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FCA: Banks could help advise less ‘savvy’ customers 

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Banks could give unbiased advice to help less “savvy” customers, according to FCA research.

In a research paper published last week, the regulator looked at how particular groups of consumers are affected by price discrimination in financial services.

It examines firms charging different prices to different individuals, resulting in some groups paying high mark-ups and cross-subsidising others.

The authors warn some consumers may not realise they are paying a higher mark-up, and argues banks could step in in these cases to provide advice from staff with “well-aligned incentives.”

The paper says: “Consumers may be less ‘savvy’ in different ways and sometimes in several ways.

“They may not have clarity regarding their future needs, and may therefore choose unsuitable insurance, savings or mortgage products, or even postpone a decision. If firms use complex pricing or complex terms, then if the costs accrue over time or the costs are hidden and consist in the loss of a possible gain, consumers may be unable to assess the cost of the product or the risks involved.

“In such situations, advice from the bank or building society providing the product may alleviate these problems to some extent, and advice from agents with well-aligned incentives will likely be helpful.”

The research did not examine whether or not bank charges are clear enough for those products or whether access to advice was sufficient.

Overall, the FCA’s researchers found price discrimination does not necessarily warrant any regulatory intervention because it is often the result of a normal, competitive market.

The regulator says: “Before intervening, it is necessary to carefully identify the problem, as well as identify appropriate solutions.

“Badly designed or inappropriate regulatory interventions can lead to undesired or unintended consequences for consumers and competition.”

In the advice market, cross-subsidy can occur between high and low value clients, but also between clients who chose to purchase a product after free reviews and those who do not.

In a newsletter before the RDR, the regulator expressed concern that firms providing both products and advice were cross-subsidising the total cost of delivering advice to make advice charges appear artificially low.

The RDR requires larger firms that provide products as well as advice to set advice charges that are “reasonably representative” of the services offered, preventing firms cross-subsidising advice charges from profit from other parts of the business.


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There are 21 comments at the moment, we would love to hear your opinion too.

  1. So the regulator commissioned and paid for this research paper. I would suggest the person who sanctioned the research and the researchers get the sack.

    This is precisely what the banks did prior to RDR. The preyed on the less savvy customers. They are still paying out for PPI – amongst other things.

    One of the most compelling reasons we had the RDR in the first place was to clip the wings of the rip off culture that pervaded (and probably still pervades) the banks. The very idea that they will provide clear and reasonable standard charges is so risible it is amazing that anyone who in more than 15 years old would even suggest such a course. Is it any wonder that the regulator is often held in low esteem when it regurgitates this nonsense?

  2. I’ve heard it all now. So the institutions who have caused to most miss-selling in the past, before abandoning the market because they couldn’t survive in a fee only world, are now those best to help those who are “less savvy” because they have well aligned incentives ! (Aligned to what I wonder – shareholder returns).

    RDR and ever the increasing burden of FCA, FOS, FSCS, PII costs have resulted in less availability of regulated advice for those with limited resources, just when the Governments pension freedoms and accompanying FCA rules have created huge need/demand for advice. So now the solution to this ever increasing advice gap is to let the friendly banks help out the less savvy. Surely the less savvy are most at risk of being ripped off. I thought MAS, Pensionwise, TPAS and CAB were all rushing into that space and at least they can’t miss-sell products.

  3. Sounds like an excellent idea. Now if you’ll excuse me for a moment I’m just off to pick up my chickens from the delightful fox that volunteered to look after them for the day.

  4. This is a bit like Ground Hog Day. Banks’ mis-selling especially to less ‘savvy’ people, was the nub of the issue. I had to re-read this article and pinch myself. Does history not teach anything?

  5. I’ve just checked and no, its not April Fools Day, this is for real!!

  6. Oh, and here’s your other problem…. ‘The RDR requires larger firms that provide products as well as advice to set advice charges that are “reasonably representative” of the services offered, preventing firms cross-subsidising advice charges from profit from other parts of the business’…. Cross subsidy is the ONLY WAY you will make RDR work for all!!

  7. I think the FCA is spot on here. They are probably short of ‘our’ money and when the banks are caught ‘mis-aligning’ their incentives for the less ‘savvy’, easier to confound and confuse, Clients The FCA will organise a global ‘mis-alignment’ mis-selling scandal and fine the banks again to top up their coffers!
    You couldn’t make it up! FCA, take a look, for example, at how much banks charge for their Insurance Service, their Trustee Service and their Probate Service for the ‘less savvy’ Customers.

  8. John McEnroe commented on this suggestion

    There are still major mis-selling scandals that have not yet reached the surface such as equity-release & interest-only mortgages, leveraged loans for tax-avoidance schemes to name a few

  9. You can’t make this stuff up. Savvy – they have even invented a new phase for the vulnerable and less educated. Do they never learn from past mistakes. How many more times do the banks need to kick the general public in the boll..ks for the regulator to finally come to terms with the banks avarice.

  10. What do FOS make of this.

    Would banks be allowed to charge fees for giving advice.

  11. All to often now we see the FCA overstepping its boundaries and its remits.
    Recently and its often common place to hear high profile senior management offering advice and solutions to financial problems and quoting what may or may not be acceptable costs and charges !

    Here and as with other occasions it seems to be molding and shaping an industry into its own ideal !

    Is the FCA, a regulator or a dictator ?

    I don’t know about the rest of you but I see far to much dictating and very little regulating !

    Here we can plainly see the madness that follows, when the dictator no longer fears the people and blind acceptance is common place within the very people who do (supposedly) hold them to account !

  12. …and the circle is complete…

  13. From reading all of the above comments it seems unanimous. The world’s gone mental.

  14. Couldn't stop laughing 27th September 2016 at 9:50 am

    Brilliant. You really couldn’t make it up!

  15. Ah….but what is more likely to happen is that the banks will take advantage of that other recent gem from the FCA. They will give “guidance”, not advice. There will,of course be no fee for the guidance and the less savvy customer having the benefit of this guidance will buy whatever one-size-fits-all product the bank has on special offer, sorry “aligned incentive”, which will of course I cure large product costs to make up for there being no fee for the guidance. I can see me pursuing complaints to the banks for many years to come.

  16. “Incur” not I cure.

  17. Have we not been telling them for the past 20 years that “Badly designed or inappropriate regulatory interventions [or lack of good ones] can lead to undesired or unintended consequences for consumers and competition”? Consider:-

    1. Why has PII become so expensive and of such limited value? Because of the FCA’s never-ending programme of hindsight reviews in an attempt to cover up its own past supervisory failings. Howard Davies stated publicly his view that hindsight reviews are “not helpful”. But nobody at the FSA was prepared to listen. So now, at the first whiff of yet another “thematic review”, the insurers withdraw cover in that area with effect from the next renewal date and the amount of paperwork required just to renew an existing policy, let alone re-broke the risk in the ever diminishing open market grows progressively more voluminous.

    2. Why are our FSCS levies going through the roof? Because of the uselessness of the FCA’s GABRIEL Returns and the fact that it doesn’t even bother to examine the data they contain. So the epidemic of UCIS mis-selling has gone largely unchecked and the consequences continue to fall on the FSCS.

    Representations have been made to the Treasury about channelling FCA fines to the FSCS, which could well ease the excessive burden of its levies, but these have been rejected on the grounds that the Treasury prefers to encourage the pursuit of an environment of zero mis-selling. Talk about a pot of gold at the end of the rainbow. Such an aspiration is beyond a joke, not least in light of the FCA is widely recognised to be a shambolic regulator.

    3. Why is it so easy for rogue firms to fold and dump their liabilities onto the FSCS, thereafter phoenixing into a new entity? Because the FCA claims to be unable to police such activities, which is frankly a disgrace.

    4. Why are we now seeing a national epidemic of past PII mis-sales? Because although the FSA set out guidelines as to how advice on such products is supposed to be researched and recommendations to them documented, it failed totally to police its own guidelines. So the banks just carried on mis-selling PPI on an industrial scale and are now paying compensation to all and sundry, even to people for whom the product was actually suitable and who have successfully claimed on their policy. It’s less costly simply to pay up rather than examine and possibly challenge the veracity of each and every claim. So the CMC’s are still having a field day. And who pays? The banks’ shareholders and customers of course. So the public ends up paying and the reputation of the industry is further damaged. Whatever happened to the FCA’s statutory remit to enhance public confidence in the industry?

    5. Why is there such a dire shortage of affordable quality financial advice, with 50 page SR’s (including all the KFD’s and meaningless illustrations, etc) to document a recommendation even to the most straightforward products such as an ISA? Because of the FCA’s endless programme of embellishments to the original precepts of the RDR, as approved by Parliament. In this regard, it continues to exceed its authorised remit and no body exists with the authority to impose any sort of restraint. There’s a bit of finger-wagging and tut-tutting from the TSC but, as Mark Garnier has openly admitted, it [the TSC] has no powers other than to ask a few sticky questions which the FCA routinely brush aside. Remember Sheila Nicoll’s openly insolent smirking at the futility of the entire process back in March 2011? What has changed since? The FCA continues to set and pursue its own agendas without reference to any outside body.

    6. Why is the FCA allowed to set its own budget and increase it year after year way above inflation without reference to any outside body? Because the supposed oversight of the NAO is nothing but a token sham.

    7. Why is the FCA allowed totally to ignore the requirements of the Statutory Code of Practice for Regulators? Because no external body exists to force it to comply with them. I wrote to the BERR asking them why the Code is completely unenforced and all they did was forward my letter to the Treasury which just passed it from pillar to post until it ended up on the desk of some junior employee who did nothing with it either. Eventually, after REPEATED demands for a response, the Treasury just issued me with an empty, fob-off reply which amounted to nothing at all.

    The FSA, as was, even LIED to my MP by claiming that it does abide by the provisions of the Code. But it gave not a single example of how, and my MP was such a waste of space that he couldn’t be bothered to challenge this assertion. He’d obtained a response so, as far as he was concerned, his job was done. In the wake of the masses of bad press about the FSA/FCA, the vociferous criticisms of it from numerous MP’s and the sacking of Martin Wheatley, I wonder if he ever thinks he should have tried harder to hold the FSA to account. Probably not.

    And, if there’s a shred of truth in the FCA’s claim to be independent of the government (which there patently isn’t), on what authority could George Osborne have sacked Martin Wheatley?

    8. Why was responsibility for regulating the CMC’s fobbed off onto the MoJ ~ which, as we all know, has been largely ineffectual ~ instead of being taken on from the start by the FSA/FCA? My guess is that the regulator didn’t want to be seen to run with the hare and the hounds.

    9. What is the point of a Complaints Commissioner when the FCA remains free simply to ignore his recommendations? A prime example is the Commissioner’s recent recommendation that the FCA should pay compensation for the damage caused to a financial adviser firm whose details on its register it not only appended wrongly but then repeatedly failed to correct. The FCA just said No and there’s nothing the Commissioner can do about it, which rather suggests his post is about as much use as a chocolate teapot. He’s just a bit of token window dressing. If he had any backbone, he’d resign.

    10. And then, of course, there’s the FOS……

  18. I bet the recruitment agencies are lining up for a bumper pay day to place unqualified, dubious ex-advisers and the plain stupid individuals within the banks new “guidance” sale forces

  19. I think I do have a response for the FCA but I just can’t see the keyboard through the tears…not sure if it’s the ones of laughter or sorrow…yet again we have a regulator led by someone so far out of touch with reality that they are prepared to let the lions back in to the arena just one more time hoping that they might have changed their basic nature…what’s that old saying, doing the same thing over and over again hoping to get a different result is a sure sign of madness?

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