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MM Leader: N&P is another case of exposing clients to unacceptable risk

The FSA’s final notice relating to the sale of Keydata products by Norwich & Peterborough advisers reveals a shocking lack of regard for customers who put their faith in a trusted local institution.

The building society was this week fined £1.4m by the FSA and has agreed to pay customers a total of £51m to compensate for losses suffered after receiving unsuitable advice to invest with Keydata.

Over three years, 3,200 N&P clients invested in Keydata products. An independent third party found a sample of 65 per cent of N&P sales to be unsuitable but the FSA suggests this level to be significantly higher.

The average age of N&P clients invested in Keydata was 62 and many had indicated an unwillingness to risk capital. In a familiar story from misselling scandals of the past, N&P advisers emphasised the fact that products were not linked to stocks and shares but failed to make clear they still carried significant risk.

To make matters worse, concerns about the firm’s advice processes were raised by an internal compliance review in June 2007, triggered by the fact that Keydata products formed 30 per cent of all investment products sold in the first three months of the year. No action was taken as a result of this review and Keydata sales remained high, enabling the firm to accrue a total of £2.7m in commission from the sale of Keydata products.

N&P chief executive Mike Bullock announced he was to retire at the start of the year and it appears likely the firm will merge with another building society as a result of this fiasco.

N&P’s advisers were tied to Norwich Union before becoming IFAs in 2003 but, judging by the FSA’s final notice, the advice proposition was not up to the standards consumers are entitled to expect from an independent adviser.

It is impossible not to draw parallels between the failings revealed in this final notice – for instance, exposing older clients to unacceptable levels of risk with products they do not understand – and complaints we often hear from consumers about the behaviour of some high-street banks.

Barclays has already been fined for failings over the suitability of advice. Would thorough reviews of the sales processes of a number of other institutions, for instance on the large number of corporate bonds sold through branches in 2009, yield similar results?

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. Of course there are parallels between the failings revealed in this final notice and the complaints often heard from consumers about the behaviour of some high-street banks. Selling this year’s favoured product ~ usually because of the high commission available ~ to all and sundry has for decades been the culturally ingrained standard operational practice amongst the retail FS arms of many of the banks. From what we read on the blogs, bank “advisers” are constantly nagged and harangued and pestered by their sales managers throughout each day. What happens to the poor adviser who actually has some scruples and integrity and who says to his sales manager that whilst he has seen several customers, none was suitable for the product he’s being pressured to flog them? He’s probably summoned to a heavy one to one meeting in which his commitment to reaching his targets is called into very unfriendly question. How can he defend himself against such accusations when he knows that a fundamental conflict exists between integrity and reaching his sales targets? The conclusion on the part of the sales manager will almost certainly be that he (the adviser) doesn’t have “the right attitude” and therefore probably isn’t cut out for this particular role or, worse still, that he ought perhaps to be looking to polish up his CV. That’s the reality, isn’t it?

    Yes, the FSA may finally have got round to trying to address such practices and cultures, but why ever has it taken so very long? It’s hardly as if the FSA can have been unaware of such practices. Just who at the FSA is supposed to have been responsible for checking and monitoring what the banks have been up to? It can’t all have been down to Clive Briault, he of the £612,000 golden parachute fame. Or is it just another of what Hector Sants euphemistically describes as an “organisational” failure, whereby no one individual is held to account?

    Yet another example, perhaps, of Systemic Regulatory Dysfunction.

  2. Premier Shareholders Group 21st April 2011 at 7:17 pm

    UK based IFAs wishing to learn more about the financial services industry outside the safety of UK regulation should read Spanish lawyer Antonio Flores blog including :-

    Equity Release Contracts Full of Cracks (I) April 18th, 2011

    http://belegal.com/blog-by-antonio-flores/

    OK so this is Europe not the UK (lol) but there is some interesting information here.
    Anyone care to comment?

    Maybe the PSG can persuade Money Marketing to publish it.

  3. Yes it ok about regulating after the event. What about Chelsea and Yorkshire Building Society that are doing a simple thing. They are also about to buy N & P!

    http://essentialifa.wordpress.com/2010/11/18/chelsea-building-society-misleading-18-capital-protected-bond/

    Why does the firm have to go bust before the regulated takes acton on miss leading products that are design to benefit the Society more then the customer.

  4. So what will Mike Bollocks’ punishment be – a bigger final bonus for all his hard work ?

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