The death of bank advice: more than just the RDR to blame?

The RDR has been blamed for the glut of banks pulling out of the advice market. But are technology and culture just as much to blame? And is there any chance of a U-turn?

Barclays was one of the first banks to pull out of mass market advice in 2011. Many others have followed.

The RDR has had a significant impact on the number of financial advisers in the UK, with bank advisers being particuarly badly affected.

In March, the FSA revealed there had been a 20 per cent drop in adviser numbers since December 2011 and the number of bank and building society advisers had dropped even further at 44 per cent. So far, closures and restructuring of advice services within banks is estimated to have resulted in around 7,200 job losses and this has raised real concerns about how many people will access financial advice.

Since Barclays took the decision to close its advice arm in 2011, many others have followed suit. Lloyds closed its mass market advice service in November last year, while Santander has stopped offering advice to new customers early in 2013. HSBC has also taken the decision to stop offering advice to customers that fall below a certain net worth – in its case £50,000.

Most recently, Axa closed its UK bancassurance arm, causing its two UK banking partners, The Co-operative Banking Group and Clydesdale and Yorkshire Banks, to pull out of offering advice.

Many advisers believe this is the beginning of the end for face-to-face bank advice and that the RDR is to blame.

Peter Chadborn 480

Plan Money director Peter Chadborn says: ”It is absolutely down to the RDR but that is not necessarily a bad thing.  It has opened consumer’s eyes to the cost of getting advice from a bank. Banks realise they can’t operate a viable model due to the constraints of the RDR.”

However, the FCA has stated that the introduction of the RDR shouldn’t be solely blamed for bank advice closures.

An FCA spokeswoman says: “Any institution that stops providing a particular service is not necessarily down to changes that we have made. The [state of the] economy has resulted in a huge fall of people who are taking advice, from 25 per cent of people that we spoke to in 2008 to only 12 per cent last year. It is not simple to say that this can be attributed to any one factor.”

But Jacksons Wealth Management director Pete Matthew says that the blame should not fall completely on the RDR.  He says: “All the RDR has done is shine a very bright light on practices which have been going on for years.  People are becoming increasingly aware of the cost of advice and demanding value in return for that price.  That is what they never got with the banks.  They have always been sold to, not advised.”



Axa recently revealed that in order to ensure the bancassurance arm was profitable, it would have had to charge an adviser fee of 6 per cent.

Malcolm Kerr MM blog

Ernst & Young financial services executive director Malcolm Kerr says it has long been apparent that bank-based advice would not be financially viable under the RDR and cites work done by the firm back in 2009 that illustrated how much firms would have to charge their customers for advice under the RDR.

He says: “At that time we calculated that the cost of advice worked out at around £220 an hour. Having calculated that, calculating that an advice process could take up to five hours and the fact they had a lower-end client base, it became clear to us that they couldn’t run an advice business profitably. We didn’t see any reason why that wouldn’t be the case for all banks.”

Another reasons that banks have been put under pressure is regulatory scrutiny. In February, the FSA carried out a mystery shopping exercise into the quality of investment advice of six major banks and building societies. Of the 231 mystery shops carried out, it was revealed that in 11 per cent of cases, the adviser gave unsuitable advice to the client.

The FSA also vowed to crack down on vertically integrated firms last year as a part of the RDR, stating that firms who provided advice and recommended their own products, such as banks and building societies, should clearly disclose to the client that adviser charges would be payable as well as product charges.

However, some businesses believe consumer demand for face-to-face advice has reduced and this could be a contributing factor to the loss of bank advisers. Aviva, which has decided to pull out of offering face-to-face investment advice from 31 May, said the reasoning behind this is because consumer demand is for internet and telephone based services rather than a full face-to-face advice service.

In January, Hargreaves Lansdown carried out a DIY Investor Survey revealing that 84.7 per cent of investors now make all or the majority of their financial decisions without taking advice.

Kerr believes the future of retail investment advice will be using based in technology.

He says: “What is going to happen in the near future is that you will only be able to get advice online, with perhaps the opportunity to speak to someone on the telephone if you need to. There are quite a lot of organisations developing very complex technology solutions that will give people regulated advice and the issue at the moment is trying to make sure that those things would stand any kind of scrutiny.”

Richard Hobbs

Lansons director of regulatory consulting Richard Hobbs says he is also expecting banks to re-enter the advice sector in the future.

He says: “Retail customers and their needs formed a very big proportion of UK retail operations. Simply running a bank won’t make you much money. So it would be entirely expected that banks would get their thinking caps on and try and work out ways of re-entering the market, but with a different proposition.” 

Although many banks and building societies have axed their advice arms, some are determined to continue within the market.

West Bromwich Building Society has revealed it will continue to offer investment advice despite the withdrawal of its bancassurance partner Axa, and Skipton Building Society will continue to offer advice for clients with more than £10,000 to invest. Legal & General have also said they are committed to their bancassurance model going forward, which covers 87 per cent of the building society advice market including Nationwide.

HSBC and RBS will continue to offer advice but only to high-net-worth clients.

The FCA is to carry out an RDR post-implementation review next year in order to assess what impact the RDR has had on the market and whether any changes are necessary.

An FCA spokeswoman says: “We are confident that the changes we made as a part of the RDR have increased qualifications and professionalism in the industry and that customers now understand that advice was never free.

“We knew that there would be some adjustment in the market and we are keeping a close eye on how the market evolves.”

Hobbs believes the impact that the RDR has had on the advice market so far may prompt the FCA to make some changes.

“The implications of behavioural economics, and I expect the post-implementation of the RDR to be formed by further thinking about behavioural economics, could lead to some modification of the rules aimed at better engagement between the industry and its customers. I think that we haven’t seen the last word on the RDR.”


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There are 7 comments at the moment, we would love to hear your opinion too.

  1. Julian Stevens 23rd May 2013 at 8:52 am

    An FCA spokeswoman says: “Of course the demise of bank advice isn’t a result of our RDR, it’s due to all sorts of other factors.” Typical. Perhaps surprisingly, my little practice is having its best year ever. The state of the economy certainly hasn’t dampened demand.

    Why doesn’t the FCA just admit that the RDR very probably IS why banks are finding that just flogging products, even on high margins with template-based suitability letters, simply isn’t a viable proposition any more? Many would consider such a development to be no bad thing. IFA’s do a better job and do it for less, often much less money. People who now find that their bank no longer provides financial advice (or who are no longer bombarded with presure calls to come in for a “financial review”) are likely instead to go to an IFA.

    For those us of us who can withstand all the other crap that the FCA seems to be intent on continuing to rain down on us and the proportion of our turnover that we’re forced to part with to meet all these extortionate regulatory levies, the future probably looks pretty good.

  2. Interesting article.

    Raises a few concerns for me as a small firm IFA though.

    1. The rise of internet based DIY and advice. While there isn’t much, if any, authentic whole of market advice available solely online i can imagine it’s only a matter of time before technology changes this fact. That should worry us ‘face to face’ lot.

    2. Bancassurance Part II.
    I think IFA’s will have a couple of years grace but i have always been of the opinion that the banks will come back into the mass advice market. In what shape and form is the thing to watch out for.

    As always, it’s only my opinion.

  3. With 50% of Bank Advisers and 23% + of IFA/tied advisers de authorising is the black hole in the FCA funding going to be charged to the remaining firms or is the FCA going to cut its costs. I fear a lot more small IFA businesses with de authorise due to future regulation costs which upto now the FCA has not stated how it will meet its funding requirements

  4. Take the High Road 24th May 2013 at 2:31 pm

    Yes, I expect the Banks will come back in – especially when they see how easy it is for the likes of SJP to just replace the old 3 plus a half commission model to 3 plus a half adviser fee and all under the nose and approved by the regularors!!

  5. David Cockling 24th May 2013 at 3:22 pm

    On Nick Wardle’s comments:

    I’ve no doubt that online activity will play a larger role, but even very clued up people need still the expertise to filter “the noise” out. Change provides opportunities as well as threats. It’s good for the consumer as the adviser needs to demonstrate value to them. Adviser firms need to assess their own business model and the services they provide and this is a good thing. There are many ‘self-taught’ investors and gurus out there who prove the old saying that “a little bit of knowledge is a dangerous thing” and it’s what they miss that counts against them.

    Though I am sorry for anyone who has lost a job,the greater extent of bank based advice used its wide distribution channels and familiar branding to promote what were both second rate and expensive products. The ony lamentable fact is the gap in savings and advice that I fear will not be filled quickly enough.

  6. Some thought provoking points here.

    However I question the idea of no advice as people who arranged annuities and pensions direct that I have spoken to DID say they received help with it. The question the FCA needs to ask (as indicated recently) is whether that ‘help’ is seen and perceived as advice by the client. I will bet this is the next ‘misselling scandel’ area from what practices & comments I have seen/heard recently.

  7. I agree the banks will come back in to the market.

    Give it a couple of years, if that, for them to pay-off the PPI claims and they’ll be back stronger than ever.

    The FCA seem determined to ensure the general public are provided with a very narrow scope of product and with the likes of SJP seeming to be booming under RDR I can envisage the banks coming bank into the market with a similar business model.

    Will there be a niche market for independent advisers?

    Time will tell.

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