Martin Bamford: It’s time to force cultural change in advice

I had a coffee with a director of a bank the other day. Not one of those nasty high-street banks, but a challenger one, with a refreshingly different approach to doing business.

Our conversation got onto the subject of culture. We agreed that, despite the world changing and consumer demand for banking services looking very different today, cultural change appears to happen at a snail’s pace in big, established businesses.

The culture within financial services firms has previously been stated as a priority for the FCA. Yet despite this focus, little seems to change.

When I interact with my own bank (a nasty high-street one, for now at least), the cultural hangover from decades of trying to sell products is apparent. It invites me in for a “financial planning review” as a thinly veiled excuse to sell to me.

This is less abundant these days but only because bank sales staff are few and far between since the RDR. There is a negative correlation between a bank sales force and qualifications and pricing transparency, apparently.

A report in 2014 by thinktank New City Agenda, along with Cass Business School, concluded it would take a generation to change the aggressive sales culture in banks which provoked a string of misselling scandals.

If culture in banks is so hard to change – despite consumer demand and despite the financial and reputational consequences of flogging unsuitable products – then what hope for positive cultural change within our own profession?

This issue has come into sharp focus in recent months due to the rising demand for defined benefit transfer advice. Rarely a day goes by without news of another firm voluntarily giving up their transfer permissions or otherwise facing scrutiny over their advice.

The plight of British Steel Pension Scheme members found its way onto prime-time television and into parliament. And the excellent CHIVE initiative spearheaded by Al Rush and valiantly supported by many others is a clear signal that cultural change in advice is desired.

Despite the FCA talking – and now acting – tough on the issue of unsuitable DB transfers, despite the media and politicians shouting about it, and despite great work by a select few within the profession, there is little indication behaviour is changing.

This is, after all, behaviour taking place despite a significant improvement to professional standards post-RDR and in an environment of transparency around remuneration.

If regulatory focus and drive from within our profession is not enough to force this positive cultural change, what is?

One option is to better educate the end consumer about what “good” looks like and help them avoid the worst outcomes. Imagine if every member of the BSPS had received a short letter warning about outsourced advice, contingent charging and esoteric investment schemes.

My fellow Money Marketing columnist Paul Lewis does an important job educating consumers about what to look for in a good adviser: independence, chartered or certified, and paying in pounds not per cent. These three filters are not guaranteed to result in avoiding unsuitable outcomes but the promotion of simple rules consumers can easily apply will do more to force cultural change than other measures.

We are unlikely to see cultural change within the big banks anytime soon and, unless we are prepared to tackle this issue differently, we are unlikely to see it within the financial planning profession either.

Martin Bamford is managing director of Informed Choice

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Comments

There are 9 comments at the moment, we would love to hear your opinion too.

  1. Something which is not emphasised enough – the client must shop around. Speak to an adviser from several firms. You can filter them down using simple criteria but the only way – because general disclosure does nothing for a client – is to speak with the adviser, discuss what you want to do and invest a bit of time and effort. Get a price – in pounds – before you do anything. And an “agreed scope of supply” would be useful. What you get, what you pay.

  2. Christopher Pitt 1st February 2018 at 3:13 pm

    Excellent article Martin.

  3. You couldn’t make it up.

    “My fellow columnist, Paul Lewis………….”, When, Where and How?

    “A challenger one, with refreshingly……..”, When, Where and How

    Imagine if every member of BSPS read what they were sent!

  4. Culture could be comfortably defined as a system of shared assumptions, values, and beliefs, which governs how people behave.

    Within any body of people, be it a country, organisation, industry or profession, there will always be outliers. The outliers do not define the overall culture. If there are good banks and bad banks, as you allude to, then is banking culture good, bad or just confused right now? Within the ‘good’ bank I’m betting there are a few bad apples, what does that say about their culture? Likewise with advisers, I’d suggest the culture is pretty good overall but clearly there are exceptions.

    In reference to your bank you say “It invites me in for a “financial planning review” as a thinly veiled excuse to sell to me.” Yet you will invite your clients in for exactly the same reason, i.e. to sell a service. What’s the real difference? Surely it’s the outcome not the action that counts?

    Your point about Paul Lewis is well made but is it really about culture? There are lots of good advisers producing good outcomes that don’t have those attributes. And a bad adviser can have the attributes Paul says to look out for – I know, I’ve had first hand experience. Culture and fixed attributes are not the same thing.

    Discussions about culture are helpful but I can’t help thinking that it’s not a good way of influencing outcomes. If the Government waited for culture to change at car firms to reduce pollution they might be in for quite a wait. Change the rules on what a car can or cannot emit and you get an outcome now.

    Trouble is, from a regulator’s perspective it’s easier to talk about culture than it is to commit to direct actions that make a real difference.

  5. Martin

    I don’t know if you go to many presentations. Here in London there is no shortage. It probably won’t surprise you that not infrequently one comes across situations where there is hard sell on what can only be described as somewhat flaky products. Unfortunately it is a small select band of niche providers that consistently fall into this category and I guess that one or two of these may be familiar to you.

    So, sadly it isn’t only the banks that need dragging into the modern world. There are also large well know advice firms (mainly tied or restricted) that also fall into this category. This time I’m sure the perpetrators are very well known.

  6. I always find it odd that Martin Bamford preaches about charges. His firm have a minimum £3,500 Advice fee, which will price a lot of people out of Advice. They also charge a percentage fee of assets under management. A bias would remain under this structure which would need managing like any other charging structure.

  7. Until all the Financial Services Industry decides not to take fees and charges out of the product the culture will never change.

  8. Martin you operate contingent charging on your ongoing fees. The receipt of 0.75% per annum on money under management is CONTINGENT on your advising people to make investments which are held under your firm’s management. The fixed fee is not even a fixed fee, but is a range of £3,500 to £10,000 depending on the complexity of the advice. I am not criticising your charges, you are entitled to base your charges on any model you so choose, but your ongoing charges are CONTINGENT on you advising people to invest with you. So stop criticising contingent fees when you charge them yourself.

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