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Nic Cicutti: Orphan clients are not just a bank advice problem

When is an orphan not an orphan?


When is an orphan not an orphan? I found myself asking this question last week after reading an intriguing column from Invest Southwest managing director Dave Penny.

Writing in Money Marketing, Penny took the side of millions of bank and building society customers, who are faced with having no advisers to turn to following their closure of many banks’ direct advice arms.

Penny argued that today’s asset-backed investments require regular asset allocation and rebalancing. But following the banks’ withdrawal from the advice market, investors are potentially left with unbalanced portfolios, unable to amend their investments as circumstances, or markets, change.

Not only, but Penny made serious allegations about banks’ behaviour with regard to this issue. He claimed: “Advisers are routinely being threatened, supposedly under the Data Protection Act or non-solicitation clauses, to stop them having any contact with previous clients. 

“It is a thinly veiled attempt by the banks to protect their profits at the expense of clients.  And it keeps the unbalanced, unmanaged portfolio time bomb ticking and growing in potency.”

Penny warned that so grave is the problem that it may even be classed as the next misselling scandal, “threatening to overwhelm our formerly respected high street institutions.” I’ll come back to that contention in a minute.

Crucially, Penny’s warning won him an ally, namely Money Marketing itself, which devoted an editorial to the issue. The paper argued: “If [clients] are not receiving ongoing advice from the banks there should be nothing stopping advisers from stepping in to offer much needed support.”

OK, now let’s start disentangling some of these issues. First, it is certainly correct that a client’s investment assets should ideally be rebalanced regularly to take market conditions into account as well changing attitudes to risk.

But the reality is that this has rarely, if ever, been what banks were interested in doing, even when they had fully-operating advice arms.

My former mother-in-law was a customer at Lloyds Bank for more than 40 years. Some time in the early Noughties she succumbed to one of those “offers” where the bank says it will pay you a small lump sum if it can’t “save you money”.

As a result she ended up with a significant part of her cash savings in a series of Scottish Widows investments she didn’t understand and always remained wary of. When markets collapsed in October 2008, she became an early capitulator and liquidated her suddenly-more-meagre portfolio, placing what was left back into a savings account – with Lloyds, naturally.

In the five or six years that she had equity-backed investments, my mother-in-law was never contacted once by any adviser from Lloyds to rebalance her portfolio. When she disposed of her investments, no-one called, whether to attempt to dissuade her or offer her an alternative strategy more in tune with her needs or fears.

I strongly suspect that millions of bank and building society customers are or have been in the same boat for years. They have gone through umpteen crashes, recoveries and market corrections over the past decade or longer without any attempt from their banks’ advice arm to offer further help or advice.

The only thing their “advisers” – and I’ve deliberately used quotation marks around that word – were interested in was the commissions they earned, plus bonuses for reaching their sales target and any ongoing trail they might pick up along the way.

In that regard, if we are to call their clients “orphans”, we would have to add that they were orphaned at birth. Yes, there is a scandal in the making here.

But it is not a new one by any means: many of these orphans are now 15 or 20 years old.

Nor is it confined to bank and building society customers. Over the past 20 years I’ve lost count of the umpteen times Money Marketing has reported on disputes between IFAs supposedly soliciting former clients.

A year or so ago, a well-known adviser was left with £1.2m in legal bills after losing a case on the High Court over alleged poaching by former advisers at a firm it took over.

The reality is that clients are treated as fodder, not just by banks and building societies but by IFAs, who sell them a product and then rake in the combined commission and trail without ever attempting to contact them again. 

Never mind rebalancing portfolios, why would you want to get in touch with someone you flogged a £30,000 with-profits bond to ten years ago, trousering 7 per cent commission in the process, when the potential benefits of doing so will be outweighed by having to deal with their niggly time-consuming questions? If time costs money, why waste it?

So when Penny argues movingly that departing bank and building society “advisers” – here’s that quotation mark again – should be able to target former marks with impunity and even potentially persuade them to shift their portfolios to whatever new businesses they choose to set up, we should remember that this is not an issue confined to the banks.

If so-called bank “orphans” can be shifted with impunity, this should apply to IFAs as well. And if there’s a new misselling scandal brewing, Penny should not kid himself that IFAs are exempted from it. Because they are not and never have been.

Nic Cicutti can be contacted at




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There are 16 comments at the moment, we would love to hear your opinion too.

  1. The reality is that clients are treated as fodder, not just by banks and building societies but by IFAs, who sell them a product and then rake in the combined commission and trail without ever attempting to contact them again.

    Do you have proof to back this statement up?

  2. “The only thing their “advisers” – and I’ve deliberately used quotation marks around that word – were interested in was the commissions they earned, plus bonuses for reaching their sales target and any ongoing trail they might pick up along the way.”

    I beg to differ Mr Cicutti, most advisers in the bancassurance sector never saw a penny of the commission earned or ongoing trail and a fair few of them didn’t see much in the way of bonuses either. The bottom line is that most were interested in keeping their job and not being managed out by unscrupulous bosses.

    I hate to drag your mother-in-law into this but you mentioned her in the first place. In the 5 or 6 years she had these Scottish Widows investments how many times did she go into a bank and request an appointment with the adviser?

    Yes banks and IFA’s have some responsibility to contact clients for reviews and updates but this does not remove all responsibility from clients in keeping on top of their own financial affairs. The banks idea of contacting clients is 6 monthly statements any decent IFA’s idea will be actively chasing clients for an appointment.

    The banks have done a lot of dodgy things in the past but in my opinion not contacting a client for a review of their investments is right at the bottom of the pile.

  3. Tip of the iceberg, what about the 85 plus insurance companies that have closed in the past 20 years and their policy’s run by the likes of Resolution, Life ass holdings (Wnidsor Life) etc etc. The clients have no ongoing service and the same charges,

  4. The reason that consumers are left without advisers is because the FSA decided that commission was not acceptable. Clients did not always object if an IFA/bank received commission and the insurance company lent the ifa/client the commission by way of an extra amc. The FSA should shoulder the blame for so many orphan clients

  5. Nifty footwork Mr Cicutti. You appear to have successfully re hashed all the comments under Mr Penny’s article into a whole column under your own name.

  6. Nic, re. the above comment as posted at 8.25am, I rather think you should allow yourself more time to write your articles, as you have clearly become carried away in the delivery.

    Too much testosterone and not enough professionalism.

    To categorise a sector in the way in which you have, either wittingly or unwittingly shows an extreme lack of professionalism on your part.

    A brave man would issue an apology and a retraction..Off you go?!

  7. I understand what you are saying Nic and it is oh so easy to appear wise in hindsight. The reality is that is the way it was and for the vast majority of people it worked well for them. Times have changed and our industry has moved on, we are now talking about the here and now, not the past. We are now ‘supposed to be’ (and I put that in inverted commas as some so called advisers are now just disguising commission as fees) in an advisory world that charges fees for the service, so if the clients portfolios do need rebalancing for example, then they will pay for that service, and rightly so. The banks have obviously felt they cannot provide this service and have got out. They may very well be right, unless the regulator changes its funding model none of us may be able to sustain a presence in investment advice and service. For the time being though there are good advisers offering a good service in the here and now, what happened in the past is somewhat irrelevant now, isn’t it?

  8. Is this man serious? What a poorly thought through, crass piece of waffle – again! About time you got a proper job, Nic; try and find something you’re good at because it’s certainly not journalism.

  9. The FSA RDR policy was that no advice post RDR is better than pre RDR advice. In the not too distant future we will see providers growing tied in-house channels to target the millions of ‘orphan’ clients whom were originally IFA clients. So much for consumer choice!

  10. Didn’t Nic’s mother ever consider giving that son of hers who works in financial journalism a call, to discuss these investments she didn’t understand? Surely he would have been able to explain everything to her, and perhaps dissuade her from losing her savings.

    Maybe she finds his breast-beating “repent thy sins” schtick as tiresome as we do.

  11. I cannot believe we are meant to take this article seriously. IFAs taking 7% commission on bonds and no reviews undertaken? Treating clients like fodder?

    The allegations in the article might apply to a tiny minority of IFAs but not to the overwhelming majority. This is just nonsense and frankly it’s not worth further comment.

  12. The original article was quite contrived and so is this one.

    One thing the FS Industry is really good at is pointless speculation and navel gazing whilst idly pointing a revolver at it’s own foot.

  13. tyrone murphy 5th July 2013 at 8:37 am

    If clients do not feel that they are receiving any after sales service from their adviser they are at liberty to move their business. If you accept poor treatment from an adviser you can’t then complain about it after the event. The onus is on the client to take action if they are not happy with the state of affairs.

  14. I agree with a lot of what you say Nic. I actually do try to provide my clients with regular reviews but find the weight of Regulation and compliance issues a distraction to providing the service that “I” would aim to provide. In defence my clients know where I am and when they contact me I am proactive in meeting their needs. When I worked for a National firm some years ago we were encouraged to write business and walk away. I know there are many “advisers” still doing this. At least I am trying extremely hard not to fall into that camp but recognize given all the demands upon, even the professional amongst us, it is not easy.

  15. Julian Stevens 7th July 2013 at 2:31 pm

    From an IFA’s point of view, for a client’s affairs to be worth reviewing, two criteria have to be met:-

    1. The client must be prepared to engage with you, as in responding postively to your approach and

    2. Unless the trail commission is sufficient to justtify your time and effort, the client must be prepared to pay you for it.

    Like most IFA’s (I imagine), we have in our cabinets a number of files on old pension plans and investments on which we’ve written to the client suggesting a review, often following up our initial letter with a phone call. But, if the only response you get is either Not interested response or none at all, commercial realities dictate that eventually you put the file away and next year don’t bother.

    This is quite different from the common practice of the flog and forget sales factories that typify so many banks and building societies and, shame to say, some IFA’s (hopefully, with the passage of time,.a steadily shrinking minority). So please don’t tar us all with the same broad brush.

    The FCA’s determination to axe trail on legacy products, as usual casually dismissing all representations that it might not actually be too clever an idea and that, as a result, clients will suffer, will only exacerbate this state of affairs.

  16. The Home Secretary, announced yesterday that she was very proud of finally having Abu Qatada deported to Jordan, employing procedures, within the rule of law.
    Meanwhile the FSA/FCA deal with the adviser community Ultra Vires.
    One might be forgiven for assuming that any journalist worthy of the title would be eager to bring this to the public domain, rather than engaging in their favourite sport of spouting tedious piffle, in the hope of stirring things up within the adviser community.

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