So which is the best deal for consumers: being flogged second-rate and inappropriate investments and pensions, or not being sold such funds at all?
On the face of it you would think that consumers would be immeasurably better off without door-to-door salesman selling them inflexible with-profits plans, or “wealth managers” in bank branches persuading them to sink their money into dud Isa funds.
Over the past decade or so a combination of market forces coupled with the glacial pace of regulatory change has improved both the standard of investment products available – and the advice process sitting behind them.
Last week we saw the latest attempts to clean up this area. After a mystery shopping exercise, the Financial Services Authority revealed that the investment advice given by banks was “disappointing” and one high street bank – understood to be Santander – now faces enforcement action.
Of course it is not just Santander that has a long and inglorious track record here. Point the finger at any high street bank and they will have either sold their stock market-linked bonds to 80-year old grannies, ran leviathan-like Isa funds, that were beached in the bottom quartile, or flogged a narrow range of investments that were selectedsolely for the commission paid, rather than the value offered to their customers.
And that’s before we even get into the bonus schemes used to incentives “advisers” to sell these stinkers.
Santander is now currently retraining all of its investment advisers – and is reviewing the future of its bancassurance arm.
There is a serious possibility that it will follow Barclays’ lead and stop offering investment advice altogether; or like RBS and HSBC only offer this service to its wealthiest customers.
Will consumers be better off as a result? A couple of years ago I would have probably have said yes. After all I’ve lost count of the number of articles I have read – and written – that caution consumers against ever buying any investment product from a bank.
But now I am not so sure. If banks high street banks like Barclays pull out of the advice market altogether, won’t this just mean far fewer people have any long term savings at all?
When I was a child, once a month – usually just as we sat down to dinner – a salesman from the Co-op called to collect the savings subs from my Gran. And she usually had a polite chat with him while the dinner went cold.
When I left university, I was given the proceeds of one of these saving plans. It was not a fortune, but paid off my student overdraft, and helped with the first two months’ rent in London.
I have no idea what the annualised return on this plan was, nor whether it represented value for money. But I do know that if my Gran had not saved at all I would have struggled. And I wonder whether she would have started – and more importantly continued – this savings plan without the ill-timed knock each month.
Thanks to the law of unintended consequences there is a real chance that bank salesmen will go the way of the man from the Pru (or Co-op).
Let us be clear, I am not suggesting that this should be used as an excuse for not improving both the standard of advice or products sold.
But let us be realistic. This process has driven up costs – and is rapidly pushing the cost of decent financial advice out of the reach of the mass market.
Perhaps the new FCA should also look at what can be done to fill this vacuum, so there can be a more satisfactory answer to the two stark alternatives that are mentioned above.
Emma Simon is deputy personal finance editor at the Telegraph Media Group