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.