As many of you will know, I dodged out of London a few years ago and moved to a far more blessed location in the New Forest. It still provides fast access to the Big Smoke, but without the constant background wail of police sirens.
Stay with me on this one: I mention it because last week I was reading in Money Marketing that the British Bankers Association is to review bank advice business models following a decision by several members to pull out of bancassurance.
A little while ago I wrote somewhat disparagingly about bancassurance. Many IFAs have described the disappearance of banks’ advisory arms in lachrymose terms. I read one comment saying it was only the efforts of small armies of salespeople knocking on doors up and down the land that maintained the savings habit among the UK population over the years.
Perhaps 30 or 40 years ago they might have but the new army of bank salespeople have never knocked on doors or got their shoes dirty. They simply work phones or strong-arm punters who walk into their local branches. These people were geared primarily to selling inappropriate products with massive hidden charges to clients who did not need them.
Some industry figures agree with this view. Syndaxi Chartered Financial Planners managing director Robert Reid summed it up for me when he said: “You have to question whether some of the advice people got from banks in the past was worth paying for. I do not think people should just get advice for the sake of it. It has to have a value to it.”
By coincidence, last week a plumber came round to service our boiler and do one or two other urgent jobs. If you have lived in the big city, you’ll know how difficult it is to find a good plumber – and how extravagant their callout charges are in an emergency. Well, not round here: our chap charged us £150.
Chatting to him, he has about 250 clients in the area and between new boiler-fitting and other more expensive projects for which he hires help in by the day, as well as smaller work like ours, he averages gross earnings of about £300 per client per year. Most households pay £75 to £100 per visit.
Admittedly, he doesn’t have heavy office admin costs, or the financial burden of regulation and FSCS levies, or the hours of preparation and research needed to give compliant face-to-face advice. Equally, he doesn’t receive any trail in respect of previous work he has carried out, a massive continuing income stream for most advisers.
The only way he could match an IFA’s long-term earning potential is if he charged on the basis of a property’s overall value, or he received trail based on each chargeable visit to a home.
But he sticks to one-off payments and as long as he carries on doing a good job, he will put food on the table at home.
And that, I suspect, is why the bancassurers are pulling out of the advice market: unlike my plumber, they don’t do a proper job.
We have two high street bank branches in our village, with barely a couple of staff working in each. To paraphrase now-deceased BBC reporter Brian Hanrahan, they count the money in and count it out, with not much else in-between.
In my chats with them, it’s fairly obvious they have limited insight into the challenging world of financial advice. The best they might do is set up meetings with other colleagues, who may be more glib than they are but have barely any greater understanding about the subject – unlike my plumber, who has a genuinely marketable skill.
Which helps explain how it is that, in another astonishing story in Money Marketing last week, Axa was quoted as saying that the reason for its decision to pull out of the bancassurance market was because it would have had to make 6 per cent, presumably of the product’s value whenever it is sold.
The only way I can “compute” that figure is if we assume that whenever an Axa product is sold, the bank employee doing the selling is never required to review it annually or give ongoing advice about it or any other financial issue affecting the person who bought it or their family.
Each transaction is treated purely on its own merit and not as meeting part of a series of inter-related needs, with the customer unlikely ever to be seen again. In other words, there is no long-term value in respect of any transaction between Axa, its bancassurance partners and individual clients.
In that kind of environment, I can imagine Axa walking away from its relationship with the Co-op and Clydesdale and Yorkshire Banks, none of them admittedly great powerhouses of financial advice.
But in that case, all that does is confirm what people like me – and many advisers who email me privately – already know: the RDR is helping to kill a purely sales-driven model of “advice”, like bancassurance.
The “advisers” most likely to suffer are those who operated closest to that model, some of whom were able to call themselves IFAs until 31 December 2012. Those suffering the least are the ones who created distance between themselves and that model long before that date.
Nic Cicutti can be contacted at firstname.lastname@example.org