure swift and appropriate redress was paid to the victims.
And for those who think this all took place lightyears ago, let’s not forget in September 2013 it was Sesame’s turn to be fined £6m for failing to ensure investment advice was suitable in relation to Keydata products, alongside failings in the systems and controls that governed the oversight of its authorised representatives.
Of course, the key question remains: can banks do it differently this time? I agree with Davy that it is far too soon to make a judgement on this.
My own view, however, is that the potential is there for them to avoid many of the pitfalls of the past.
The training and qualification requirements needed in the advice market are far more onerous, which ensures a more skilled workforce than 10 or 15 years ago. They still have access to a massive client base, among whom they can cherrypick the most affluent until a viable business proposition for lower-income customers is identified and rolled out.
Technology is also in place to make it easier for both cheaper and broadly appropriate – if occasionally uninspired – advice solutions to be provided to meet the more basic end of customer needs.
According to technology guru and Money Marketing columnist Ian McKenna, banks are preparing to provide online personal financial management tools to their customers, allowing them a far greater understanding of their finances.
This, in turn, leads to advice solutions being sought by younger, tech-savvy consumers who like the idea it can be delivered to them in a supposedly “unbiased” way.
All these are advantages banks have access to right now and small to medium-sized advisers do not – yet. It is true that, over the years, banks have had multiple opportunities to make their inbuilt advantages count and have got it spectacularly wrong every time. This time, however, if I were an independent adviser, I would be looking over my shoulder.
Nic Cicutti can be contacted at firstname.lastname@example.org