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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.
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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