Speaking today at the Which? Future of Banking Commission select hearing, FSA chief executive Hector Sants (pictured) said while the deposit-taking function of banks is guaranteed through the Financial Services Compensation Scheme, there needs to be greater trust in financial advice.
He said: “Within the banks we must distinguish between the two elements of service. There is the deposit-taking service, which can be guaranteed so that is not trust in the bank per se, it is trust in the system in its entirety.
“But the other component is the financial advice the banks offer and we can certainly improve significantly, and that is the intention, the behaviours of people supplying that advice through a mixture of more rigorous proactive regulation and more effective deterrence and enforcement.”
Sants also argued that consumers need to have a more realistic expectation of the outcome of advice, with greater understanding that it is a forecast and will not always be correct.
He said: “We do have to get consumers to recognise the inherent limitations of the advice service, which is that it will axiomatically not always be right.
“So we need to tackle it from both sides and acknowledge that we are not going to get to the perfect solution and people who continue to aspire to the perfect solution will continue to be disappointed.”
Which? chief executive Peter Vicary-Smith asked Sants whether there could be read-across from the RDR into incentivisation structures of front-line sales staff at banks, such as in-branch disclosure of incentives.
Sants said: “We are very conscious of the distorting effect that incentives can have on behaviours and on service and advice. Wherever there is the potential for incentives to produce distortion, if it is within our regulatory remit, we would look at it.
“However we also have to bear in mind our resources and also the ability of the industry to absorb change. But I think ultimately, in term of the wider question, yes the regulator ought to be interested in all areas where incentives are having a potentially distorting effect on advice.”