OpinionJan 8 2016

MPs want banks to rescue UK from mis-buying scandal

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The thought of the nation’s taxpayers having to bail out champagne-guzzling bankers with their six-figure bonuses while many faced redundancy and feared for their financial future during the credit crunch made the banks fair game.

We were promised by the then Labour government that heads would roll.

Back in 2008 then prime minister Gordon Brown said UK banks have been taking unnecessary risks.

He said: “There have been abuses in our system... and they’ve got to be dealt with too.”

Since then a knighthood has been lost, millions more taxpayer pounds have been spent examining what went wrong and some fat cats lost their jobs.

But with the ditching of the Financial Conduct Authority’s review into banking culture I am starting to think this government isn’t even trying to pretend they don’t like banks anymore.

The FCA insists it was their decision to ditch the banking review and nobody in Westminster forced their hand.

Indeed John Griffith-Jones, chairman of the FCA, and Tracey McDermott, acting chief executive of the FCA, have been asked to appear before the Treasury select committee to explain why they dropped the review into bank culture.

But I find the timing of all this interesting.

It is clearly just a coincidence that the review is being dropped at the same time HM Treasury and the FCA are ploughing through responses to the Financial Advice Market Review?

Rather than beat the banks with yet another stick the powers that be now need help from the banks.

The FAMR was launched to find out what it would take to get advisers back in front of the mass market.

The Retail Distribution Review saw many banks step away from offering investment advice.

I bet many bank big-wigs have pointed out to HM Treasury that regulation and unlimited liability for advice is what has put them off making recommendations to the general public.

The reason why banks withdrew from financial advice certainly has nothing to do with a lack of demand for the service.

Today (8 January) FTAdviser reported a quarter of advice firms enjoyed an annual turnover of more than £1m last year and are looking forward to expanding further this year on the back of the at-retirement reforms.

In a survey of more than 1,200 advisers, Aviva found 26 per cent of firms broke the £1m annual turnover barrier, up from 16 per cent in May 2015.

Which brings me to the tricky subject of pension freedom.

The government granted the world pension freedom and I suspect if they read the statistics produced by the FCA this week they are now staring to realise the unadvised masses are plundering their pots or not getting the best possible income out of them.

The FCA figures for the period from July to September last year showed 42 per cent of savers are entering drawdown without help from an adviser.

On average, just 17 per cent of consumers told their provider they had used the Pension Wise guidance service, a figure which increases to 22 per cent of consumers with small pots, where use of regulated advice is lower.

This should be a matter of extreme concern to policymakers.

Jim Boyd, director of corporate affairs at Partnership, said: “People who have had to drawdown when investment performance is poor, without the benefit of additional cash reserves or annuities – run the risk of running out of money before they die or having to live an extremely frugal retirement.”

Many savers face ending up having to fall back on the state.

Rather than beat the banks with yet another stick perhaps the powers that be have realised they now need help from the banks.

Some would also argue the financial advice industry needs the banks.

Without the high street banks advisory arms where will the next generation of independent financial advisers come from?