The FSA has announced it has carried out a mystery shopping exercise into the quality of investment advice of six major banks and building societies.
As a result of the review, one firm has been referred to enforcement.
The regulator says in response to the review firms have agreed to take immediate action including retraining advisers, making substantial changes to their advice processes and controls for new business, and undertaking past business reviews to identify historic poor advice and put this right for customers.
Firms have also been required to employ an independent third party to either carry out or oversee this work.
The mystery shopping review, carried out between March and September, focused on the quality of advice given to consumers looking to invest a lump sum. Out of a total of 231 mystery shops, the FSA says in 11 per cent of cases the evidence suggests the adviser gave unsuitable advice, and in 15 per cent the adviser did not gather enough information to ensure their advice was suitable.
The level of risk customers were willing and able to take was unsuitable in 15 per cent of the mystery shops, and the length of time the investment was held for was not suitable for the customer in 6 per cent of mystery shops.
Bank and building society advisers also failed to take into account customers’ financial circumstances and needs in 13 per cent of mystery shops. The FSA cites an example of advisers failing to recommend the repayment of unsecured debts where this would have been right for the customer.
FSA director of supervision Clive Adamson says: “This review shows customers are not consistently getting the quality of advice on their investments they should expect when visiting an adviser in a bank or building society.
“Whilst we are disappointed by the results of this review, we are encouraged by the action the firms involved have taken to rectify the situation for their customers. Since this review took place, we have introduced new rules on investment advice which have increased the professional standard of the advisers operating in the market and have removed the potential for advisers to recommend products that pay the largest commission but may not be right for the customer.”
Create Director, Peter Davies, commented that “it is disappointing to read that banks are still giving unsuitable advice to their customers. I strongly recommend that the public deal seek advice from Chartered Financial Planning practices such as ourselves who have been accredited by bodies such as the Chartered Insurance Institute. Relying on banks is no longer a sensible option.”