Thursday, 23 June 2011

Panorama - Can you trust your bank?

A recent episode of Panorama focussed on financial advice mis-selling cases predominantly around older customers who had gone straight to their bank at retirement with a lump sum of money to invest.

Although the focus of the show was on bad advice and "dodgy" practices of some banks' advisers it was so obviously apparent that product transaction and payment for such was inherently the cause of the advisers focus on the sale and themselves rather than the needs of the client.

I have never strongly opposed RDR and only ever in the early days been mildly sceptical of the changes that were coming. Most people tend to dislike change so I forgive myself for that one... As time has passed and both the gravity and detail of the changes RDR will bring has it become so clear that this is the best thing that could possibly happen for our industry.

While a product sale sits at the heart of an adviser's remuneration the cloud of prejudiced selling will remain, whether it is actually there or not. In some cases, as it appeared with certain bank advisers its live and kicking and may well remain post RDR given the arena in which the banks are likely to sit.

Getting paid to GIVE ADVICE will be a fantastic step forward rather than trying to "sell products". I personally cannot wait but the Panorama program made me wonder two things.

1) would the people that appeared in the program be willing to pay for advice regardless of the outcome. My suspicion is that they would not. Shopping around, which one of the mystery shoppers mentioned to the bank adviser as their course of action will become an expensive exercise when you are paying for the advice, not just on the final purchase of a product.

This is likely to effect IFAs more than the Banks which means Banks may well look more attractive to thrifty investors but will more than likely lead many to receiving advice which may otherwise have been more holistic and less focussed again on the sale of a product.

2) The people who claimed to have received bad advice did so because their investment "lost" money. At least one of the investors then committed the cardinal sin for retail investors and cashed in, crystallising the loss and concluding her investment experience at the worst possible time. The actual product variant was not mentioned in the show so there may well have been reasons other than sentiment for why she cashed in but as we have all seen at one time of another, clients do the strangest things!!!

So getting to my second point, would paying for advice stop a client from complaining for "bad advice" or is the only way to avoid that type of complaint to put their money somewhere where it only ever goes in an upward direction.... Cash??? (Lets not even get embroiled in the effects of inflation)!!!!

So while I don't see RDR making retail investors any less quick to complain when their portfolios stumble I do think the move will mean the advice client receive, from IFAs at least will be far better because the ADVICE is paid for, not the product which may or may not be at the end of the process...

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