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Banks accused of giving misleading investment advice Banks accused of giving misleading investment advice
(about 7 hours later)
Santander is understood to be facing a possible fine after an investigation into six banks and building societies found that one in four customers were being given "poor" and sometimes misleading investment advice. Santander is facing a fine by the financial regulator after an investigation into six banks and building societies found that one in four customers were being given "poor" and sometimes misleading investment advice.
The Financial Services Authority (FSA) has revealed it carried out a mystery shopping exercise between March and September 2012 to look at the quality of the investment advice given by banks and building societies, and found that in 26% of cases the advice was poor. This meant customers "could be at risk of suffering detriment" as a result of being recommended unsuitable products. Hours after the Financial Services Authority (FSA) announced its findings, Santander revealed it had suspended its face-to-face investment advice service until further notice and launched a strategic review of the division – which could put 880 jobs at risk.
The regulator said it was "disappointed" by the findings, which follow a wave of scandals and regulatory clampdowns involving the mis-selling of products such as payment protection insurance and interest rate swaps, but was "encouraged" by the action the firms involved had taken to put the situation right. The FSA carried out a mystery shopping exercise between March and September last year to look at the quality of the investment advice given by banks and building societies, and found that in a quarter of cases the advice was poor. This meant customers "could be at risk of suffering detriment" as a result of being recommended unsuitable products.
Six unnamed "major firms" in the retail banking sector were examined, and a total of 231 mystery shops took place. The "customers" were looking to invest a lump sum. The regulator said it was "disappointed" by the findings, which follow a wave of scandals and regulatory clampdowns involving the mis-selling of products such as payment protection insurance and interest rate swaps, but was "encouraged" by the action taken by the firms involved to put the situation right.
Six unnamed "major firms" in the retail banking sector were examined, and a total of 231 mystery shops took place. The "customers" were seeking an investment for a lump sum.
The FSA said the results showed that in 11% of cases the evidence suggested the adviser gave the customer unsuitable advice, and in a further 15% of cases the bank or building society employee did not gather enough information to make sure their advice was suitable, so it was not possible to assess whether the customer received good or bad advice. The FSA said both of these constituted poor advice.The FSA said the results showed that in 11% of cases the evidence suggested the adviser gave the customer unsuitable advice, and in a further 15% of cases the bank or building society employee did not gather enough information to make sure their advice was suitable, so it was not possible to assess whether the customer received good or bad advice. The FSA said both of these constituted poor advice.
Often the failure in advice involved the level of risk customers were willing to accept, and their financial circumstances – for example, in some cases the adviser failed to recommend that the customer paid off existing debts. Often the failure in advice involved the level of risk customers were willing to accept, and their financial circumstances.
In 15% of cases, advisers made "misleading statements" – typically about the potential risks and performance of products. In one case the adviser incorrectly stated that the customer would "always get a return". The adviser also said the potential return was three-and-a-half times more than the maximum return actually achievable. "The adviser reinforced this misleading statement by writing down the amount the customer 'could' get back based on his initial investment," the regulator said. In 15% of cases, advisers made "misleading statements" – typically about the potential risks and performance of products.
Meanwhile, some of the bank and building society sales material "undervalued cash deposits and made investments appear more attractive". The FSA has started an enforcement investigation into one of the firms, understood to be Santander, which could result in a financial penalty being imposed.
Santander has now launched a review of its "bancassurance" division, which employs 880 people, the bulk of whom are advisers. One possible option could be the closure of the division, but a spokesman said: "At this time, no colleagues are at risk of redundancy." It will continue to provide advice to existing customers but has "decided for now not to pursue new business until we can find the right model".
Asked whether it was under investigation, Santander issued a statement saying it "will continue to review how it can offer advice to its customers in the future for their benefit and provide access to appropriate investment products. Santander will explore all options, given its heritage, its customer base, and the importance of access to assistance and advice for all UK consumers in protecting their financial well-being"
The regulator said the firms responded in a co-operative way to the findings and agreed to take immediate action. "This includes retraining advisers, making substantial changes to advice processes and controls for new business, and undertaking past business reviews to identify historic poor advice and put this right for customers."The regulator said the firms responded in a co-operative way to the findings and agreed to take immediate action. "This includes retraining advisers, making substantial changes to advice processes and controls for new business, and undertaking past business reviews to identify historic poor advice and put this right for customers."
The FSA has also started an enforcement investigation into one of the firms, understood to be Santander, which could result in a financial penalty being imposed.
Clive Adamson, director of supervision at the regulator, said: "This review shows that 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.Clive Adamson, director of supervision at the regulator, said: "This review shows that 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.
"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.""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."
Asked whether it was under investigation, Santander issued a statement saying it "will continue to review how it can offer advice to its customers in the future for their benefit and provide access to appropriate investment products. Santander will explore all options, given its heritage, its customer base, and the importance of access to assistance and advice for all UK consumers in protecting their financial well-being".
A spokesperson for the bank added: "We are considering the findings in the context of the significant actions we took in 2012 to prepare for the post-RDR [retail distribution review] world. We continue to believe it is important to offer customers access to a broad range of financial products which are suitable to their needs and individual situations, and we are working towards that objective."A spokesperson for the bank added: "We are considering the findings in the context of the significant actions we took in 2012 to prepare for the post-RDR [retail distribution review] world. We continue to believe it is important to offer customers access to a broad range of financial products which are suitable to their needs and individual situations, and we are working towards that objective."