According to an article in the Financial Times yesterday, Santander UK is the first of the “High Street” banks to re-enter the investment advice market.  This comes three years after the majority of banks exited the market because of the costs of complying with the Retail Distribution Review (RDR) regulations, which prevented banks from making money from commissions earned when selling investments, and selling unsuitable investment products to retail customers.


So what has changed to lure Santander back into the lion’s den?


Certainly there is now a gap in the UK market for investment advice. Currently HSBC is the only High Street bank still offering investment advice from its branches. But how can banks like Santander mitigate the risk that triggered a number of fines in 2013?


In many cases, banks were penalized for being unable to evidence that they had provided “suitable” investment advice, as required by the Markets In Financial Instruments Directive (MiFID). This legislation requires the wealth advisor to show that they have understood the customer’s:


  • Investment objectives, such as the time span the customer wishes to invest over, level of returns needed and ability to access funds early in case of emergencies
  • Attitude toward risk – no risk, medium or high tolerance
  • Full financial picture – specifically investments held at other institutions


Wealth advisors need to show that all of this information has been taken into account to offer a “suitable” investment product that is consistent with the above factors.  Additionally, this information needs to be kept up to date – reviewed annually at the very least.


The challenge for banks is that to consistently comply with these regulations they need branch staff to follow a strict procedure for capturing and inputting required information into a CRM or similar system.  Banks need to be able to play back information provided, select appropriate investment product offerings, and maintain up to date views of the customers’ financial situations and objectives.


But when the Financial Conduct Authority (FCA) conducted its audit, it revealed that these processes had not been followed properly, and inadequate advice had been provided in a quarter of cases.


To get it right this time, and be able to evidence that they are compliant, banks should digitalize as much of the end-to-end advice provision process as possible. This means providing customers and branch staff access to a digital toolset – an app or webpage – for capturing investment objectives and “Financial Personalities.” Customers could submit information on their own, or be assisted by branch staff on a tablet during face to face interactions that guide the customer through investment objective and risk tolerance questions.


If done remotely, help could be provided via web-chat or a cognitive computer that answers frequently asked investment questions.


Then algorithmic tools could assist advisors by generating a set of investment products pre-screened for suitability, that take into account the customer’s investment objectives, attitude to risk, and existing investments.


There are a number of benefits to this approach, which extend far beyond audit requirements, particularly in the areas of efficiency and service excellence.


With digitization, the effort to maintain customer suitability data is reduced, since customers can maintain their own objectives online. Advice will be more consistent and better, requiring less effort to identify compliant products through the use of algorithms and cognitive intelligence. There’s also the benefit of fully automated audit trails for proof of compliance – which of course, will help banks avoid fines.


With Santander taking its first steps into the arena, the time is ripe for its competitors to leverage the latest technologies including digitization, robotic automation and cognitive computing. The opportunities are manifold and truly exciting.


I’ll be exploring some of these possibilities as well as the demand and priorities for Digitalization in Wealth Management in a series of blog articles over the coming weeks.


Timothy France-massey

Timothy France-massey

Director of Digitalization


Timothy France-massey is Director of Digitalization at Wipro Digital. Timothy has over 20 years of experience helping financial institutions transform their customer experience and achieve efficiencies by applying the latest digital and cognitive computing best practices.

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