Showing posts with label Axa. Show all posts
Showing posts with label Axa. Show all posts

Tuesday, 16 April 2013

RDR reducing access to advice for customers



The Retail Distribution Review (RDR) introduced by the UK Labour Government was aimed at improving the quality of advice provided to customers and the transparency around the charges for that advice.

With the annoucement first by Barclays in January 2011 and then by HSBC in May 2012 of their withdrawal from providing investment and Life & Pensions advice to the mass market, rather than help the customer, RDR has in fact reduced customer access to advice. Both banks have stated that the reason for their withdrawal has been that the business is no longer viable for them commercially. The additional cost of training their staff to meet the high standards laid down by RDR and, undoubtedly, the size of fines and the risks associated with mis-selling of these products, has made it unattractive for them to continue in this business.

RBS is neither fully exiting or getting behind branch-based mass market advice. Their announcement that they will be laying off 618 advice based staff is a reflection of the reality that if you move from what is perceived to be a free service (even though consumers are paying commission through the annual fees hidden in their investments) to one which is fee-based inevitably volumes will drop.

Lloyds Banking Group had been saying that they would continue to provide advice to mass market customers. However when they asked customers  about this what they  found "for the majority of our customers, demand for a fee-based financial planning advice service decreases when they have lower amounts to invest,". As a consequence they have announced that they will only be offering advice (for a fee) to those with more than £100,000 of investable assets. They will continue to offer a non-advised service through the Halifax, Bank of Scotland and Lloyds TSB branches. Around 1,000 branch staff will be impacted by this change and will be offered either a new role or redundancy. Given this move by Lloyds Banking Group the argument for selling off Scottish Widows becomes even stronger (see http://www.itsafinancialworld.net/2012/05/why-lloyds-shoudnt-dismiss-selling.html ).

Interestingly Santander is taking a contrary position and on hearing of the layoff of the HSBC staff allegedly approached HSBC with a view to hiring those laid off.

However even Santander is now reconsidering this position. In February 2013 they are being investigated for giving poor advice following mystery shopping by the FSA uncovering poor practices. Shortly before Christmas 800 advisers were suspended for retraining. A review of strategic options is now under way. In March 2013 this concluded with the withdrawal of face-to-face advice for new customers, putting at risk 874 jobs. A new team of 150 advisors will be deployed to serve existint customers.

In April 2013 Clydesdale, Yorkshire and Co-op announced the withdrawal of advice from their branches. In their case this was supplied by Axa. According to the Financial Times, Paul Evans, chief executive of Axa UK, said he was “very disappointed” that the division “must also now withdraw this service having not found a model which balanced the regulatory requirement that the service be profitable in its own right, whilst setting advice fees at an affordable level.”

The exit is not only being seen amongst the big players in the market. The building societies are also withdrawing from the market. In early 2011 Norwich  & Peterborough Building Society sold their sales force to Aviva and withdrew from the market. There are also large numbers of IFAs (Independent Financial Advisors) who due to the cost of funding the training and the amount of studying are withdrawing from the industry, again reducing accessability to advice for the lower to middle income customers.

This is creating a very serious problem. With all of us living for longer and the cost of living, particularly in the later years rising, with the reduction in employer provided pensions benefits, there is an increasing need for individuals to save for the longer term, to invest in individual pensions and to provide for their loved ones through life assurance. With the options complex and becoming more complex there is an increasing need for advice, however what RDR has done is reduce access to that advice.

With the availability of advice for investment products being reduced the current UK Government is now putting in plans to reduce the accessibility of advice for mortgage products. Similar to RDR the Mortgage Market Review (MMR) set out to protect customers but is fact making it far more difficult to get advice. For instance should a customer phone up a bank such as First Direct and ask about mortgage products the bank employee will not be able to talk about the difference between a fixed-rate mortgage versus a variable rate mortgage since that would be seen as advice and without completing a fact find that will no longer be possible. This could once again, see mortgage advisors and brokers withdrawing from the market.

Not all banks are withdrawing from either the investment market or the mortgage market. There are those who are considering the commercials and rather than quitting are looking at innovative ways of improving productivity of their advisors. Both Bank of America and Bank of Moscow have pilots out using videoconferencing to bring the advisors virtually to the branches. With the increasing acceptance of videoconferencing through the likes of Apple's Facetime or Skype, the availability on devices such as the iPad, then those organisations with the imagination may still be able to find ways to commercially provide advice to the mass market.

Of course videoconferencing does not overcome the requirement to have fully trained and qualified advisors, since selling through videcconferencing is no less regulated than through branches or contact centres. What it does mean though is that through the higher productivity brought about by the advisors being able to support multiple branches less advisors are needed and the cost of providing advice is therefore reduced.

What RDR shows, once again, is that when governments with all good intentions create regulation for the Financial Services sector the effect on customers is often the opposite of what they intended. Governments should spend more time considering and discussing regulation with customers and the industry (and not instantly assume that whatever the banks say is wrong and out of self-interest) and resist the temptation to rush out populist regulation.

Friday, 4 May 2012

Why Lloyds shouldn't dismiss selling Scottish Widows



Following the rumour that private equity vehicle Tungsten, formed by Duke Street founder Edmund Turrell and his brother, was preparing a multi-billion bid for Scottish Widows, Antonio Horta-Osorio, CEO of Lloyds Banking Group, stated that the Group was 'absolutely' not selling Scottish Widows. Should Horta-Osorio have adopted the Sean Connery line regarding his return as Bond and said 'never say never' - was he over hasty in his response? Is there no price at which Lloyds should sell Scottish Widows? There are many reasons why the disposal of Scottish Widows should not be dismissed out of hand.

Scottish Widows was bought in 2000 for £7bn by the then Lloyds TSB CEO, Peter Ellwood, ably assisted by his deputy Mike Fairey. At the time many thought that Lloyds TSB had overpaid for  Widows, but it was a major plank in Peter Ellwood's strategy to build a major bancassurer. He was not alone at that time having a vision of creating a money supermarket, a one-stop shop for retail financial services from a bank. This vision was shared across the globe with the likes of Citibank acquiring Travellers and ING and AXA all pursuing this vision. However that was with the optimism of the new millennium and now in 2012 following the financial crisis most, if not all of those who adopted this strategy have abandoned it.

Certainly one reason that bancassurance has proved not to be successful is the fundamental difference in culture between a retail bank and a life assurance company. Retail banking is all about transactions, taking a short term view - daily interest charges, leveraging the differences between the deposit and the lending rates, taking and managing risk, whereas life assurance is much more focused on the long term with low volumes of transactions and risk aversity. Bringing the cultures of these two types of business together is like trying to mix oil and water, as has been shown in the market.

Apart from the cultural differences there are other reasons why Lloyds Banking Group could be better off without Scottish Widows. With the impending imposition of  Solvency II regulation, insurers are going to be required to hold higher levels of capital than they currently do, which will make doing the business of life assurance more expensive. Layer on top of that, for the likes of Lloyds Banking Group, Basel III and the recommendations of the Independent Commission on Banking (ICB) and the capital requirements are even higher. Long gone is the efficiency of being able to apply the same capital to both the insurance company and the bank. With the cost of acquiring capital being a lot higher than it was at the beginning of the century this further increases the cost of simply doing business.

It is surprising that Antonio Horta-Osorio is defending the bancassurance model, since the bank he came from, Banco Santander, one of the banks that has survived the financial crisis better than most, despite being headquartered in Spain, has always vehemently argued against both the bancassurance model and investment banking and could justifiably say that they have been proved correct. It was most commentators' expectations that given his experience and training that Antonio Horta-Osorio would see the disposal of Scottish Widows as one of his highest priorities.

Another reason to be shot of Scottish Widows is the introduction of the rules coming out of the Retail Distribution Review (RDR). RDR fundamentally challenges the bancassurance model, makes the cost of selling life assurance and investment products much higher. It has seen Barclays and HSBC amongst others, withdraw from selling mass market assurance products and subsequently laying off thousands od staff in the process. Lloyds Banking Group  is almost a lone voice on the high street still offering assurance and investment advice to the mass market. This may be a smart decision on the part the Group or could it be that the others are all correct?

Certainly if there is someone prepared to make a good offer for Scottish Widows then it could be in shareholders' (and that means UK tax-payers and the UK Government) best interests that LBG makes the deal as this would be a rapid way of paying down debt and should see a significant increase in share price.

The cost and difficulty of separating Scottish Widows from the rest of Lloyds Banking Group is far lower and far simpler than that of separating the 632 Verde branches that LBG is negotiating with Co-Operative Financial Services. The reason for this is that, despite Lloyds TSB acquiring Scottish Widows in 2000, the level of integration between Scottish Widows and the rest of Lloyds Banking Group is relatively low. It has been managed largely at arms length and therefore carving out would not be that difficult, so this is a deal that could be executed relatively quickly and the benefits achieved faster than other disposals.

Certainly if Scottish Widows was sold that would give Antonio Horta-Osorio and his team the chance to focus on the core issue of restoring what was a great and much-admired bank not just back to where it was before it was forced to buy HBoS, but to be even better and even more a bank for customers of the 21st century.