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Banks mislead savers with 'risky' investment advice

The majority of advisers in highstreet banks and building societies do not understand the risks of investing, Which? warns.

 
Banks mislead savers with 'risky' investment advice

The majority of advisers in highstreet banks and building societies are misleading customers with poor advice about investment products, an undercover investigation by Which? has revealed.

Just five out of 37 advisers approached by mystery shoppers gave good advice about investments, according to the consumer group. The majority did not appear to properly understand the risks associated with investing, and made misleading statements about the features and costs of products.

Which? also found that many advisers recommended investment products that were completely inappropriate for its mystery shoppers, who were all inexperienced investors aged over 60. Some 17 advisers recommended complicated and high-charging bonds, while four failed to mention the hefty charges investors faced if they withdrew money in the first five years.

Almost half of the advisers failed to mention the Financial Services Compensation Scheme (FSCS), while others made basic errors about the amount of protection customers receive. One Santander adviser handed a leaflet about compensation to a mystery shopper and said: ‘Let’s face it, the major banks aren’t going to go under,’ adding ‘you don’t have to read this’.

Even more worryingly, 18 of the advisers also claimed they did not charge for the advice when they in fact earned commission if a product was taken out. Lloyds Banking Group emerged as the worst offender for not explaining that 'free' advice is paid for through commission, while one adviser at Yorkshire Bank told a researcher to invest £50,000 in a bond without disclosing that it was worth £4,4000 in commission to the bank.

Call for investigation

Which? has warned the banks that it is reporting its findings to the Financial Services Authority (FSA) for investigation. It urges the regulator to punish the worst offenders.

Richard Lloyd, executive director of Which?, said: ‘Now, more than ever, consumers need advice they can trust on what to do with their money. It's shocking to see such low standards.

‘We want the FSA's Retail Distribution Review (RDR) to force banks and building societies to be more upfront about the cost of their advice,’ he said. When RDR comes into effect next year advisers will no longer be allowed to earn commission on products they recommend to customers and will instead have to charge an upfront fee.

A spokesman for the British Bankers’ Association (BBA), however, said: ‘Banks work very hard to ensure a high standard is common among their sales staff.

‘Whilst tied advisers consider investments from a limited range they offer a competitive alternative to IFAs whilst being subject to the same suitability obligations,’ he stressed.

What’s more, according to the BBA, measuring risk isn’t that simple. 'While it’s all very well for Which? to define what they see as low risk, it may not have appeared that way to the adviser,’ the spokesman said.

Earlier this year Barclays was fined £7.7m for mis-selling unsuitable investments to customers, while Bank of Scotland was fined £3.5 million for mis-handling complaints about its advice service. In both cases the majority of complaints came from vulnerable customers such as inexperienced investors or customers over 60 years old.

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5 comments so far. Why not have your say?

Tom O'Dea

Nov 16, 2011 at 15:10

The FSA has FAILED totally and having imposed RDR on the IFA sector will only drive more in most need to get financial advice to these greedy BANKS and BUILDING SOCIETIES.

The FSA is a "CYPLOSE" monster.

NO change then?

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Dave B

Nov 16, 2011 at 16:06

I discovered years ago that the only person to trust is yourself. Too many IFAs are motivated by the commission and once they have your money they forget all about you. They get their commission upfront but you may have to wait years to discover whether your investment was worthwhile or not. In the past I have been caught out by the MVA (market value adjustment) that some financial investments impose so you can't withdraw your money even if you want to - unless you want to lose a substantial amount of your money. My advice to anyone venturing into investing is to research products (Bonds, Unit Trusts etc) yourself. Try to understand the products and how they are managed, then research the market.

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steve sodium

Nov 16, 2011 at 18:05

Having been a mug horse racing punter "investing" in tipster advice for over 20 years ( and losing 30K). It unbelievably took me that amount of time to realise that if the product was that good, then surely they would of put every penny they had in the "TIPS" and cleaned up. Bank's Investment "advice" is surely in the same vein.Find your own investments at least then you only have yourself to blame and not have to go through the horror of some smart suit

( M+S £139.99) fleecing you of your monies.

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Lairdolossie

Nov 16, 2011 at 18:11

It makes me both sad and angry to read the never-ending stories of elderly with limited savings being continually ripped-off with bad advice. I have spent the past 50 years self-teaching myself finance and investment. Yet when it comes to plumbing and electrical knowledge my limit would be replacing a mains plug and turning-off the water at the mains! So, I cannot expect to acquire a great deal of trades knowledge at 70 and must therefore find an honest and competent plumber/electrician! Is this any easier than finding a trustworthy source of financial knowledge? Actually, I think that the basic questions/answers for most financial cases could be spelled-out on 2 to 3 A4 sheets - but how do you get the needy people to read them? Surely every communIty has at least one decent, honest and knowledgeable I.F.A.

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A C Wiltshire

Nov 16, 2011 at 19:16

Banks giving bad financial advice to their customers! The FSA no good at their job. What's new. The FSA picks on IFAs but what does the FSA do about banks and their lousy advice. S.F.A.

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