A new piece of legislation is expected to help banks re-enter the advice market and consolidate their clients’ pension assets.
Jon Dean, a senior consultant at Altus Consulting, which helps financial services firms overhaul their businesses using fintech, said new European legislation, the Payment Services Directive (PSD2) will make it easier for banks to target consumers.
Big banks not already offering advice are poised to launch technology-led advice services designed to get hold of their clients’ pension assets as soon as this year, he said.
PSD2, effective in large parts from 13 January, means European banks must open their data and infrastructure to fulfil regulatory requirements.
The regulation introduces a number of rules which will affect financial advisers, including the right to erasure, meaning an individual can request the deletion of personal data relating to them, and the right to access, meaning an individual can demand information on how their data is being used and a free copy of their personal data.
But it also introduces the right to data portability, which means a person must be able to transfer their personal data from one system to another without being prevented by the handler of their data.
Mr Dean said this made accessing data a lot easier. "At the client's request firms will have to open that account data on them. Now you can do that through a secure pipeline and customers turn on and off the permission," he said.
At least five banks, Lloyds, NatWest, Santander, HSBC and Nationwide, are already testing their ideas with the Financial Conduct Authority (FCA) as part of the regulator’s sandbox project - a safe haven allowing them to explore the regulatory boundaries of potential new products and services using technology.
Some, such as Santander, have already re-entered the market, and HSBC never left.
Santander, which claims 14 million customers in the UK, launched its advice comeback in January 2016, aimed at customers with £50,000 or more to invest.
HSBC said it had continuously operated in the advice market in the past years, including retirement advice.
A spokesperson for HSBC said the bank provides advice on how to use a pension, "whether consolidating existing pensions or making important choices about taking income" but it does not give defined benefit transfer advice.
The bank charges £420 for investment advice and a total of £960 when retirement advice is included, with an implementation fee charged as a percentage of invested assets and capped at £5,000.
"Customers have told us they prefer a lower upfront fee, and we believe this encourages customers who haven’t received financial advice before to seek it," the spokesperson said. The first no obligation meeting is free.
Nationwide declined to comment but the regulator stated on its website in December the building society was testing an "automated solution providing digital savings guidance and investment advice" as part of its sandbox facility.
Similarly, Lloyds and NatWest were listed by the regulator as participants in its second 'advice unit' cohort in July.
Mr Dean believed some of the banks currently undergoing testing will be targeting the mass market.
But others will target the high net worth advice sector - the typical client base of financial advisers, he said.
“They will go into retirement advice, whether they will partner with others or bring to market robo-type solutions.”
Tom McPhail, head of policy at Hargreaves Lansdown, said banks targeting the retirement space "makes sense".
“The most lucrative market are the over 50s, a lot of their wealth is tied up in private pensions and, unlike 20 years ago, a lot more is in defined contribution now so it’s accessible for banks,” he said.
“The banks have been very weary about the regulatory risk in the advice market, but it doesn’t surprise me they are looking to re-engage in that market."
He said the timing - two years after the FCA’s Financial Advice Market Review (FAMR) was published - also made sense.
“The FCA is actively encouraging the development of tech-based robo-advice propositions and the banks have deep pockets,” he said.
The FCA has repeatedly said it was concerned about the so-called advice gap, which describes those who could benefit from advice but who can't afford it.
But the 2015 pension freedom reforms, which gave consumers free access to their pension money from age 55, have opened up a swathe of new potential retirement advice customers for banks.
Mike Barrett from consultancy the Lang Cat agreed retirement advice was likely to be on the banks’ long-term agenda.
“There are much larger case sizes and much larger flows, so it makes sense from that perspective,” he said, adding he expected most banks would come into the market this year.
The FCA has also criticised the lack of innovation in the retirement market since the freedoms were implemented.
Mr Dean suggested this did not mean it wanted to see more products but rather new ways of helping people decide which products were best for them, and in particular, robo-advice type solutions.
He said: “The innovation is not going to come in the way of a new savings product but in the way advice is given. Advice should already be automatable for the mass market."
Mr Dean suggested there could be opportunities for advisers to work with retail banks as their "trusted advice partner".
PSD2, which removes barriers to the entry and sharing of data, should help, he said.
Anna Sofat, founder and director of Addidi Wealth, said having more advisers who can cater for the mass market was a good thing in principle but she warned giving retirement advice was more difficult than advice to help people save into a pension.
“Drawdown and the subtleties around what is the right level of income for the particular client, that is where I think the issues will be,” she said.
“It’s at that point where we are going to need a lot more advisers trained, not just on the technical side of drawdown and retirement options but on the human interaction side as well.”
She thought things like drawdown could be automated but not until there was the "right framework" in place, which hasn’t been devised to date.
carmen.reichman@ft.com
