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Banks suspend advisers as RDR deadline looms
Santander bank and Nationwide building society have halted giving financial advice to their customers as they struggle with tough new rules known as the 'retail distribution review' (RDR).
Santander bank and Nationwide building society have curbed the activities of their staff while they grapple with tough new rules aimed at improving the quality of financial advice offered to the public.
Changes brought in by the Financial Services Authority’s ‘retail distribution review’ (RDR) will see the payment of commission to financial advisers abolished at the end of this month. From the New Year advisers will also have to pass a higher qualification, equivalent to a first year university degree course, in order to do their job.
Although the RDR reforms have been scheduled for several years the radical changes they entail have caused upheaval at financial advisory firms and the banks, insurers and investment companies that either service or employ them.
Now Santander, the Spanish bank that bought Abbey National, Alliance & Leicester and Bradford & Bingley, and Nationwide, the country’s biggest building society, have decided they are not ready.
Santander has stopped its 800 advisers from giving investment advice while they undergo urgent training. No date has not been set for their return.
A spokeswoman for the bank said that although its advisers held the appropriate qualifications it was decided they required additional support and training. ‘We will therefore be undertaking an additional intensive bespoke training programme. We apologise to customers for any inconvenience this may cause them.’ she said.
In September Santander announced that from the end of this year it would offer a ‘restricted’, ie, not fully independent, level of advice for customers with more than £25,000.
In the previous month the bank had to stop selling and advising on life insurance policies from its commercial partner Aviva, due to its advisers’ lack of product knowledge.
Meanwhile Nationwide, lead by chief executive Graham Beale (pictured), has suspended its staff from offering pensions advice. It has also withdrawn a Legal & General stakeholder pension plan from sale, saying it is incompatible with the new adviser charging system.
Guy Simmonds, Nationwide’s head of product, protection and investments, said: ‘We have had to sacrifice the pension proposition at the moment. Given the regulatory uncertainty on pensions we wanted to confirm what our requirements were.’
He hoped to resume pensions advice next year once more advisers had been hired. The building society employs 460 advisers.
In the meantime Nationwide is referring customers who want pensions advice to www.unbiased.co.uk, an online directory of independent financial advisers (IFAs) supported by the financial services industry.
The FSA, which will be abolished next year and replaced by a new regulator, has pushed through the RDR reforms against opposition from some quarters in the financial services industry. However, it has insisted that the abolition of commission and introduction of higher qualifications are essential to restore public trust in financial advice.
From January anyone wanting to get financial advice will have to pay an ‘adviser charge’ agreed with the adviser. This can either be paid as a separate fee or deducted from their savings.
The new adviser charge will replace the system of commission in which insurers and fund managers paid advisers each time they recommended one of their products. The FSA and other critics said the commission system gave the public the misleading impression that advice was free, when in fact consumers paid for it through higher product charges.
The advent of the RDR changes has provoked fears of an ‘advice gap’ as banks and advisers ditch customers to move upmarket and concentrate on wealthier clients who can afford their fees.
Last month Lloyds Banking Group closed its branch-based investment service saying it would only offer investment advice to customers with more than £100,000 in savings through its private bank.
This followed a similar move in early 2011 by Barclays, which shut its financial planning division saying it would only offer advice to wealthy clients through its Barclays Wealth arm.
Meanwhile, this year Royal Bank of Scotland and HSBC have respectively closed and cancelled plans for an independent financial advice service. Both banks will focus on a ‘restricted’ level of service instead, meaning they will offer advice on a narrow range of products only.
For more information on the forthcoming financial reforms and what they mean go to the 'Citywire Money guide to the RDR revolution' . Our Adviser Finder tool also gives details of professional financial planners who have complied with the RDR reforms for some time.
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