The FSA’s mystery shopping exercise into the quality of investment advice at banks and building societies revealed staff claimed customers “don’t pay a penny” for advice and will “always get a return” from their investments.
In its report on the mystery shopping exercise, published yesterday, the FSA says it has concerns that advisers in some banks and building societies “continue to make a number of basic financial planning errors”.
Here are some examples of the poor investment advice uncovered by the FSA mystery shops:
“You don’t pay me a penny [and] you don’t pay the bank a penny for this advice.”
One adviser incorrectly stated the customer would “always get a return”, and told him the potential return from the product was three and a half times more than the maximum achievable return.
An investment sales aid, used to compare potential investment returns with returns on cash deposits, suggested a positive return at the end of the term. The adviser told the customer this was “the lowest possible return” he could get and represented the “worst case scenario”, which was not the case.
The adviser told the customer: “If I only put a five year timescale in, because you have no experience in the stock market, [the system] will probably drop you to cautious [risk]. If you want the better growth potential of a balanced [investment] we may need to put in a longer investment term, but after three years you can get it out.” The adviser set up the investment on a 20-year term.
From 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.
Money Marketing understands Santander has been referred to the FSA’s enforcement team following the review.
Recent FSA enforcement action against poor investment advice:
February 2013: UBS fined £9.5m over failures in the sale of the AIG Enhanced Variable Rate Fund
February 2012: Santander fined £1.5m for failing to clarify Financial Services Compensation Scheme cover on structured products
December 2011: HSBC fined £10.5m for inappropriate investment advice by its subsidiary Nursing Homes Fees Agency to elderly customers
November 2011: Coutts & Company fined £6.3m over failures in the sale of the AIG Enhanced Variable Rate Fund
April 2011: Norwich and Peterborough Building Society fined £1.4m for failures relating to the sale of Keydata products
January 2011: Barclays fined £7.7m for misselling the Aviva Global Balanced Income Fund and the Global Cautious Income Fund