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MM Leader: The changing face of bank advice

It has been a common misconception to suggest the RDR will play into the hand of the banks’ advice operations.

The original RDR plans would have offered significant advantage to the direct operations of life companies and banks which would have been able to operate under less stringent qualification and charging rules.

But since it became clear that the FSA would operate much the same regulatory regime for independent and restricted advice, high-street banking institutions have had to think long and hard about whether they can operate in the bank advice arena.

The FSA’s recent confirmation that there will be no softening of regulations for simplified advice despite heavy lobbying from the banks and insurers, was the final straw for many.

Barclays was the first to announce its intentions to pull out of branch bank advice last year while HSBC last week confirmed it would be scrapping it tied advice arm.

The costs of training all staff to QCF level four, and keeping them, will be significant while the new adviser-charging regime will mean an end to the big commission payments which have made such operations profitable in the past.

Bank advice models after the RDR will have to operate on explicit charges agreed with their customers. Will these customers appreciate the service enough to pay the sums needed to make it profitable?

The recent misselling scandals over bank advice and risk of future problems, especially given the Financial Conduct Authority’s stated intent to be more interventionist, will also have made senior management nervous about operating in this area.

It is right that consumers are not hoodwinked into believing the “advice” service they receive is free, with commission payments usually built into the product charges.

There are obvious concerns about consumer access to financial services being further restricted by these trends but this is no excuse for the customers of high-street banks to continue to fall prey to hidden charges, often as part of a sales culture that values quantity much higher than quality.

If traditional bank advice models do not work after the RDR, then banks should be putting their energy into new models their customers will value and pay for.

The changing face of bank advice should also be a great opportunity for IFA firms, some of which are already looking at models to try and deal with clients the banks decide they cannot serve in a transparent manner.

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. Julian Stevens 3rd May 2012 at 10:14 am

    IF the playing field on which IFA’s and banks have to play really is levelled by the RDR, then I think and sincerely hope that the banks will find their traditional model of doing half the work (or less) for each transaction whilst commonly taking twice (and sometimes more than) the commission/adviser charge, by comparison with most IFA’s, will become unsustainable.

    But, IMHO, these changes don’t go far enough.

    If the FSA really wants to raise professional standards and to push the industry towards providing true advice rather than merely selling products (which the “advice” is then moulded to fit), why doesn’t it stipulate that:-

    1. Not less than a third of any adviser charge for a given programme of work must be paid up front (surely, at least a third of the work lies in providing the advice?),

    2. All recommendations must be submitted in writing to clients at least a week, or maybe ten days, before the presentation of any application forms for completion.

    After all, were you to take advice from a solicitor on how best to tackle a particular situation or problem, in most cases, I suggest, you wouldn’t expect to start signing documentation to implement a particular strategy without having first had an opportunity to consider the solicitor’s recommendations in writing. Would you?

    In my experience, it’s extremely rare for bank salespeople to document their recommendations before each and any product sale. The letter of recommendation, usually written by somebody entirely different from the person who sold the product, tends to follow at least a week after completion of the application form/s, well into the cancellation period, primarily as just an irksome post-sale compliance obligation. That’s not an advice process, it’s a box ticking sales process.

    That having said, I am still surprised at how many IFA’s I encounter who, although they do actually write their own suitability letters, follow much the same process. Selling a product before documenting its suitability seems to me to be very much a matter of putting the cart before the horse and hardly professional.

    3. Bank salespeople and all other tied and multi-tied agents should NOT be permitted to describe themselves as advisers (for the simple reason that they DON’T provide advice, they just sell products).

    4. They must make absolutely and unequivocally clear to prospective clients the limitations of what they have to offer, as in that

    5. they are authorised ONLY to advise on and to recommend a very restricted selection of products and

    6. what, if anything, they or the organisation for which they work, undertakes to provide in the way of post-sale service. And

    7. Bank salespeople should be prohibited absolutely from proactively contacting clients on the strength of a tip-off from one of their counter colleagues that Mr or Mrs X has just deposited a large sum of money in her current or savings account. By all means provide Mr or Mrs X with a leaflet outlining the services available from the bank’s retail financial services arm (including the information mentioned above as to the scope of those services). But it’s absolutely wrong for one of the bank salespeople, on the strength of a tip-off, to phone up the customer pressing them to make an appointment for “a financial review”. I simply cannot understand how the FSA can consider such practices to be acceptable and to allow them to continue.

    But, by comparison with the omnipotent and omniscient FSA, what do I know? I’m just a jobbing IFA trying to make a living and to build a long term and satisfied bank of clients.

  2. I think the loss of the banks within the mass market advice arena, was not foreseen by the fools at Carnary Wharf.

    They thought that they could mould the advice market into something that could be easily regulated under the guise of comsumer protection and choice but they are wrong! Ha ha FSA, the joke is on you!

    It has long been known that since IFA’s and what they offer to clients is not carbon copies, regulation has been a little like hard work! Their move to make their lives easier by pushing the mass market towards the bankassurers has blown up in their faces!

    RDR 01/01/2012 will leave most of the general population without access to advice! Well done Mr Pants! 95% plus of the population without access because paying for the advice through products is so wrong! Tell that to the masses that have no savings and pensions to speak of in future years! Result of which is greater dependency on state in retirement! Well done!

    They say, beware of the unintended consequences of your actions but obviously not in Canary Wharf! They have requlated the profit out of advice and selling financial products and those banks that have not taken the bailout are free to make commercial decisions that have wrong footed the FSA – I do hope the other banks join them ! This will show the FSA to be the incompetent fools that they are!

  3. Marty The IIFA 3rd May 2012 at 12:06 pm

    @Julian Stevens 10.14. Julian a well written, well structured and well presented piece of drivel. You should apply for a job at FSA. We all earn our living by selling. Yes even those snobbish IFA’s who proport to be totally fee based. We sell our selves to clients, we sell what we do to our clients and we sell products to clients to solve financial needs. There is nothing wrong with this, there never has been and never will be. Maybe you are one of the tiny, tiny, tiny number of IFA’s being able to routinely charge fees and never actually produces anything for the client by way of filling in a proposal form and unless you are one of the even “tinyer” no of IFA’s who dont increase their fee by a relevant amount for implementing the recommended product or product (oh dear that is what we in the industry call selling a product) then I am not suprised you are struggling to make a living. I take then that you dont take commission if you sell term, phi critical illness etc either? The number of IFA’s who are on their high horse about being advisers not sales people is ridiculous. We (and I use the royal we here) WERE, ARE AND ALWAYS WILL BE PROFESSIONAL (& MOST OF US ARE ETHICAL) SALES PEOPLE. BE PROUD OF IT.

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