Santander UK is to revive its branch-based investment advice, a mere three years after abandoning the sector following a somewhat turbulent experience.
A year ago, the bank tentatively began to re-immerse itself back into the investment advice market by offering the service at some branches on a pilot basis, amassing a team of around 200 advisers in the process.
The bank is now preparing to deploy up to 225 financial advisers by March to give restricted advice on its own investment products for clients with investable assets of more than £50,000.
For advisers, this represents a fresh entry of competitors into the pool of advisers, all vying to secure business from a similar client base.
“This does not worry me,” said Martin Bamford, managing director of Surrey-based Informed Choice.
“Santander is not a direct threat to us, we tend to do business with higher net-worth clients. The lower net-worth clients need advisers, for sure, but I am not sure that they will be getting advice.
“What Santander is doing is building a salesforce. What we do is so much more than just product selling.
“We care for our customers and provide advice that we genuinely think is best suited to our clients’ needs.”
Santander will charge advice fees of 2.5 per cent of the amount invested with a minimum investment of £500 and a maximum of £150,000 on its own investment range.
Santander is also planning on launching a platform at the beginning of this quarter, in partnership with platform technology provider FNZ, and has not ruled out introducing a robo-advice service in the future.
The re-launch of Santander’s adviser arms comes at a time of abating regulatory hostility toward banks, according to Peter Bennett, managing director of Assessment Design and Development and a fellow of the Chartered Institute of Bankers.
This is exemplified by the cancellation of the FCA review into banking culture, and the surprising resignation of Martin Wheatley who built up a fierce reputation for his tough stance on banks during his tenure at the city watchdog, according to Mr Bennett.
Standards
He said: “I applaud the work of the FCA for driving up standards in the industry but having done the Retail Distribution Review, the government is now at a stage where it needs to rethink how it is to encourage the millions of people out there who need advice on investments back into the market.”
Although FCA figures show a 5 per cent increase in the number of independent and restricted financial advisers in the UK to 22,557 in November 2015, up from 21,496 in October 2014, many feel that there is still a dearth in adviser numbers – particularly compared to pre-RDR levels.
Mr Bennett said: “If you go back 20 years, there were thousands of financial advisers, but now there is a distinct lack of supply. Having more players in the market will naturally drive down costs and make it more accessible for consumers.”
Santander and its rivals led an exodus from the investment advice sector around three years ago following a string of high-profile fines and regulatory upheaval following the RDR.
An FSA review released in February 2013, during which a total of 231 mystery shopping exercises were carried out across six major firms in the retail banking sector, found that investment advice was inadequate in a quarter of all cases.
A final notice from the FCA in March 2014 revealed that Santander itself had been fined about £17.7m, reduced to around £12.4m after agreeing to settle at an early stage of the regulatory investigation. This was in relation to the unfair treatment of customers in the wealth management and private banking, investment advisers and platform sectors.
The City watchdog concluded that there was a significant risk of Santander UK giving unsuitable advice to its customers; the bank’s approach to considering investors’ risk appetites was inadequate, and, for some people, it failed to regularly check that investments continued to meet their needs - despite promising to do so. The bank called time on its bancassurance division amid the publication of the damning FSA review, leaving the future of more than 800 members of staff in limbo.
In its results published in October last year, Santander revealed it has set aside £43m for past investment advice compensation after agreeing a revised redress scheme with the FCA.
This is in addition to the £45m set aside by the bank for investment advice mis-selling in February.
Other banks too have been subject to regulatory reprimand. One of the more notable fines was issued to HSBC in 2011, to the sum of £10.3m for the mis-selling of investment bonds designed to help pensioners with their long-term funding, and a further £29.3m was paid out in compensation to affected customers.
Despite the penalty, HSBC has continued to offer branch-based advice through its advisory arm boasting more than 700 advisers.
The big question on the lips of many industry experts is whether Santander will learn from past experience and whether there will be enough pressure from the regulator to ensure history does not repeat itself.
Informed Choices’s Mr Bamford said: “We keep hearing the same old thing about how banks are trying to change their image, but I think that there is something that is deeply ingrained in the banking culture that will stop banks from doing the right thing.”
Providing investment advice is likely to be less lucrative than it was pre-RDR after rules were introduced to clarify the charges between product sales and advice, according to Assessment Design and Development’s Mr Bennett.
He said: “Banks were interested in bumping up their product sales so they would incentivise their advisers to achieve this. Advisers would sell products which commanded juicy commissions rather than recommending solutions that were actually best suited to the client’s circumstances.
“This behaviour did not go unpunished by the regulator. Now greater transparency over pricing, brought about by the RDR, has affected these product sales.”
The performance of bank-run funds has not been particularly impressive. The Santander UK Growth RA fund, for example, underperformed the average recorded a 54.78 per cent increase on 12 January this year, while the IA UK All Companies sector rose by 67.49 per cent over the same period, according to FE Analytics data.
Mark Dampier, research director at Bristol-based Hargreaves Lansdown, said: “In the past they have been quasi-trackers which have performed badly. Investment management is not easy, you have to put a lot of money into it and finding a good fund manager is difficult.”
Other banks are also thought to be considering expanding their pre-existing service, which has typically been reserved for high net-value customers, in the wake of the RDR in 2013.
RBS, for one, currently offers investment advice to customers with more than £100,000 to invest but has temporarily stopped advising customers with less than £500,000 to further develop its proposition, which is earmarked for completion later this year, according to a spokesperson for the company.
Barclays and Lloyds Banking Group, which both offer advice, have given no indication as to whether they will introduce investment advice to cater for lower net-value clients.
“Other banks will have to add or expand their existing advice proposition or risk losing their customers to Santander, which will be able to take care of their everyday banking needs as well as offering advice – all from one bank branch,” Mr Dampier said.
Myron Jobson is a features writer of Financial Adviser
Key Points
Santander is to revive its branch-based investment advice.
RBS has temporarily stopped advising customers with less than £500,000.
Providing investment advice is likely to be less lucrative than it was pre-RDR.
