High street banks offer risky investment advice, says Which?Only 13% of banks give good investment advice

16 November 2011

Good financial advice for consumers is vital

Consumers need to get financial advice that they can trust

High street banks and building societies are giving poor advice and recommending inappropriate investment products to elderly and potentially vulnerable consumers, a new report by Which? has found. 

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.

The myth of free advice

Worse still, 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, which was not disclosed.

Consumer protection not explained

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 our researcher 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.

The public need advice they can trust

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 January 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.

'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.'

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