After initially refusing to say it did anything wrong after Money Marketing’s first revelations on advice given to put clients’ life savings into a single fund, Aviva’s global balanced income fund, Barclays then admitted to what it described as a categorisation error.
With media pressure growing, Barclays said that, due to the error, the fund was categorised as a balanced fund rather than adventurous between July 2007 and November 2007.
The bank said customers who were affected would be restored to the position they would have been in if they had been invested in an equivalent balanced investment of a similar nature.
Leaving aside concerns from some investors over the way that Barclays made this calculation, the bank has completely failed to give any explanation for the most worrying aspects of what went wrong.
The major problem with the advice given in the cases exposed in Money Marketing and elsewhere is not with the misclassification of the fund but rather the issue of why such a high percentage of an individual’s savings was invested in a single fund.
Barclays fails to offer any reasonable defence, yet evidence of this practice in so many cases raises question marks over the standards of advice being given by Barclays’ large team of multi-tied advisers. Barclays’ other line of defence is that its advisers get a flat fee for investment products, in response to concerns that this particular fund paid much higher commission.
Commission bias is only one form of potential bias. The sales culture of banks can easily create an environment where the needs of a bank adviser to meet their monthly targets eclipses the needs of the client. This can be as much the case with products sold through multi-ties as with its own products.
The FSA’s argument behind depolarisation was to improve consumer access to advice but it was not expecting the public to be exposed to this type of advice. Without mentioning any names, the Financial Ombudsman Service has warned it is currently seeing a “mismatch between consumer needs and the funds being recommended”.
If Barclays thinks its very limited mea culpa will be enough to allow this storm to blow over, we believe it will be sorely mistaken.