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Quarter of customers receive bad advice from banks
A 'mystery shopping' review by the Financial Services Authority shows 25% of customers receive unsuitable investment advice and has led to Santander being referred for enforcement action.
by Michelle McGagh on Feb 13, 2013 at 10:34
A quarter of customers have been given poor investment advice by their banks and building societies, a mystery shopping exercise has revealed.
The Financial Services Authority (FSA) undertook 231 mystery reviews of advice between March and September last year, targeting six high street banks and building societies. It is understood that Santander is one of the banks that has been mystery shopped and has now been referred for enforcement by the regulator.
In December in was revealed that Santander had suspended its investment advice service.
The FSA found concerns with the advice given in a quarter of cases. A total of 11% of mystery shops led to unsuitable advice and in 15% of the mystery review the adviser did not gather enough information to make sure the advice was suitable.
The levels of poor advice varied across the firms but the main reason why the advice given was not suitable was that it did not match the level of risk customers were willing to take - this was the case in 15% of mystery shops.
The FSA report revealed advisers were not confirming that customers had understood the risk profile questions and some advisers failed to discuss discrepancies between the outcomes of the risk profile tools and the customers’ expressed wishes.
In 13% of cases the advice given was not suitable for the customers’ financial circumstances and needs, for example, advisers failing to recommend the repayment of debt.
The report shows advisers carried out their fact-finding duties in a rushed or unstructured way and failed to gather the relevant information. They did not follow up questions on certain areas, for example when debts were identified, and some advisers collected the necessary information but chose to ignore it when making recommendations.
In 5% of cases the investments recommended did not match the length of time the customers wanted to hold the investment.
For example some advisers recommended medium to long-term investments when the customer had made it clear they would need their money after three or four years. The FSA said it was ‘particularly concerned’ about this failing as ‘the majority of the mystery shops based upon the short, three to four year advice scenario resulted in unsuitable advice’.
Clive Adamson, director of supervision at the FSA, said: ‘This review shows that customers are not consistently getting the quality of advice on their investments that they should expect when visiting an adviser in a bank or building society.
He added that while the FSA was ‘disappointed’ with the results of the review, the organisations involved in the mystery shop had taken action to ‘rectify the situation for their customers’.
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by Michelle McGagh on Apr 24, 2014 at 05:01