Banks and building societies are still handing out shocking, inaccurate advice to customers despite a series of misselling disasters.
Years of paying billions in compensation for complaints piling in about misselling pensions, endowment policies and payment protection insurance seem to have done nothing to make the arrogant monoliths give their customers better advice.
Consumer champion Which sent secret shoppers aged over 60 posing as retired savers.
They asked advisers about reinvesting a lump sum above the £85,000 Financial Services Compensation Scheme deposit limit that was just maturing from a one-year fixed-rate bond paying 2.5%.
Undercover researchers
The undercover researchers found just five from 37 advisers in high street banks and building societies gave good advice about investments, with the majority of advisers showing a poor understanding of the risks of investing, and made misleading statements about the features and costs of available products.
Which claims many of the advisers recommended products that were inappropriate for inexperienced investors aged over 60 – with 17 recommending 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.
Another 18 advisers claimed that advice was free, but banks and building societies are paid commission for their recommendations taken up by customers.
Mistakes and misleading statements
Yorkshire Bank told one researcher to invest £50,000 in a bond netting more than £4,400 in commission that 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 stated that investments with the bank were covered up to £85,000 instead of £50,000.
A NatWest adviser stated: “Let’s face it, the major banks aren’t going to go under.”
The same adviser gave the researcher a leaflet about compensation, saying: “You don’t have to read this.”
Consumers need advice they can trust
Richard Lloyd 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. 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.”
Banks fined millions for misselling
In January 2011, Barclays was fined £7.7 million and ordered to pay almost £60 million compensation for misselling unsuitable to customers, 80% of whom were aged between 60 and 90.
In May 2011, Bank of Scotland was fined £3.5 million for poorly handling complaints and misselling investments. 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.
What customers should expect from investment advisers
The standard of advice from banks, building societies and independent financial advisers customers should expect is clearly laid out by the FSA:
• Advisers should disclose their status as independent or tied and make it clear whose products they can recommend
• The workings of the Financial Services Compensation Scheme and how the scheme applies to recommended products
• They should carry out a thorough fact find
• Advisers should establish the customer’s attitude to investment risk and make recommendations based on this
• Advisers should discuss the customer’s tax status and how any recommendations would affect this
• Customers should have any recommended products fully explained, including the risk of losing any money
• Any fees and charges should be fully explained
Savings accounts offer meagre returns
Not only are banks and building societies under fire over the quality of their advice, but savers have little choice of a safe haven to earn any return on their money as the institutions continue to peddle accounts with meagre rewards.
The figures speak for themselves – only six out of 2,000 savings accounts offer any real rate of return to taxpayers.
Even though the Consumer Price Index – the government’s official inflation measure – dropped from to 5.0% for October from 5.2% in September, savers have no reason to celebrate.
Taxpayers have no options when looking for instant/easy access accounts, bonds or notice accounts – and higher rate taxpayers paying at 40% or 50% have no choices other than a couple of Cash ISAS.
Non-taxpayers fare slightly better – with a choice of 23 savings accounts offering a return against inflation out of the 2,000 in the marketplace.
David Black, Defaqto’s Insight Analyst for Banking, who compiled the figures said: “Savers continue to be hit by the dual effects of high inflation and the historically low-base rate. Even basic rate taxpayers are losing money in real terms on their savings with their only respite being from a handful of Cash ISAs or restricted availability regular monthly savings accounts.
“To get the best available returns, savers need to review their savings on a regular basis. In particular, people should look to use their ISA allowance, and take advantage of introductory bonuses and guaranteed minimum rates on savings accounts.
“Strategies worth considering are paying off expensive debts – such as store cards, credit cards and overdrafts – and, for higher rate taxpayers especially, opting for an offset mortgage as it effectively pays tax free interest on savings at the mortgage rate.”
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