Julian Knight: The wrong advice is bad enough. No advice is worse
Saturday 14 December 2013
Imagine being so desperate to keep your job that you will sell yourself, your wife and a colleague an insurance policy or investment just so you can hit your monthly sales target.
It sounds like an over-imaginative plot twist in a novel, or perhaps the rock-bottom point in a career in door-to-door sales. In fact, it is just one very human example of the widespread incentivised selling that took place at the part-publicly owned Lloyds Banking Group – a practice that has led to the Financial Conduct Authority (FCA), the City regulator, imposing a penalty of £28m.
This is the largest-ever fine imposed on a British bank for failings in its incentives structure for sales people, but it is not the first and almost certainly won't be the last.
The FCA investigation looked at sales at the bank between the start of 2010 and March 2012, during a time of major transition in how financial products were sold. This was the last hurrah of the commission sales culture; at the end of 2012 commission earned on financial products was banned – at long, long last.
In response, a lot of banks have been letting their advisers go, while between one in ten and one in six independent financial advisers (IFAs) have left the industry. Good riddance, you may say, but in truth the banning of commission, although welcome, has been replaced by what I have called the advice wasteland. In short, IFAs are charging small fortunes to give advice and in the process shutting out most of the population. One in three IFAs, for instance, say they won't touch someone who has less than £75,000 to invest.
Meanwhile, it's no wonder that the banks are skedaddling out of advice as they have the regulator breathing down their neck and most don't understand the long-term sell that is needed with proper, ongoing advice, rather than just quick hits, as was seen at Lloyds. And get this: the changes to commission would not have an impact on the sort of abuses seen at Lloyds because internal incentive schemes are still allowed. So the very worst of the worst, such as Lloyds' 'Grand in the hand' incentives, could conceivably be going on elsewhere right now.
As for Lloyds itself, it is ironic that it was seen as one of the better banks in terms of how it treated customers before HBOS was thrust upon it.
So now all that most Britons have in the way of financial guidance is a diminishing number of bank advisers – who are incentivised who knows how? – and the independent Money Advice Service which is failing to attract sufficient numbers of users and for me looks like an institution and a marketing concept from the end of the last century. It is so top down and paternal in its outlook – financial advice by committee.
All in all, advice in this country is in a complete mess. The current danger is not so much mis-selling but absolutely no selling whatsoever.
Brace yourself ... Tesco is going to launch a current account in 2014. Yes, I know what you are thinking: haven't I heard this somewhere before?
Indeed you have. It feels like the march of Tesco first into mortgages and now the current account market has been trailed forever and a day.
As soon as the financial crisis broke, breathless public relations people were collectively lauding the entry of the mighty Tesco into this market or that one – how the supermarket giant was going to shake things up in the world of finance.
Ironically, what has happened since is that the corporate reputation of Tesco has taken a bit of pounding. It is no longer seen as the flexible high-street leader with an eagle eye perpetually on trend and what its customers want, but rather a leviathan – bloated, assailed by more vigorous competitors, gone beyond its sell-by date.
On the banking front it has looked like public relations puff rather than anything exceptional. Tesco's mortgage range, launched with a blaze of publicity, has been mediocrity personified. As for its other products, my verdict would be functional, often reasonably priced but nothing innovative.
Tesco has talked a good game and that is about the sum of it. I wish I could get excited about the idea of the company entering the current account market, but I suspect it will be more of the same.
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