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.
“The model deployed by the banks often looks very good in terms of driving profitable revenue growth for a period of time, until someone realises that the formula underpinning the apparent success is fundamentally flawed,” says Andy Agathangelou, founding chair of the Transparency Taskforce, an industry-wide group aimed at improving practices in financial services.
“Big banks are highly vulnerable to ‘culture crunch’, the manifestation of the tension between having to meet the conflicting needs of their shareholders and their customers.”
Asked will it be different this time, Mr Agathangelou says: “If I were a regulator, I’d be concerned.”
However, Keith Richards, managing director of the Personal Finance Society, says it is action by regulators that has brought bank advice back from the dead.
“Regulatory reform has shaped the advice and wider financial services landscape into one that increasingly works well [mainly] for wealthier consumers who have either accumulated wealth or are already largely consolidating their assets,” says Mr Richards.
“I’m already hearing from many advisers up and down the country that they have to turn people with simple financial needs away due to capacity challenges or proposition mis-alignment.”
‘Proposition mis-alignment’ – or the advice gap – means those who do not have the minimum assets many advisers now demand from potential clients. Anecdotally, this figure is £50,000 at an absolute minimum, a figure that has increased since the Retail Distribution Review regulation was introduced in December 2012.
The RDR’s ban on incentive-driven sales paid for by commission, part of cleaning up the market by imposing significantly higher professional standards on advisers, destroyed the banks’ advice model.
Non-bank advisers largely rose to the challenge, and cost, of meeting the higher standards. But savers with a typical pension pot of £30,000 found it difficult to turn elsewhere.
Potential pluses
Advisers who are sanguine about banks’ return to advice say this price-sensitive lower-value orphaned group is the sweet spot where bankers could actually do some good.
