Can you trust your bank?
The BBC screened an interesting episode of Panorama yesterday evening, looking at whether investors can trust their banks when it comes to financial advice.
The answer was a resounding ‘no’.
In the 30 minute programme, the Panorama team went undercover to expose continued poor selling practices at some of the High Street banks.
This exposed some bizarre examples of pressure selling and even one bank ‘adviser’ claiming he could determine how much risk an investor was prepared to take by looking at her eyes!
Banks are a terrible choice if you need financial or investment advice.
The culture of sales makes the provision of advice in the best interest of the customer nearly impossible to provide.
What surprised us about the programme was the choice of the BBC producers to include commentary from a ‘claims consultant’.
In two of the cases of bad bank advice shown in Panorama last night, the customers further lost out through the unnecessary use of claims management firms to seek redress from the Financial Ombudsman Service (FOS).
If an investor has a complaint about a financial services firm, they do not need to give up any part of their compensation by using a claims management firm.
The Panorama presenter suggested that an upcoming Financial Services Authority (FSA) paper on early product intervention could help to stem some of the worst product selling practices from the banks.
We believe that this will go some way towards stopping the banks from selling inappropriate financial products, although it is the Retail Distribution Review (RDR) which will have the biggest impact when it comes into force at the end of next year.
The RDR applies equally to banks and independent financial advisers. It means that bank ‘advisers’ will also see commission removed as a remuneration option and will have to hold higher minimum levels of professional qualifications before giving advice.
We see banks reacting to these higher standards in one of two ways.
They will either exit the market, unable to satisfy the new regulatory requirements, or they will offer a higher standard of financial advice to a smaller (wealthier) segment of their customer base.
In either case, it should see the banks focusing to a greater extent on their core competency of savings, rather than investments and other financial products.
Hopefully this episode of Panorama will raise awareness of the limitations of bank ‘advice’.
The sensible option is, of course, seeking advice from an independent financial adviser who acts in the best interests of the investor.
Photo credit: Flickr/Christine Salek