Cover story: The banks' big advice U-turn

  • Understand how banks are planning to return to the advice market
  • Learn about banks past fallings that resulted in them exiting advice
  • Grasp how things could be different this time around
Cover story: The banks' big advice U-turn

“Why don’t sharks attack bankers? Professional courtesy.” Gallows humour in the wake of 14 September 2007,  when thousands of Northern Rock customers led the first run on a British bank since 1866. For the first time in 140 years, savers couldn’t trust their banks to look after their money. 

A decade on, banks want our trust again. Despite causing the worst financial crisis since the 1930s, leading to austerity policies that will cripple a generation, they want us to rely on them to protect our individual futures.

Making a comeback 

Santander, which claims 14 million customers in the UK, launched its advice comeback last January, with an aim to have a quarter of its 900-strong network staffed with an adviser providing recommendations to customers with £50,000 or more to invest. 

This June, the bank extended the service – Santander Private gives those with assets of more than £500,000 their own dedicated banker. 

Calling the move an about-turn for the bank is an understatement. Four years ago Santander closed its 800-strong investment advice division and a year later was hit with a fine for £12.4m – at the time one of the biggest ever retail banking penalties. For what? Providing unsuitable investment advice to paying in-branch customers.

Santander’s return is part of an emerging trend of banks looking to reconquer a market they spent years attempting to dominate. 

Similar announcements followed swiftly from Royal Bank of Scotland and HSBC, whose track records in the field include the fact that, by August 2016, RBS had paid out £92m in compensation to customers who were mis-sold investment products by its advisers since 2011.

Not to be outdone, in 2011 HSBC was fined £10.5m and forced to pay £29.3m in compensation to around 200,000 elderly and disabled UK customers it mis-sold complex financial products, in what the then regulator described as “serious” and “systemic” violations. A subsequent review found that 87 per cent of the sales were unsuitable.

Financial advisers are understandably sceptical about banks’ return, with intermediaries having worked hard to distance themselves from the industry’s sharp sales practices of the past.

“As long as bank advisers and relationship managers are targeted, and some of their income is reliant on them hitting those targets, there will be a risk within the industry that sales culture will dominate advice,” says Martin Stewart, founder of advice firm London Money.

“I speak with people working on the compliance side of some of the largest banks in the UK, and there is pressure applied that leads me to believe the errors from the financial crisis may not have been heeded.”

Indeed, every major high street bank was found to have engaged in mis-selling in relation to financial advice. 

Barclays stopped advising in 2011 and was forced to pay a £7.7m fine for investment advice failures. Lloyds stopped providing advice to those with less than £100,000 in 2012 and later faced a £28m penalty for the way staff were incentivised to sell retail products.

Such comprehensive failings have led to accusations that the banking sector is systemically unable to provide quality advice, and that this latest comeback will see history repeat itself.