Showing posts with label RDR. Show all posts
Showing posts with label RDR. 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.

Thursday, 3 March 2011

Is videoconferencing the answer to RDR?

With Barclays having announced their withdrawal of investment advisory services from their branches for all but the very wealthy see - http://www.itsafinancialworld.net/2011/02/will-rdr-see-end-of-advice-in-bank.html and both Bank of America and Bank of Moscow announcing the roll out of videoconferencing in their branches, could this be the answer to the issues brought about by the introduction of RDR?

The reason Barclays has said that they have withdrawn from advice is that with the cost of training for RDR it has become financially unviable to offer the service. What they have said is not the reason, but surely must have been an influence, is the high amount of the fines that the FSA has been handing out for misselling of complex products.

There is no doubt that RDR is going to increase the cost of training sales advisers and once trained it is then a question of making those advisers productive. Having them sitting in branches waiting for customers to come in is not necessarily the most productive use of their time and that is where videoconferencing comes in. With the use of videoconferencing it should be possible to have a smaller team of advisers who are busy more of the time and therefore generating more profit per adviser. Add on top of that an efficient appointment booking system that customers can access via the banks portal, social media presence, call centres as well as in the branches and you have further productivity gains. It is also true that a customer who makes an appointment is more likely to buy than one that simply walks in off the street.

However we've been here before. Over the last ten years or so there have been many attempts to put videoconferencing into branches and none have been particularly successful, so why could it succeed this time?

Firstly the quality of videoconferencing has significantly improved since it was last tried. Cisco's Telepresence (which Bank of America is rolling out to its branches), is a very lifelike experience where the customer sits at one side of an oval table and the adviser appears to sit on the other side, life-size and in high definition. There is none of the awkwardness of having to look away at the camera you simply talk to the person who appears to be opposite to you.

Secondly the cost of Telepresence has dropped significantly so it can become far more viable for smaller branches and doesn't only justify itself in the busiest urban branches. Indeed it is getting towards the point where it is beginning to be targetted at the consumer market and not just business.

Thirdly with the increasing use of smartphones, iPad2 and Skype-type personal videoconferencing, social media and Youtube, we're all beginning to get a little more used to videoconferencing and seeing ourselves in videos, so the willingness to videoconference is much higher than it was ten years ago.

So as long as the placing of videoconferencing in bank branches is done sensitively (in the meeting rooms that the advisers would otherwise have been in), then yes it might be a way of in the post-RDR world customers getting  investment advice.

But this will most likely only be for the medium term, for as videoconferencing prices drop in the longer term not only will the customers be able to do it from their own home, but the advisers will most likely be doing it from theirs as well!

Tuesday, 1 February 2011

Will RDR see the end of advice in the bank branch?

With the recent announcement by Barclays of the withdrawal of investment advisors from their branches, coming on the back of (but unrelated according to Barclays) a record fine for misselling of investment products and the announcement that Norwich & Peterborough Building Society is transferring its in-branch IFAs to Aviva, where they will become restricted advisors, does the introduction of the Retail Distribution Review rules mean the end of the provision of advice in branches?

In principle no one can argue with the requirements of RDR that customers should expect to be given advice by qualified people who can either advise about the whole market of investment and insurance products or make it very clear that they can only advise on a restricted set of products from a restricted set of providers. Equally in principle no one can argue that if the advisors are providing value with their advice that the customer should pay for that advice and that the customer should be free of the concern that the advice is being influenced by the amount of commission that the advisor is being paid.

The challenge for the banks is that in order to get their staff up to the standards to pass the qualifications to be allowed to advise customers requires a significant investment in training and when compared with potential returns from the sales that they generate from the mass market in the existing business models for some banks, such as Barclays this looks financially unattractive. Hence why Barclays is moving to a model of pushing the mass market i.e. those with relatively low levels of investment, to online channels, whilst still providing face-to-face advise to customers who qualify for the Barclays Wealth proposition.

Of course this all depends on how you evaluate the business case. Certainly if the case is evaluated specifically on the cost of sale and the revenue generated as a standalone product sale, then it is difficult to make the case in a post-RDR world (post 2013), to provide in-branch advice to the mass market. However if the overall enhanced customer profitability of cross-selling customers insurance and investment products, many of which are seen as "sticky" products, and the impact on customer retention and customer advocacy is taken into account then the business case for advisors improves.

Another way to improve the business case is to improve the productivity of the advisors. Some of the ways this can be achieved range from simple measures such as more effective appointment management and more effective sharing of advisors across groups of branches to the provision of more effective technology enabled tools to the use of video-conferencing advisors into branches, reducing the time lost due to the advisors travelling to branches. As video-conferencing technology costs reduce and the technology improves (as with Cisco's TelePresence), the resistance of customers to video-conferencing will also drop.

Will other banks follow Barclays' lead and will the mass market be left without in branch advice in a post-RDR world? It is highly unlikely, particularly as banks such as Santander, HSBC, Lloyds Bank (with their 'For the journey' branding they would need to re-think their branding if they did) and RBSG (who have just announced the launch of the sale of two new funds) as they look to re-build trust and provide a differentiated service will follow that direction. RDR however does provide the banks with a significant catalyst to re-think how they provide advice to their customers.