Private banks investing in qualifications rather than customers

By JEFFREY DEANS
Published on 09/09/2012 01:12

WHAT do you do when your private bank decides it doesn’t want your business anymore?

This is the question that more and more well-heeled clients have to face as the banks decide to ditch all but the wealthiest of clients in the face of new legislation.

Used to a high level of personal service, clients with assets of less than £500,000 are being shown the door as banks prepare for the impact of the loss of commission payments post the introduction of the Retail Distribution Review, or RDR, in 2013.

Was this really what the FSA intended in its drive for transparency and hopefully cost reductions for investors? The reality has been increased cost across the sector with huge IT changes, business-model reviews and of course exams for anyone providing advice to clients, no matter how many years of experience or degrees they may have.

The cost and risk of providing advice is increasing and so I can understand private banks and others writing to long-term clients to nudge them out the door “in the best interests of the client”.

Too much of the drive to be RDR ready seems to have focused on gaining new qualifications just to be allowed to continue to advise your clients, and on platforms of all sorts battling to gather up assets to remain viable businesses, with too little focus on what is right for clients. Business models are being developed based on annual fees and often standardised model portfolios, losing the connection between the client, their money and their aspirations or predicaments. Some of the annual fees I have seen have been as high as 3 per cent but this was far from clear to the client.

Lower-cost funds are becoming available and it is possible to drive costs down and provide the range of services clients want and need, but that takes innovative thinking and investment in systems and people. Those businesses which have both invested and put clients first can offer quality service without excessive charges.

• Jeffrey Deans is chairman of Save & Invest Financial Planning