It is of little surprise that banks are looking to get back into the advice game. Banks will always believe they have a right to a place on the grid in the race for consumers looking for someone to manage their assets.
However, despite their size, high street presence and deep pockets to provide for the investment in IT and marketing, banks have always been the Manor Marussia on the grid, not the Mercedes, and it is worth an examination of the reasons why.
The numbers game
There has always been a clear conflict between the short-term demands of the bank and the long-term investment aspirations of the customer.
“This month we will be mostly selling XYZ product,” is the diktat received by the branches from head office as to what financial instrument the bank wants sold that particular month. Far too often, banks have seen financial services as a numbers game akin to supermarkets flogging boxes of washing powder.
In many cases, there is a lack of alignment between the interests of the bank, the bank adviser and the customer. Good advisers understand that the key to success for them, their firm and their customer is developing a real understanding of a client’s financial needs and ensuring an investment strategy is designed to achieve their goals in the short, medium and long term. If the bank is only interested in flogging a particular product, and hitting targets, the interests of the customer may not always be the priority.
For too long bank advisers focused on targets, transactional business and potential bonuses, and were perhaps less concerned with the consequences for the bank if things went wrong for the consumer. With this in mind, it came as no surprise when Santander withdrew from investment advice in March 2013, after pulling its 800 advisers off the road for not meeting RDR standards, and that a year later it was fined £12.4m for unsuitable investment advice.
If the only tool you have is a hammer, the solution is to treat everything as if it were a nail. Historically, banks provided a narrow range of expensive products and the scent of commission overcame the odour of deceit when persuading a customer a particular investment was in their best interests.
How else can you explain the reason behind 3,200 Norwich & Peterborough clients investing in Keydata, which cost the small provincial building society £60m in redress costs, forcing it to agree a merger with Yorkshire Building Society five years ago?
We have seen the impact of banks’ historically poor standards of risk management and the real lack of understanding of the regulator’s relentless focus on customer outcomes. Bank advisers had it made thanks to PPI sales and it was bonuses all round when the branch smashed sales targets month-on-month. But where are the culprits now the compensation bill stands at £27bn and continues its upward trajectory?
The post-RDR world
RDR transparency really does not sit well with the costs of bancassurance products when those sourced by advisers provide considerably better value.
Everything boils down to the continued lack of trust shown by consumers towards the banking sector. Last month, the Nottingham University Business School Centre for Risk, Banking and Financial Services, which produces the Trust and Fairness Index, once again had banks propping up the list.
In addition, we have read two former Co-op bosses are banned for life from top City jobs for prioritising the bank’s short-term financial position at the cost of its long-term capital position.
The banks would be better off using their considerable resources to develop a unique, scalable robo-advice solution. However, Santander believes the answer is 225 shiny-suited investment advisers. It will be interesting to see how it pitches this as its way back into the customer advice space, bearing in mind the considerable challenge it faces in bridging what is not so much a credibility gap as a chasm.
Tim Sargisson is chief executive at Sandringham Financial Partners