IN EARLY October the regulator and the Treasury launched a consultation that could give the UK’s high street banks a smooth path back into the financial advice market.
The month ended with the revelation that Lloyds Banking Group has put aside yet more money for product mis-selling claims.
The £100 million charge set out in Lloyds’ management statement for the third quarter is separate to its massive (and growing) PPI compensation and redress bill. It refused to give details of the charge, merely saying it related to potential claims for product mis-selling in its branch network. Lloyds has form on this. Last year, for instance, it had to set aside £225m to cover redress relating to investment and pension sales made in 2011. In 2013 it was fined £28m for creating a “culture of mis-selling” through its incentive scheme.
We could go further back, or we could just bide our time until the next fine. It shouldn’t take long.
Most high street banks closed their investment advice operations in 2012 and 2013 or restricted them to their most affluent clients. They blamed regulatory costs, most notably the retail distribution review (RDR), which banned commission payments from investment providers to advisers.
They were less vocal about the costs incurred from failing to cure their mis-selling addiction. Santander closed its investment advice business in March 2013. A year later it was fined £12.4m for serious investment advice failings that had been uncovered by the regulator in 2012.
With the RDR driving independent financial advisers up the wealth scale, the banks walking away left ordinary savers without access to advice. The Financial Advice Market Review, now being consulted on, aims to tackle this and remove barriers to advice. It was probably going to happen at some point, but political urgency was provided by the pension freedoms and the flaws inherent in the reforms.
The “free impartial advice” that Chancellor George Osborne promised to people taking advantage of the changes didn’t materialise. Pension Wise, the guidance service that emerged from Osborne’s pledge is nothing of the sort, dismissed by MPs last month as “not fit for purpose”.
The advice gap has therefore widened even further, and the Treasury is under pressure to act.
HSBC, Barclays and Santander are all ramping up their direct advice propositions again, this time targeting the retirement advice market created by the pension freedoms.
Like the reforms themselves, the short-term benefits will pale into insignificance next to the long-term consequences.
It would be useful if the banks could be trusted to deliver decent, affordable advice. But there are good reasons why their departure from mass-market investment advice was so welcome. The only way they made money out of it was through ripping people off. It wasn’t about poor products but about the culture of those banks and the incentive structures established by senior management safe in the knowledge that they’d never pay a personal price for fleecing their customers.
There’s a role for banks in making it easier for people to get decent, affordable advice. They’ve done absolutely nothing to demonstrate that they’re fit to play it, however.