High street banks offer risky investment advice, says Which? magazine
High street banks and building societies are giving poor advice and recommending inappropriate investment products, finds Which?
In an undercover investigation*, Which? researchers found that only five out of 37 advisers in banks and building societies gave good advice** about investments. The majority of advisers showed a poor understanding of the risks of investing, and made misleading statements about the features and costs of available products.
Many of the advisers recommended products that were inappropriate for our researchers, who were all aged over 60 and inexperienced investors. For instance, 17 recommended complicated and high charging investment bonds, with four of the advisers failing to mention that these came with hefty exit fees – sometimes as high as 12% – if you want to get your money out in the first five years.
Even worse, 18 of the advisers claimed that there was no cost for their advice. Banks and building societies make money through commission paid for the products that they recommend, but only a handful of advisers that we tested were upfront about it. In the worst case, one of our researchers was told by a Yorkshire Bank adviser to invest £50,000 in a bond netting more than £4,400 in commission, this was not disclosed.
Almost half of the advisers failed to mention the Financial Services Compensation Scheme, and others made rudimentary mistakes about how much protection consumers receive. One Santander adviser incorrectly told us that its investments were covered up to £85,000 instead of £50,000. A NatWest adviser even told our researcher: ‘let’s face it, the major banks aren’t going to go under,’ handing her a leaflet about compensation but saying ‘you don’t have to read this’.
By contrast, Which? tested six independent financial advisers and four gave good advice to our researchers.
Richard Lloyd, Which? executive director says:
“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. It’s also disappointing to see that things haven’t improved in the past year, despite two high street banks being fined for advice failings and poor complaints handling.***
“We are reporting our findings to the Financial Services Authority and urging the regulator to investigate and punish the worst offenders. We want the FSA’s Retail Distribution Review to force banks and building societies to be more upfront about the cost of their advice****. We will also be talking to the banks and building societies about improving their standards.
“Our investigation shows that the high street isn’t the best place to go for investment advice. If in doubt, consumers should always talk to an independent financial adviser.”
Create Wealth Management provides unbiased independent financial advice and is able to help bank customers who require a more individual and far reaching advice. Create Wealth’s director Peter Davies notes “we are finding that many new clients are approaching Create Wealth for advice because they have become disillusioned with both the service and scope of advice they have been receiving from their bank. Our clients value our independence and the fact that we offer advice from across the whole of the marketplace together with a comprehensive review service”. Peter explains that “our advisers are experienced financial planners who are constantly updating their knowledge and skills whilst keeping up-to-date with any changes in taxation and legislation.” Create Wealth Management provides financial planning solutions for individuals which include highly qualified professionals, sports personalities, business owners and executives and has offices in Bristol, Cardiff and Newport.
The full article “Investment advice on the high street” is available in December’s issue of Which? magazine. For a copy, please contact Susan Golaszewski on 0207 770 7615 or email email@example.com
*Between August and October 2011, Which? sent nine researchers undercover to get financial advice from 37 branches of high street banks and building societies across the UK. We also visited six independent financial advisers. All our researchers were aged over 60 and posed as retired savers. They told advisers that they had a lump sum above the £85,000 FSCS deposit limit to re-invest that was just maturing from a one-year fixed-rate bond paying 2.5%.
**To give good advice, advisers had to:
Disclose their status as tied advisers to the researcher and make it clear whose products they could recommend; Disclose coverage of the FSCS; Carry out a thorough fact find; Clearly establish the researcher’s attitude to investment risk and recommend based on this; Discuss tax, in terms of the researcher’s current tax status and the tax position of the product(s) that they were recommending; Fully explain the product(s) being recommended, including all of the risks; Explain all the fees and charges of the product(s) and how these might affect their recommendations.
***In January 2011, Barclays was fined £7.7m and ordered to pay almost £60m in compensation for mis-selling unsuitable to its customers, 80% of whom were aged between 60 and 90. In May 2011, Bank of Scotland was fined £3.5m for its poor handling of complaints and mis-selling of investment products to its customers. The FSA investigation into Bank of Scotland found that 77% of the complaints came from inexperienced customers and 55% were aged over 60 years old.
****From 2012, as a result of the implementation of the FSA’s Retail Distribution Review, Advisers will have to tell you how much their services cost and agree with you how much you will pay. To reduce the level of commission bias in the market, product providers will not be able to pay commission to advisers for selling their products. Which? Supports the implementation of the Retail Distribution Review.