The FCA has fined Santander £12.4m for poor investment advice after finding “significant deficiencies” in the company’s suitability processes and communications.
The penalty follows a mystery shopping exercise into six banks and building societies in 2012, including Santander.
The investigation found that Santander investment advisers told customers commission of almost 8 per cent was “irrelevant” and failed to ensure recommendations were suitable. It also found that 22 per cent of Santander advisers provided misleading product information and 28 per cent provided misleading information about costs.
In one instance, a customer was told commission was irrelevant and they would not be paying commission when in fact commission was 7.75 per cent.
Another customer was told “in 10 years the investment will beat cash by 87 per cent”, even though their investment term was only five years and the returns were not guaranteed.
In a quarter of cases, the bank’s risk profiling questionnaire inappropriately led customers towards certain answers or was not completed properly by the adviser.
One adviser recommended that a 71-year-old customer invest £35,000 into a product with a six-year term which contained penalties for early encashment. This was without determining the customer’s income, expenditure, debts or liabilities or whether they had any health issues.
The bank also failed to carry out regular reviews to check that investments continued to meet customers’ needs.
The FCA says sales of retail investment products between January 2010 and December 2012 were affected, as were some of its communications with customers from as early as April 2004. It says the failings were “systemic” and related to a large number of customers.
Following a Dear CEO letter from the FCA in June 2011 regarding wealth management services, Santander instructed external consultants to review its premium investment sales.
The review of 50 sales in the first half of 2011 found that only 58 per cent were suitable.
Santander told the FCA in August 2011 its tools and processes were working well to deliver appropriate outcomes “for the great majority of customers”. The FCA says this response was “misleading”.
The FCA’s investigation also identified concerns with adviser training. An assessment on day one of a course for new advisers had a pass rate set at 70 per cent by HR without sign-off from compliance. The pass rate in place at other courses was 80 per cent. The FCA found that had the pass rate been set at 80 per cent, 41 per cent of advisers who completed the test in Q3 2011 would have failed and not been allowed to complete the course.
Santander is writing to affected customers to offer them the opportunity to withdraw from their investment or have a review of the sale, conducting a redress exercise for premium investments customers and implementing a new annual review process for premium investments customers.
Santander head of UK banking Steve Pateman says: “We apologise to any customers who have concerns. We expect customer detriment to be low, given the performance of the underlying investments.”
In November 2012, the bank set aside £232m, saying the provision related to undisclosed “historic customer conduct issues”.
A Santander spokeswoman says this relates to interest rate swaps, Card Protection Plan and retail investments.
Santander stopped offering investment advice in March 2013 after pulling 800 advisers off the road because they were not fully trained to meet RDR requirements.
Another month and another fine. This time a bancassurance business with around 300,000 customers buying around 350,000 products totalling around £7bn over a two-year period. “About time they learned their lesson” I hear you say. But are there some lessons here for all firms offering investment advice? Having just read the FCA final notice, I think there are. And they are surprisingly basic:
Embed an advice rather than product culture. Reinforce this with incentives that reward client outcomes. Avoid a fee model based 100 per cent on a transaction taking place. If the best advice is to pay off debt, then this advice is valuable and deserves a realistic fee.
It is not enough to fully under-stand key pieces of information such as a client’s experience, knowledge of investments and their investment objectives. This information needs to be meticulously recorded and reflected seamlessly in your recommendation.
Tools need to be deployed with great care, they should support the advice provided, not drive it. The output must be discussed and this discussion must be reflected in your records and recommendation.
Lastly, please bear in mind the cost of any fine can be significantly less than the cost of further reviews and remediation. The cost of any external review can be significant.
Malcolm Kerr is senior adviser at EY’s EMEIA financial services division
There comes a time when you start having less sympathy for investors who continue to go to their bank for ‘advice’.
Informed Choice managing director Martin Bamford
Sadly there will be very few IFAs that did not suspect that this was general practice. Why has it taken so long to hold the banks to account?
Solomons IFA principal Dominic Thomas