Banks and building societies are failing customers when it comes to providing good advice about how to invest their money, according to new research from Which?.
In an undercover investigation, Which? researchers found just four of 37 branches of banks and building societies visited gave good advice about investing a lump sum. To add insult to injury, the banks bailed out with taxpayers’ money – Lloyds TSB and Halifax – were no better than the rest.
- 33 failed to pass the Which? tests, often by recommending inappropriate products without properly explaining the risks, or because they couldn’t even get the basics of good advice right.
- 21 of the 37 advisers recommended that the Which? researchers put some of their money into products referred to as capital-guaranteed, with eight wrongly touting these plans as ‘no risk’. In fact, factors such as inflation, early withdrawal or death could see the value of an investment being reduced, or people getting back less money than they put in. Some of these products (eg Barclays Defined Returns Plan) are not covered by the Financial Services Compensation Scheme if the counter-party fails to meet its obligations, meaning that the consumer is putting their capital at risk.
- Six advisers suggested an investment bond, failing to adequately explain the risks of this highly complex product.
- 14 advisers failed to mention the Financial Services Compensation Scheme at all, with only one advising the Which? researcher to split their savings between two institutions to avoid going over the £50,000 limit.
Consumers being talked into high-risk products they don’t understand
Which? chief executive Peter Vicary-Smith said: ‘It’s disappointing to see yet more evidence that the way many banks treat their customers hasn’t improved since our taxes were used to bail them out. Our research, evidence we’ve heard at the Future of Banking Commission and calls to our Money Helpline show that consumers are being convinced to take out high risk products that they simply don’t understand.
‘Banks and building societies need to buck up their ideas and make sure that their sales practices don’t exploit consumers by encouraging their staff to recommend inappropriate products.’
The Which? ‘good advice’ checklist
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
- Carry out a thorough fact find
- Establish the researcher’s attitude to investment risk
- 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)
Which? investigation – who we tested
In November and December 2009, Which? sent 11 researchers undercover to get financial advice from 37 branches of high street banks and building societies across the UK. All aged over 55 and posing as retired savers, they told advisers that they had a lump sum to re-invest that was just maturing from a one-year fixed-rate bond paying 7%.
They visited four branches each of Alliance & Leicester, Barclays, Bradford & Bingley, HSBC, Lloyds TSB, Nationwide and Natwest; and three branches each of Abbey, Britannia/Co-operative Bank and Halifax/Bank of Scotland.
Which? advice on investments
Which? advises people with money to invest to go to an independent financial adviser (IFA) who can search the whole market, find the best deals available and recommend something suitable. For more information, read our free expert guide to choosing a financial adviser.
The full article ‘Which? tests banks for advice’ appears in the April 2010 issue of Which? magazine. Try three issues of Which? for just £3.
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