Back once again (with the ill behaviour?)
In a move that will shock no one it has been reported that Santander & RBS head the lists of banks returning to the investment advice market. With several other large institutions rumoured to be planning similar moves it seems that the post RDR period of the banks not offering advice is ending. Reaction on the online comments & twitter (always an accurate barometer) has been pretty negative, but are these moves really such a bad thing?
At last monthâ??s lang cat DeadX event, the Citizens Advice Bureau spoke about the advice gap. You can see their slides (and those of the other speakers) just right about here. Their research has shown that if the typical advice cost of a Â£11k ISA is Â£450, then 80% of adults would not be willing to pay for advice, and thatâ??s assuming they could find an IFA who would want to give advice on this level of investable assets. The most recent HMRC stats show that ISA sales are increasing, with subscription amounts growing due to the increase in the annual subscription limit, however the vast majority are being held in cash ISAs. Might some of these individuals be better served in stocks and shares? Especially if they are advised this is suitable for them? For a lot of the population simply saving or investing in a sensible and disciplined manner would be a huge step forward, and if Santander and other banks can enable this then all power to them.
Of course, the key word in the above is suitable, and Santander donâ??t exactly have a great track record in this area. Anyone googling â??Santander Investment Adviceâ? will still be greeted by news of their 2014 Â£12.5m fine for unsuitable advice, so at a minimum their SEO guys need to do some work pre-launch. The one positive is that their FCA final notice does give them and any other bank wanting to launch an advice proposition a template of what not to do unless you fancy a visit from the FCA enforcement squad.
The main failings centred on establishing suitability and ensuring the investments were at a level of risk that the customer was willing and able to tolerate. This is an area where the recent development of â??robo-adviceâ? systems should deliver considerable improvement. Technology is now available to ensure compliant advice can be delivered consistently, and in a time effective manner within any size of organisation. The investment decisions can be made free of any emotion or bias, with systems and controls in place to ensure adequate monitoring at a head office level.
However, with any robo system the greatest risk must be that of systemic mis-selling. The huge customer bases the banks have, together with the reluctance of the vast majority of people to change their banks must make the business case look attractive so the quality of proposition design is crucial. One important element of this will be charges, and this is certainly something we will be looking at closely when these services are launched. Customers investing via these services are unlikely to be advised on the whole of market, so any restricted range of funds must be appropriately priced.
We have recently reviewed every multi asset/multi manager fund, and have discovered a range of over 150bps between the cheapest and most expensive solution. Anyone offering a robo-advice service, be they bank, adviser, whoever needs to ensure suitability. Cost is not the sole determent of suitability, something that is cheap and unsuitable is still unsuitable, however this is one area that scale should bring benefits for the end consumer. If the banks can deliver low cost suitable advice to the masses then their re-entry to the market will be a hugely positive move. If not, then they can expect a scathing blog from lang cat HQ. That should do it.