The Financial Services Authority (FSA) mystery shop of investment advice has exposed the same faults revealed by Which? a year ago.
A mystery shop carried out by the FSA between March and September last year has found that in one quarter of banks and building societies investigated, the advice given was poor.
As a result of this investigation, Santander has today closed its advice arm. To learn more about how financial advice works, visit our guide to Financial advice explained.
Unsuitable advice from banks
The exercise comprised 231 mystery shops and assessed six major retail banking firms. It used the scenario of a consumer looking to invest a lump sum.
It found that 25% of the banks investigated gave poor quality advice – in 11% of the mystery shops, the adviser gave unsuitable advice. And the adviser failed to gather enough information from the client to make sure the advice was suitable in 15% of cases.
The advice given was unsuitable for a number of reasons:
- It did not match the level of risk the customer was willing to take (15% of mystery shops)
- It did not take the customer’s personal/financial needs into account (13% of mystery shops)
- It did not consider the length of time the consumer wanted to hold the investment for (6% of mystery shops).
Santander closes advice arm
The firms involved in the report agreed to take action immediately, by taking measures such as retraining advisers and doing past business reviews. One firm has been referred to enforcement, so a large FSA fine is expected.
Shortly after the FSA published the mystery shop results, Santander announced that it would be closing down its advice arm in order to carry out a review of the business.
Neither the FSA nor Santander have confirmed that it is the firm which has been referred to enforcement as a result of the investigation.
Similar findings to previous Which? investigation
The FSA’s findings echo those made by Which? Money in a mystery shop of 37 bank and building society advisers a year ago. We presented these results to the FSA.
In December 2011, Which? Money found that just five of 37 advisers gave good advice about investments. Like the FSA, our investigation also exposed the issue of inadequately assessing customer risk, with 17 of the advisers recommending complicated investment bonds. Our Beginner’s guide to investment has all you need to know before you invest your money.
Which? also highlighted the issue of non-disclosure of commission, revealing that 18 of the 37 advisers said there was no fee for their service – when in fact, they charged through commission. This points to a lack of transparency also picked up by the FSA investigation.
In our investigation, just one of the Santander advisers we visited gave satisfactory advice. None of the others did. One adviser even started to recommend products before finding out the customer’s age.
Which? executive director Richard Lloyd said: ‘The FSA’s findings mirror our own, with bank staff recommending inappropriate investment products, not properly assessing consumers’ needs and repeatedly failing to disclose information on consumer protection schemes. These practices are unacceptable and show once again the big change that’s needed to make banks work for customers, not bankers.
‘The FSA should name the firms it found breaking the rules and ensure they properly compensate any customers that have been mis-sold. We also expect the FSA to take tough action against banks that don’t act on their findings.’
Our Big Change campaign calls on banks to put customers first, and calls for mis-selling and poor conduct to be punished.