It was promising to hear that the Financial Services Authority (FSA) has pledged today to crack down on the financial advice given to customers by banks and also consider the impact of sales incentives on the advice given.
FSA chief executive Hector Sants was speaking today at the Which? Future of Banking Commission select hearing. He explained why it is important to distinguish between the deposit taking and financial advice services offered by the banks.
Commenting on the latter, he explained that the financial advice delivered by banks has room for improvement, with the FSA achieving this improvement through rigorous proactive regulation and more effective deterrence and enforcement.
Importantly, Sants pointed out the limitations of the advice service offered by banks. This is where the ‘advice’ label can often be misleading.
Banks provide a financial product sales service, rather than financial advice. To call what they offer ‘advice’ would suggest that they have the best interests of the client at heart and will be considering a range of non-product solutions to a particular client objective.
In practice, they satisfy needs through the sale of financial products, and the sale of these products can be influenced by incentive structures.
The only way to receive financial ‘advice’ is to speak to an independent financial adviser.
Working with an IFA who charges an explicit fee for advice removes the opportunity for advice bias, both in terms of product bias and the motivation to recommend a commission paying financial product in the first place.
We look forward to seeing this FSA crackdown of bank sales enforced in the coming months and also seeing how the banks might modernise their propositions to deliver something genuinely useful for their customers.
