The FSA has announced it has carried out a mystery shopping exercise into the quality of investment advice of six major banks and building societies.
As a result of the review, one firm has been referred to enforcement.
The regulator says in response to the review firms have agreed to take immediate action including retraining advisers, making substantial changes to their advice processes and controls for new business, and undertaking past business reviews to identify historic poor advice and put this right for customers.
Firms have also been required to employ an independent third party to either carry out or oversee this work.
The mystery shopping review, carried out between March and September, focused on the quality of advice given to consumers looking to invest a lump sum. Out of a total of 231 mystery shops, the FSA says in 11 per cent of cases the evidence suggests the adviser gave unsuitable advice, and in 15 per cent the adviser did not gather enough information to ensure their advice was suitable.
The level of risk customers were willing and able to take was unsuitable in 15 per cent of the mystery shops, and the length of time the investment was held for was not suitable for the customer in 6 per cent of mystery shops.
Bank and building society advisers also failed to take into account customers’ financial circumstances and needs in 13 per cent of mystery shops. The FSA cites an example of advisers failing to recommend the repayment of unsecured debts where this would have been right for the customer.
FSA director of supervision Clive Adamson says: “This review shows customers are not consistently getting the quality of advice on their investments they should expect when visiting an adviser in a bank or building society.
“Whilst we are disappointed by the results of this review, we are encouraged by the action the firms involved have taken to rectify the situation for their customers. Since this review took place, we have introduced new rules on investment advice which have increased the professional standard of the advisers operating in the market and have removed the potential for advisers to recommend products that pay the largest commission but may not be right for the customer.”
The FSA has also published information for consumers to explain what to expect when getting investment advice and to help them check the advice they are getting is suitable.
In December Money Marketing revealed Santander had suspended its investment advice service and pulled 800 advisers off the road with immediate effect because they were not fully trained to meet RDR standards. All 800 advisers have been summoned to a crunch meeting in Birmingham today.
Last month Money Marketing revealed how much banks are charging for their restricted investment advice services.
A spokesman for the British Bankers’ Association says: “We welcome this review which shows the majority of clients received good advice from their banks, but clearly more can be done. Any examples of advisers failing to gather enough information on their customers and not recommending the right products are unacceptable. This review will help all banks to focus on retraining staff and changing processes to improve standards for customers in the future.
“This exercise took place last year before the industry implemented new FSA rules which mean advisers are now better trained and are not paid commission for making sales. We would therefore expect the next FSA mystery shopping review to show real improvements.”