“The model deployed by the banks often looks very good in terms of driving profitable revenue growth for a period of time, until someone realises that the formula underpinning the apparent success is fundamentally flawed,” says Andy Agathangelou, founding chair of the Transparency Taskforce, an industry-wide group aimed at improving practices in financial services.
“Big banks are highly vulnerable to ‘culture crunch’, the manifestation of the tension between having to meet the conflicting needs of their shareholders and their customers.”
Asked will it be different this time, Mr Agathangelou says: “If I were a regulator, I’d be concerned.”
However, Keith Richards, managing director of the Personal Finance Society, says it is action by regulators that has brought bank advice back from the dead.
“Regulatory reform has shaped the advice and wider financial services landscape into one that increasingly works well [mainly] for wealthier consumers who have either accumulated wealth or are already largely consolidating their assets,” says Mr Richards.
“I’m already hearing from many advisers up and down the country that they have to turn people with simple financial needs away due to capacity challenges or proposition mis-alignment.”
‘Proposition mis-alignment’ – or the advice gap – means those who do not have the minimum assets many advisers now demand from potential clients. Anecdotally, this figure is £50,000 at an absolute minimum, a figure that has increased since the Retail Distribution Review regulation was introduced in December 2012.
The RDR’s ban on incentive-driven sales paid for by commission, part of cleaning up the market by imposing significantly higher professional standards on advisers, destroyed the banks’ advice model.
Non-bank advisers largely rose to the challenge, and cost, of meeting the higher standards. But savers with a typical pension pot of £30,000 found it difficult to turn elsewhere.
Potential pluses
Advisers who are sanguine about banks’ return to advice say this price-sensitive lower-value orphaned group is the sweet spot where bankers could actually do some good.
“Banks can deliver relatively low-cost advice because they have an existing and shared infrastructure with the other elements of their business. That’s what worked for them before and it could work again,” says Darren Cooke, a chartered financial planner at Red Circle Financial Planning, who successfully lobbied the government to ban cold calls about pensions.
But there are questions about how cheap banks’ services will actually prove. HSBC’s recently launched restricted stand-alone investment advice service demands customers have £50,000 or more in savings or investments, and are looking to invest lump sums of between £15,000 and £100,000. It charges a report-only fee of £300 and 1.92 per cent of assets.
For 10bps more in total, an investor could hire a fully qualified IFA with 25 years’ experience who has access to the whole of the investment market and delivers a personal service.
