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Are orphaned clients the next big bank misselling scandal?


We all know that almost every single bank and building society in this nation has sacked almost every regulated investment adviser in the last two years.

We also all know this is because the regulator’s retail distribution review has forced the spotlight onto the cost and quality of advice/products to such an extent that it has become clear that clients have been receiving a very bad deal.  Poor products have been pressure missold expensively and with appallingly low service levels to an uneducated public.  RDR has pulled the duvet back and exposed the mess in the bed.  And the banks have run away sheepishly. 

But are they going to clean up their mess? There are hundreds of thousands of clients around this nation who are invested in risky fluctuating asset-backed investments with little understanding of what they are caught up in. The banks have withdrawn, in varying degrees, the ability to assess and amend these investments, leaving investors dangerously unsupported.

The options now available vary from a telephone number to a call centre where a “non-advised” conversation can occur, a recommendation to consult, a recommendation to seek independent advice, or finally no help whatsoever.  Unless of course, you are a ‘high net worth client’, in which case an advice model similar to the past aberration may continue to operate.

Think for a second.  Advised asset-backed investments in the modern world ostensibly adhere to the principle of asset allocation and rebalancing reflecting a client’s attitude to risk and reward.

The performance of a portfolio relies heavily upon the asset allocation being rebalanced on a regular basis.  How often and how exactly it’s done is open to debate but most theories agree it is vital.

But the banks and building societies have ‘orphaned’ their clients.  The banks have offered these clients nowhere to go of any substance to effect this rebalancing of their risky portfolios.  As the years roll by these clients’ portfolios will be increasingly out of line with their own attitudes to risk and reward.  The time bomb is ticking.  Particularly with the alleged bubble in the gilt and bond market, which chimes so terrifyingly with ‘low risk’ clients, who are least able to afford to lose money.

This problem is being exacerbated by the banks’ bullying approach to those advisers who have been sacked.  Advisers are routinely being threatened, supposedly under the Data Protection Act or non-solicitation clauses, to stop them having any contact with previous clients.  It is a thinly veiled attempt by the banks to protect their profits at the expense of clients.  And it keeps the unbalanced, unmanaged portfolio time bomb ticking and growing in potency.

I urge all advisers who have been ousted from the banks/building societies and who continue to work in the industry not to run scared of the written and verbal threats issued to them.  If a client requests advice, give it to them. 

Help them to understand risk and reward, to rebalance, and to choose good funds on competitive financial terms.  I urge the media and regulators to expose the mess in the banks’ bed and to force the them to write a ‘red letter’ to each and every one of their investment clients who have been ‘orphaned’, urging them to seek professional advice and offering to pay for it.  Anything less is naked profiteering at the expense of the person in the street. Yet again.

This is the next misselling scandal waiting to overwhelm our formerly respected high street institutions. It is their current behaviour, not past behaviour, which is making it so.

Dave Penny is managing director at Invest Southwest


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There are 24 comments at the moment, we would love to hear your opinion too.

  1. Im afraid the phrase – thats life springs to mind. I would bet that the huge majority of these were sold on initial commission only (I dont blame the advisers as most direct sales organisations didnt have the capability of paying initial plus trail to their sales staff – so you sold what you had). It is very unfortunate but havng paid high initial commission initially via product charges, if these investors want ongoing advice they will have to pay for it. I dont think this is the next scandal as I doubt that anywhere in the old terms of business did it say that you were entitiled to an ongoing service. Advisers at the time my have provided that in the hope (as we all did back then) of getting more business from the client. If I was a bank, I wouldnt be too worried about this – it is sadly a non starter of a story I am afraid. Still there is always RDR 2 to get “excited” about.

  2. While I agree that banks never really offered best advice, they will do the following, that an IFA (or their network) will never do; pay compensation or redress.

    While banks sold products from the expensive end of the product scale, they NEVER sold hundreds of thousands of pounds (per customer) into ucis funds and other “brilliantly smart” ideas which are now at zero value, whith the IFA going into liquidation as soon as they see a complaint.

  3. Both good comments.
    Irrespective of what is in Terms of Business, if the behaviour is bad, the FCA will retrospectively enforce remedial action especially if we stimulate a focus. It’s been done more than once before.
    And mis-selling of any product by any organisation is inexcusable, including IFAs. Two wrongs do not make a right. Of course.

    Simply sitting back and accepting this aberrant behaviour by the banks would be as shameful as the original behaviour itself.

  4. The banks have already been through the pain of compensating people for bad advice. In fact this would have been amongst the reasons for getting rid of the advisers in the first place.The costs of compensating people outweighed the benefits accrued. The banks cannot be held responsible for not providing ongoing advice as they will just state that they have pulled out of the market and refer people to unbiased.

  5. I think that this is really a non starter. While I agree that the service levels offered by the banks were poor there really is not a case for compensation based upon poor service alone. Just bacause their pockets are deep we should not as an industry try to whip up a fever and encourage have a go clients to go after banks for compensation. There are enough chancers out thee in any case. The basis for compensation should be the appropriateness of advice and not a band wagon.

  6. Sorry – I am unclear how there can be a mis-selling scandal here.

    If you need advice on your investment portfolio – call an IFA. It’s that simple.

    Why can’t adults take care of themselves in this country?

  7. I am afraid these new ‘independent’ ex bank advisers will simply contact their old clients and churn the rubbish they sold before to the same clients. They have no choice because they will have bled them dry of additional funds to invest when they were with the banks, Here we go again !!!

  8. Yorkshire BS, Leeds BS, Principality BS, Chelsea, N&P, Nationwide, Skipton amongst others all continue to offer advice and look after customers new and old.

  9. @ Dave Penny
    I was not referring to missold products – Even the banks sold normal bonds that were best advice for the client. If portfolio drift increases risk of the investment I am saying the banks will not be held responsible for this fact, especially if they have pulled out of the advice market. Any missold plans should be dealt with swiftly and properly but that is a different issue to the one we are talking about.

  10. “I urge all advisers who have been ousted from the banks/building societies and who continue to work in the industry not to run scared of the written and verbal threats issued to them. If a client requests advice, give it to them.”

    Inciting someone to breach their contract and exposing them to being sued is possibly not helpful.

    If they are being threatened then the FCA should be looking at the effect of restrictive covenants in adviser contracts and whether they are compatible with TCF. In most countries these type of restrictions would be unenforceable… time for the FCA to act on this…

  11. When Sants was lobbied by companies that made themselves paragons of virtue by charging fees, allied with a misplaced hatred of investment bonds, Sants pricked up his ears and thought to himself ‘Ah, this is what I can leave behind as my legacy, it will be something I will be remembered for!’ Pity it all went wrong, but as I am a Barclays employee now, I have moved on.
    So the model of fee based advisers selling their own in house funds, charging investment management fees as well as advisory annual fees and underlying fund management fees, then charging £500 p.a. for access to secretaries or advisers. Then £1,500 for reviewing the long term cashflow forecast and recommendations to invest further into their funds is a model Sants approved He was told ‘commission is a sin’ by those evangelical CEOs who thought they had spotted a commercial advantage by altering the rules.
    Why not a maximum commission? Too simple, did not need loads of underlings to implement and far to simple for a regulator with ambition. And what do loads of underlings mean in the world of public sector and quangos? Higher salaries of course!

  12. Have any of you actually worked for a Bank or sought advice from one, or are you just adhering to the bank-bashing bandwagon?
    Banks haven’t ‘run away sheepishly’, it’s a sad fact that a) through reserach they have established that paid-for advice services will not be in demand from smaller investors, so it’s pointless providing them, and b) the cost of providing those services en mass outweigh the profits to be made by providing them. Are we saying that Banks should ignore all the principles of running a business and offer non-profitable charitable financial services? Does that leave us, the taxpayer, footing the bill for their running costs then?
    I also think it’s irresponsible to suggest that advisers ignore contract clasues or the DPA in order to service clients of the Bank. Are you prepared to pay their liability bill Dave Penny when they get sued or fined for a breach of DPA? By all means recommend that if a customer makes direct contact with an adviser, they can offer them advice, but breaching DPA and stealing customer data is a very serious offence.
    I would just like to add that the stocks & shares investments that were sold to me 10 years ago by my Bank are doing very nicely thank you – and were worth every penny of the commission that my bank adviser earned off of them!
    If anyone is to blame for the lack of advice availability and the risks posed to orphaned clients, then look no further than the Regulator. Another example of them not thinking it through properly or understanding the market they regulate.

  13. I took on Trustees of a Disc Trust orphaned by Barclays IFA Advisers shutting down.

    They’d been put in to a suite of investment bonds, over £23k in initial commission, promised ongoing advice albeit with no trail built in. Suddenly no Barclays adviser.

    Bond providers can’t/won’t facilitate adviser charges, to pay for me taking on the advice, providers suggested bonds rebroked if ACs to be set up (!!!).

    There’s a lot of bonds out there where no ACs can be added and former advisers took all initial commission.

  14. I agree with Grey Area.

    Ignoring the moral and practical issues none contact contract conditions raise…. IMHO actively encouraging people in such a broad manner to breach their contractual terms which, in doing so, could result in legal recourse from their previous employer is dangerous….

  15. @ Dave Penny… what an uninformed, self opinionated and one sided view you hold!

    In my 32 years with a large product provider, my experience of dealing with all sectors of intermediaries has taught me there’s examples of good, bad and ugly wherever you look. It’s true that among banks and building societies RDR has landed with perhaps a little more of a ‘thud’ than elsewhere, but in part this is down to the way they have implemented RDR. An example would be where certain banks decided not to facilitate their adviser charge via products because this too closely resembled commission. Perhaps charging the customer’s bank account with the advice fee is a tad too transparent for the customer’s liking but it is arguably more in the spirit of what the FCA was looking for from the RDR than faciltated adviser charging that looks like ‘back door’ commission.

    There are a number of building societies whose model has been one whereby they introduce to a provider employed adviser. Some of these models have succeeded under RDR… others haven’t. What’s clear is that such models need scale, and hence without scale the required adviser charge is too high, and they have withdrawn from the market.

    If a bank or building society can’t make the numbers work why shouldn’t they accept commercial reality and amend their proposition or withdraw accordingly. This is just sound business. So called orphan clients can choose to seek financial advice elsewhere… or not. But clients have always had this veto so RDR hasn’t changed this.

    As we know, journalism isn’t regulated in the way financial services is… just as well for you Mr Penny!

  16. I have also just taken on an ex Barclays client who had invested £1m with Barclays with the promise of “no initial charges just 1% fee per year as we are in it for the long haul mr client” Turns out that 20k of initial commission was taken without the clients knowledge plus the 1% Per year on top. Clients original paperwork was all intact and funnily enough page 6 of 6 that disclosed initial commission was absent. What kind of relationship was this adviser intending to have with their client in the first place? Certainly not one built on trust and mutual respect and the investment allocation was a joke. Sorry for all its faults the Rdr can only be a good thing if this kind of nonesense wont happen now.

  17. It was a one off transaction with no on-going advice. Maybe if these investors hadn’t thought they would go to the bank and get free advice (no free lunches from banks m’dear) and used a proper professional adviser they wouldn’t have the problem they now have of knowing where to turn when they now need help. But, who is really to blame for this fiasco? Oh, I know they recently awarded him and his ilk knighthoods. Another unintended consequence of RDR I’m afraid.

  18. Sam Jones | 27 Jun 2013 12:01 pm

    Yes, I have worked for a bank. a very big one as it happens and the practises I personally witnessed would make your toes curl.
    As for data protection, you’re having a laugh. banks are still trawling their customer accounts seeing what policies they pay to companies such as Paymentshield and offering to quote for the business.
    How do I know this? Because it only happened to one of my clients last week.
    Please don’t moralise on behalf of banks because they’re still the biggest leeches in the pond.

  19. @James – I have no doubt that you’ve seen practices that make your toes curl, as indeed, have I over the years. I do think things have improved in some banks in recent years, but by no means all.

    As a matter of interest, how do you know the bank you mentioned specifically trawled it’s accounts offering to quote paymentshield customers rather than simply blanket mailed it’s customer base with a cross-sale opportunity or contacted them to offer them a cross-sale? Think operationally – they can’t legislate for every ongoing commission relationship when they are dealing with millions of customers – customer contact tends to be automated, so unless a customer registered a non-marketing indicator, do you seriously expect them to check every policy/product before conducting marketing activity to a client they have a legitimate relationship with?
    I’m not moralising on behalf of banks, I am simply a realist who likes to consider both sides of the argument rather then simply taking the popularist view.
    Incidentally, if the bank owned the customer relationship and contacted the ‘paymentshield’ customer, there would have been no breach of DPA – only if the customer requested no marketing contact.

    Oh, and those ‘leeches’ you mentioned still provide you with extensive free banking services, pay out billions in insurance claims each year (including many being first on scene in the floods and supporting the rescue services in rescuing and rehoming those affected) , and have made lots of people lots of money,not to mention supported charities, sponsored sporting events like the Paralympics etc and funded financial edcuation for the poor. Only bad news makes the headlines, never the good.

  20. Sam Jones | 27 Jun 2013 6:26 pm

    As a matter of interest, how do you know the bank you mentioned specifically trawled it’s accounts offering to quote paymentshield customers rather than simply blanket mailed it’s customer base with a cross-sale opportunity or contacted them to offer them a cross-sale?

    I think the saying to my client; oh, we can see on your account you’re paying a monthly premium to Paymentshield. Is that for your buildings and contents insurance. Do you mind if we give you a quote for that? Was a clue…….!!! Do you agree?
    Lol, you’re quiet the bank crusader are you not?
    (Free banking?……and there’s me thinking banks made a fortune from money held on current accounts?)
    Would this be the same banks that record, fantasic profits whilst shedding staff by the bucket-load? All in the name of efficiency mind you.
    Would this be the same sort of bank that made all its shares valueless, and was sold on to a private company at a knock down price but saw it’s property repossessions last year increase by 10%?

    Like I said; please don’t moralise on behalf of banks.

  21. @Sam Jones: I was finding you an interesting alternative viewpoint right up until the last paragraph, when you descended into blatant shilling. There is no such thing as free banking – current accounts are paid for by the margin on interest rates – and to cast the banks as International Rescue is just laughable.

    As for their various PR exercises – that’s our money they spend on getting those Premier League corporate boxes, not theirs. Not that we ever get an invite, or so much as a prawn sandwich.

  22. The problem is we have to approach the client to find out if they require advice – which causes a second problem because we were not allowed to keep any client details. If we were able to contact a client the bank in question will then pull the data protection card out or claim that the client is their “property”. This means the client’s only options are to contact an IFA themselves or do nothing.
    It is an appalling situation for clients and advisers and is something that was highlighted to my ex bank employer when we were stabbed in the back.

  23. Wheezer Geezer 1st July 2013 at 10:01 am

    Must be a really quiet news day!

    IFAs resorting to bank bashing and urging people to break DPA rules and contracts of employment isn’t really that smart a move. Lots of IFAs I know are less than snowy white!

    Most of the banks who have gone through this, and I’m one who is unemployed as a result, have told their clients they can no longer provide advice, so will no longer be receiving an income from those clients. Where is the scandal in that??

    The garage I bought my car from has lost their franchise so I now have to go elsewhere to get it looked after. Boo hoo. Such is life.

    To question if this is the next ‘mis-selling’ scandal is just plain irresponsible, and not the standard of article I expect to be reading on here.

  24. Personally, i can’t see this as the next “miss-selling” scandal. Like a few on here i once worked for 1 of the big four as part of bancassurance and always made a point of telling my clients that they should review their investments annually. I also made a point of making sure that i never told them it would be me contacting them, partly because i didn’t know if i was going to be in the same branch 12 months down the line and partly because i was kept too busy to ‘review’ existing business (although i never turned anyone away who wanted to do that).

    My point is that clients need to take some level of responsibility for their own destiny. If the bank or BS that originally provided the advice has stopped providing advice and the client still feels like they need it then they have to look elsewhere. If that means looking for an IFA then so be it.

    As an industry we can’t wrap clients in cotton wool entirely. Yes we have a responsibility to make sure we act as best we can on behalf of clients but clients also need to act for themselves. How many people using this website know an IFA that has retired or gone out of business? Should their clients be able to complain to the FoS about a lack of ongoing service?

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