The British Bankers’ Association is launching a review of bank advice business models as concerns mount that people with small funds will not be able to access financial advice.
The future of mass market advice has been called in to question after Axa closed its bancassurance arm last week. The provider said it would have had to charge an advice fee of at least 6 per cent in order to be profitable.
Axa’s announcement followed Santander’s decision to pull out of advice in March. Other major banks such as Barclays and HSBC will only offer advice to people with assets above a minimum threshold.
The BBA plans to review the bank advice market in an effort to devise a mass market model which can be delivered more cheaply.
BBA executive director of external affairs Paul Stephenson says: “The challenge the RDR poses is that we will see advice being pulled out of the mass market and that is what appears to be happening.
“There is a challenge for the industry to look at how the costs can be reduced in providing some of these services so that we can still have a mass market for advice.”
He adds: “There may be better ways to segment clients or reduce back-office costs to produce a more affordable advice proposition. It is a challenge and it will take a lot of work but that is where we want to get to.”
One of the major problems for banks is the requirement for the advice business to be profitable in its own right.
Ernst & Young global insurance leader Shaun Crawford does not believe bank advice can be revived and expects the RDR to push consumers to self-serve online.
He says: “A lot of the business advisers have sold over the years has been commission-driven.
“The problem is the average bank customer thinks that banking is free, so the transformation of a bank adviser to fees is very difficult.
“Protection sales will continue because commission is still allowed but I cannot see how banks can advise on things like savings and investments.
“We will increasingly see people with more limited funds self-serving online rather than seeking advice from their bank.”
Legal & General remains the dominant presence in the building society advice market having secured tie-ups with 87 per cent of the market. The provider remains bullish about the future of the model.
An L&G spokesman says: “The post-RDR flow of business we have seen through our tie-ups is very strong and we remain committed to that offering.
“We charge 3 per cent up front and 0.65 per cent ongoing and that is a level of advice charge which customer feedback shows consumers are happy with and is, in our view, commercially sustainable.”
Labour MP and Treasury select committee member George Mudie warns that customers could lose out if they are unable to get advice from their bank or building society.
He says: “The problem is, if people cannot access good-quality financial advice, they might buy the wrong type of product or invest in something with very high charges.
“There was always a risk with the RDR that it would lead to a removal of advice for ordinary people in the community and it is happening.”
However, not everyone believes the disappearance of bank advice is necessarily a bad thing for investors.
Syndaxi Chartered Financial Planners managing director Robert Reid says: “The banks were alright when they were able to hide the charges but that clearly is not as easy post-RDR. Transparency does not work for them.
“You have to question whether some of the advice people got from banks in the past was worth paying for. I do not think people should just get advice for the sake of it. It has to have a value to it.”