Lloyds Banking Group, which includes Halifax and Bank of Scotland brands, announced this week that it was axing mass market investment advice to its customers from November.
Only customers with more than £100,000 or more to invest will be offered “advice” through their private banking service.
This follows earlier similar announcements from Barclays, Royal Bank of Scotland and HSBC who have done the same – but why?
The reason is down to the impact of the governments Retail Distribution Review (RDR) in Financial Services which comes into force from January 2013. One of the main features of RDR is the introduction of new rules which mean that providers of financial advice can no longer be paid commissions from product providers fro introducing customers; instead they must charge clients a fee for providing advice.
Lloyds Banking Group said that as a result of their research “demand for fee based financial planning decreases when customers have lower amounts to invest”. Existing customers with less than £100,000 will be able to access a non advised service, giving customers “information and help” with savings products on a non advised service. In other words, they want to “sell” products to customers with less than £100,000 without looking at their individual financial circumstances and potentially regardless of whether that product might actually be right for the customer.
The other banks have already followed suit. What customers should realise is that because these products are being offered or sold on a non advised basis, the customer is going to have very little in the way of recourse if the product wasn’t actually right for them because they weren’t “advised” to buy it based on their circumstances.
The justification is that customers don’t want to pay a fee for advice. As one commentator said “Why oh why can the average man or woman seeking advice not pay for it? People are happy to pay for legal advice, accountancy fees etc, why should financial planning advice be free? “ – quite right, after all these are often life savings we’re talking about for the average person.
Another reason is that the introduction of RDR has also meant that all financial advisers have had to re-qualify by passing new more rigorous professional examinations. Cynics may well think that the banks didn’t actually want to put their advisor staff through this process which would be expensive and also lead their advisors to have a higher level of knowledge and qualification than they’d like them to have.
So where does this leave consumers?
It looks like those not fortunate enough to have over £100,000 in savings will have to take their chance with the banks new non advised products and work out themselves if that’s right for them or not. OR alternatively, consumers can turn to the Independent Financial Adviser (IFA) market. IFA’s will have re-qualified under the RDR rules and unlike the banks have always offered professional advice across the whole market of different financial services products. Yes, IFA’s will charge a fee, but given that it’s an individuals life savings and potentially their retirement income at stake, isn’t it worth paying to get that right?
Potentially, worse still is the position existing bank investment customers will now find themselves in. As the banks have already taken their commissions on product sales and can’t generate any more commission from new sales, what will happen to the funds they operate? How well will they be managed? If customers will no longer be offered advice who will review their existing investments? Presumably no one, customers will probably just receive annual statements and be left to work out whether the performance is good or bad, or the investment funds are right or wrong on their own.
Anyone with investments in a fund managed by the bank should seriously consider reviewing their circumstances to find out if their investments are really in the best place.
To find out more about IFA’s and the cost of advice, have a look at the website or contact Christina today for a FREE no obligation initial discussion.