According to a new Which? report, many high street banks and building societies are giving poor advice and recommending inappropriate investment products to elderly and potentially vulnerable consumers. Which? researchers, in an undercover investigation, found that only five out of 37 advisers in banks and building societies gave good advice about investments.
Many of the 37 advisers recommended products that were inappropriate for the researchers, all of whom were aged over 60 and inexperienced investors. 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.
Particular failings identified by researchers included 17 of the advisers 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advisers failing to mention that these came with hefty exit fees (sometimes as high as 12%) if money is subsequently withdrawn in the first five years.
Banks and building societies make money through commission paid for the products that they recommend, but only a handful of advisers that were tested were upfront about this and 18 advisers claimed that there was no cost for their advice. In the worst case, one of the researchers was told by a Yorkshire Bank adviser to invest £50,000 in a bond netting more than £4,400 in commission, which was not disclosed.
There were a number of failings relating to consumer protection advice given to the researchers. Almost half of the advisers failed to mention the Financial Services Compensation Scheme (FSCS), and others made rudimentary mistakes about how much protection consumers receive. One Santander adviser incorrectly told the researcher that their investments were covered up to £85,000, instead of £50,000. A NatWest adviser even told a researcher: 'let’s face it, the major banks aren’t going to go under,' and handed her a leaflet about compensation, whilst saying: 'you don't have to read this.'
Commenting on the findings, Which? Executive Director Richard Lloyd, 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 (Barclays in 2011 and Bank of Scotland in May 2011) for advice failings and poor complaints handling.
'We are reporting our findings to the Financial Services Authority (FSA) 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.
This Which? investigation seems to show that the high street isn't often the best place to go for investment advice and recommends that if in doubt, consumers should always talk to an independent financial adviser. Which? investigative research testing independent financial advisers, found that over 70% gave good advice to their researchers.
If you need advice about investment or savings products and personal finance planning, contact one of the team who will be happy to help.