The UK Retail Banks - Essay Example

Financial Advisors & Retail Banks in UK By 4th May a. Financial Advisor & Retail Banking A financial advisor provides guidance to its clients regarding the investment of money and other money related matters. The financial services provided by the adviser include investment advice, pension planning, insurance advice, mortgage advice etc. The assists their clients to manage the risk and return related to their wealth, thus, optimizing the value of their money. There are different kinds of advisors, tied, multi-tied and independent depending upon the number of firms they provide advises on. Their qualifications are monitored and approved by the Financial Services Authority (FSA) which is a regulatory body for the UK financial services sector. There are over four hundred financial advisors in the UK financial services industry, guiding the clients regarding investments in the FTSE, stocks bonds, mutual funds, derivatives and other financial products. However, currently in UK the financial advisors are disappointing their clients by not providing the appropriate advice in the tough times of stock market volatility and economic slowdown. The times when people need their advice the most they are reported not fulfilling their duties promptly. “Not many people are the fans of the financial advisory industry in its current state in the UK, as most advisors are, when it comes down to it, just salespeople on commission.” (Dunwiddle 2008) Every individual in UK gets investment allowance and they need these advisors to help them with their investment decisions. However, the general impression shows that these advisors increase their wealth based on their clients’ money. Retail banks on UK are technology and service oriented offering customers with greater protection, more choices and competitive rates. The Lloyds Banking Group, HSBC, RBS and Barclays are some of the major names in the UK retail banking. Currently UK is witnessing a decrease in the retail banks’ branches and the increase in the Automatic Teller Machines (ATMs). “To operate in the retail markets banks have traditionally required an extensive branch network. However, technological developments in particular the growth of automatic teller machines (ATM) networks, phone/internet banking, mobile phones and interactive digital television has enabled a new type of bank that does not need branches to conduct business. In UK the pioneer was First Direct, which began its telephone bank in 1989 and is an operation of HSBC.” (Buckle and Thompson 2004) Thus these banks involve advancement of loans, and acceptance of deposits, customer credit services through credit cards and overdrafts etc and many other financial services. As per the requirement of the Bank of England they maintain their required cash ratios and other requirements. They are key players in regulating the money supply and providing customer with a protected, competitive and reliable financial services network in the United Kingdom. b. Customer Expectations v/s Financial Advisors & Retail Banks The financial advisors, who always face the risk of furnishing rosy pictures of investments to their clients, need to put extensive efforts to gain and maintain customer expectations and meet customer expectations. Recently, the Financial Services Authority (FSA) has been working on Treating Customer Fairly (TCF) and its outcomes and requiring all firms to present correct and proper information. The financial advisors try and validate the information provided to their clients through reports and researches. The appreciation of customer expectation for a financial advisor is difficult because the advice of the advisor does not guarantee success as other factors market and economic are responsible for the outcome of the investment. “One problem in the investment service industry is that the outcomes of investment decisions are largely beyond the control of investment advisors and investment managers.” (Redhead 2008) Thus in orders to appreciate the customer expectations financial advisors need to provide truthful information and bee willing and able to discuss all the risks of an investment. In UK financial advisors are working there way to build customer loyalty and meet customer expectations. The UK retail banks are facing more challenges these days with respect to customer satisfaction. With the increasing competition, better rates, better information coverage and a threat of identity theft of customers is posing greater burden for the banks. In order to appreciate customer expectations banks are coming up with new consistent 24/7 customer support, customer aligned products and services and long term value orientations. c. Ethical Conflicts of Retail Banks Every organisation faces ethical dilemmas and retail banks are no exceptions. The UK retail banks work under the guidance of ethical policies and sustainability analysis. “The ethical policy stipulates who the bank will and will not finance as directed by the customer.” (www.cfs.co.uk) The retail banks give out loans against the deposits they hold, an ethical conflict arises when banks advance these loans to a weak borrower on a high yield to cover for the additional risk of default of the borrower. From the banks perspective this is a profitable deal as their interest income is greater in this deal but customers worry about the risk of default attached to the transaction. UK has seen increasing bad debts that have affected banks performance. According to the ethical standard advancement of loans should be made available for customer analysis. Also sometimes bank charge higher than usual interest to its customer borrowing for a new venture or any new business, they take advantage of the client’s position and mint money out of it. Also the rates projected by the banks are sometimes not the actual interest the customers are getting leading to ethical conflicts. Banks and customer should share the information they possess when striking a deal or availing the banks’ facilities in order to avoid ethical conflicts. d. Clash of Objectives between Customer and Retail Bank The objectives of individuals as opposed to the corporation generally conflict with each other; same is the case of retail banks in the UK and its customers. The customers in UK want more return but are not willing to take the risk inherent in obtaining that return. They want handsome interest earnings without allowing the banks to extend risky advances. The banks on the other hand have a long term objective of growth, sustainability and profit. The banks value their depositors and borrowers both very meticulously and for strategies that will boost their long term growth. The short term interest spread is the concern of the customer, where as the long-term interest income is the banks focus. Banks also have to develop strategies to beat competition which is intensifying day by day. “Although the UK market is apparently highly concentrated – indeed it is dominated by the big four – there is in fact plenty of competition.” (McDonald and Keasey 2002) Thus the bank has many concerns regarding competition, profitability, standards and policies and their products and services. Customers on the other hand want higher returns and better financial services from the retail banks. It is important that both the retail banks and the customer each other’s standpoint and devise a meaningful and profitable relationship of mutual consent in order for the UK retail banking and economy to grow further. References: Buckle, M. and Thompson, J. (2004) The UK Financial System - Theory and Practice, 4th ed. Manchester University Press: Manchester, p.55. Dunwiddle, A. (2008) Successful Tax-Free ISA Investing, Denmark: Ad Publishing, p.13. McDonald, O. and Keasey, K. (2002) The Future of Retail Banking -A View from the Top, New Jersey: John Wiley & Sons, Ltd., p.135 Redhead, K. (2008) Personal Finance and Investments - a Behavioural Finance Perspective, New York: Routledge, p.153. www.cfs.co.uk (2003) Ethical Finance, [online] Available at: http://www.cfs.co.uk/sustainability2003/socialresponsibility/ethical.htm [Accessed: 3th May 2011]. Read More