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Nic Cicutti: Beware banks’ return to advice

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.

Ian McKenna: How to beat the banks as they re-enter advice market

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 nic@inspiredmoney.co.uk

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Comments

There are 14 comments at the moment, we would love to hear your opinion too.

  1. I’d agree broadly that the banks will have the financial capacity to explore Robo-Advice where the IFA’s in the main do not Nic. In that area they definitely do have the opportunity to thrive. Particularly as they can as you say “cherry pick” the most affluent and suitable clients using their own inbuilt advantage of knowing what money their customers have. What I don’t agree with is that the IFA’s will be looking over their shoulders at the banks. In my (30 years) experience, clients want a long-term, trusted and consistent solution to their financial concerns and in order to get over that the banks would have to provide the sort of financial planning that would in fact require them to become IFA’s themselves. This takes time, trust, money and patience and apart from the money aspect I’ve yet to see a bank in the past 30 years that deserves the trust or who will give it the time or the patience to become what they need to.

  2. My experience when dealing with mis selling is that technical knowledge is often not the root cause.

    Frequently it has been fairly basic stuff.

    If you can get the remuneration/motivation issues right, then many of the problems would not arise.

    The other issue has often been lack of joined up thinking/slavishly following rules.

  3. The banks are ideally placed to hoover up all the customers IFA disenfranchised during RDR.

    The banks are prepared to invest in technology and people to provide a service to their customers. As a rule, IFA do not have the money, the people or just can’t be bothered to serve that market so billions will now move into the banks’ robo-solutions.

  4. ‘Beware the banks’ No kidding who would have guessed.

    ” younger, tech-savvy consumers” They have money? I very much doubt it. Student debt – yes. Credit card debt – probably. What will the banks do? Put them into even deeper debt probably. Flog them a mortgage they can’t afford, with life assurance they might not need. It would seem that the ombudsman will be kept busy.

  5. We are all missing the point!! The Banks such as Santander need advisers as they are also the Product Provider, they use this to cross subsidise the Advice Arm, So is Lloyds Bank I can not see any none Product Provider banking group surving in the advice market when in the main, The advice is to use another group for the investments, or protection the RDR removed the possibility of volume enhanced remuneration agreements, or did it, I can not see how it can be financially tenable for the banks to provided advice, with layers involved including a car park space

  6. Christopher Pitt 24th October 2017 at 1:47 pm

    I’m sure IFAs will continue to service those customers that can afford their fees in return for what is a premium, on-going, holistic service. But who is going to help those consumers that can’t afford such fees? It’s very easy to criticize the banks but at least they are trying to help the majority of consumers by creating services that they can actually afford.

  7. Nicholas Pleasure 24th October 2017 at 2:20 pm

    We need the banks to do this because the future of independent financial advice depends on it.

    Generally IFAs cannot and do not invest in training the next generation of advisers. The banks will and whilst most bank advisers would be unsuitable, there will be a minority who will succeed and become IFA’s in the future.

    • A good point, particularly as the traditional proving grounds of regional life office branches are all now long gone. That said, the banks are unlikely to be able to recruit qualified people so they’ll have to train their own and get them through the necessary exams, which will take time and money.

  8. Given that RoboAdvice has yet to take off in any meaningful way, it is perhaps a bit premature to predict that it will enable the banks to clean up.

    The biggest hurdle the banks will have to overcome if they want to compete in the advice space is the time and care required to establish and then adequately document suitability. The bad old days of flog ’em a bond with a big chunk of commission then move on to the next target are long gone. Then again, if they adopt the SJP model, they could just make a go of it.

  9. The banks were always going to come back Nov, just on their terms!

    How? The perfect storm that is/was RDR!

    New regime creates gap in the mass advice market, needs some form of advice role to fill it, problem is that new regime requires too much qualification… solution… call it robo,call it simplified, label it what you will as long as it fits the gap, it will do for now, problem seemingly solved….. until the next set of issues arise, at which point the regulator can swoop to be seen to address the problem again with lots of fines and compo being handed down by the perpeatrators … and so it continues..!

  10. This maybe a bit of track but bare with me ….

    You know when you get out of bed one day, and stub your little toe on the bed leg…. yes ? now you are hopping around the room effing and jeffing in agony ..

    Well this is the unintended (major) consequence of the RDR

    I don’t think Sants (or others) plan was to completely destroy their friends at the banks (i do include the remaining life offices) and now the regulator is the one jumping around thinking why the **** did i get out of bed this morning.

    Nicholas Pleasure makes a very important point, the banks (and life offices) are vital to the future of independent advice, yes it has in the past, (maybe the future) been guilty of making some pretty awful cock ups, but they may serve as good training ground for the future, providing the target driven sales culture, bulling and self greed is not present ? new blood may just be allowed to grow organically in a controlled environment, lets face it the banks et al are the only ones with the cash and resource to do this.

    We have to be honest and say most of us, if not all, served our apprenticeship in such places, personally I had some bad and some good experiences but at the end of the day I wouldn’t be where I am today without them.

    I think if the culture has really changed then it would be good to see, besides I don’t really think they have ever been a business threat to us IFA’s

  11. Whittington Dick 25th October 2017 at 5:19 pm

    Essentially, Banks are, by their very nature, entirely predatorial. They have such a vast client base that service does not – and never has – come into it, as there are ‘always plenty more where they came from’. It’s a simple case of the ‘dash for cash’, and with the advent of Robo Advice, they now have a golden opportunity to skank a whole new bunch of people without (they believe – and they may well be right, thanks to the FCA’s meddling), having to bear any responsibility for said skanking, as they have “offered guidance, not advice”. The rapidity of this resurgence of interest by the Banks speaks volumes on this Teflon coated point. All I have to say to the so called tech-savvies, is, “Run, Luke!” Run!”

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