If there is something we have written about regularly over the years, it is the perils of seeking financial advice from your bank.
This is almost always a very bad idea.
Banks are a terrible source of advice because they don’t really provide advice, but are instead in the business of selling their own products to their customers.
These products range from mediocre to terrible, in many cases.
With the regulator and various consumer bodies consistently uncovering evidence of bad advice, we think investors would be crazy to go to their bank for financial advice.
A new mystery shopping exercise completed by the Financial Services Authority has added further weight to this assertion.
They found concerns about the quality of advice given by banks and building societies in a quarter of all cases.
This means that, in one in four cases, you stand a good chance of getting bad financial advice from your bank.
The FSA found deficiencies around understanding how much risk investors were prepared to take, unsuitable recommendations based on customers’ financial circumstances and needs, and around the length of time investors were prepared to hold their policies.
Banks also gave their customers incorrect information about how they paid for services.
We often hear that banks claim to somehow provide ‘free’ advice; something that is unfortunately impossible from any business.
What they mean by ‘free’ is ‘speculative’ with the aim of selling a financial product to generate remuneration. This ‘free advice’ approach creates a huge incentive to sell unsuitable investments or other financial products.
There are simple ways for investors to avoid these risks of receiving unsuitable financial advice.
Always use the services of an independent financial adviser, not a ‘restricted’ adviser who only has their own products to sell.
Always agree a fee for advice, and never use the services of an adviser who claims to be working free of charge.
Always ensure that your adviser knows enough about you before delivering their recommendations.
If in doubt, there is never any harm in seeking a second opinion before proceeding with a recommendation.
Photo credit: Flickr/alxndr
