Monday, 4 July 2011

Banks taking different approaches to advice

HSBC in the UK announced last week that they would be axing 450 advisors for the branch as a result of the regulation to ban commission and make customers explicity pay for advice, The Retail Distribution Review, RDR. This would still leave them with 1500 advisors in the branch network. The timing of this announcement on the day that Lloyds Banking Group announced its strategy including reducing staff by a further 15,000 could be coinicidental, but cynics would suggest otherwise.

HSBC is only the latest of the banks to indicate the impact of RDR on the way that customer's can expect advice to be offered following the implementation of the regulation.

There is no consistent approach to the way that the banks and the building societies see the post-RDR world.

Whislt the HSBC strategy is to be neither fully in the branch-based advice market or out of it in the post-RDR world (a rather half-pregnant position to take, some might suggest) Barclays was quick out of the blocks to announce that they would be withdrawing advice-based services from their branches for all but the most wealthy. See

Prior to their agreement to merge with Yorkshire Building Society, now Britain's second largest building society, Norwich & Peterborough Building Society announced that they were transferring their branch-based IFAs to Aviva, thus relieving themselves of the costs associated with bringing their IFAs up to the professional standards required by the regulation and gaining the scale advantages a bancassurance relationship with one of the world's largest insurance companies brings. There has been no annoucement by Yorkshire Building Society that they are reversing this decsion.

As part of the strategy announcement made by the CEO of Lloyds Banking Group, Antonio Horta-Osorio, at the end of June, he made it clear, in contrast to Barclays, that Lloyds Banking Group is committed to providing bancassurance to its customers through its ownership of Scottish Widows and a fundamental part of the growth for the Group is expected to come from significantly increased cross-selling of insurance and investment products to customers, however he did focus was on execution only and investment platforms, rather than branch-based advice in his announcement.

RBS/Natwest have announced that they will be offering the simplifed approach, which fundamentally means a limited set of products that they can sell, so caveat emptor - buyer beware!

Outside of the UK shores some very interesting experiments about how to deliver cost-effective advisory services are underway with banks as diverse as Bank of America and Bank of Moscow (see ). Both of these banks are looking at the use of video-conferencing. The outcomes of these pilots are being closely watched by banks and mutuals across the globe.

What is clear is that there isn't total consensus on what the the post-RDR world will look like. What there is consensus on is that for the less well off there will be less access to advice and as a result many customers will be left unprotected and under-invested for their retirements at a time when the length of the average retirement and the amount of money needed to support yourself during that retirement is increasing.


  1. I always thought of the RDR as something to be taken in conjunction with the National Employment Savings Trust (NEST) legislation.  Advice may be reduced to those who in practice took little of it anyway (and some of that was, in hindsight, bad or even illegal), but to balance it out there will be inertia-based takeup of pensions for a whole lot more. Thoughts?

  2. RDR and NEST are quite separate. Funamentally the Retail Distribution Review is about the replacement of commission for advice based sales with fees and improving the professionalism of those selling financial products.

    NEST is to do with introuducing a simplified pension scheme that employers will have to offer to employees if they don't offer an equivalent alternative.

  3. I understand they are entirely different things, but from a consumer point of view, most advice was likely to be pension related.  If NEST provides a mechanism for a whole additional set of people to move into some kind of quasi-private pension scheme, then they're less likely to miss any reduced levels of advice resulting from RDR.   So RDR may drive down advice, but NEST drives down the need for it.

  4. To overcome the inertia there is the concept of auto-enrollment associated with NEST, i.e. that employers will have to enrol employees in a pensions scheme.

    NEST is intended to be advice-free/executon only. RDR applies for those who are looking for more than that.


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