Not known for their shining reputation for providing good investment advice, the banks have taken another beating today after Bank of Scotland was fined £3.5m by the FSA.
The fine was for their mishandling of complaints about retail investment products, many of which were sold to elderly customers. They failed to treat their customers fairly.
In addition to the fine, the FSA has secured £17m in compensation for customers. Around £2.4m of this compensation has already been paid.
Between 30th July 2007 and 31st October 2008, the bank (operating under the Bank of Scotland and Halifax brands) received 2,592 complaints about their investment sales.
These included the Collective Investment Plan, Personal Investment Plan, Guaranteed Growth Bond, ISA Investor and Guaranteed Investment Plan.
The FSA ruled that the Bank of Scotland wrongly rejected a significant number of these complaints, with an internal review finding that 45% of a sample of complaints should have been upheld rather than rejected.
In addition to not investigating their complaints properly, it appears that BOS failed to consider the root causes of these complaints. It is a responsibility of senior management within authorised and regulated firms that they regularly review management information and act on it.
The Final Notice for Bank of Scotland explains that a root cause for the advice failings which led to so many complaints was weakness in their investment advice process, particularly their use of use of a risk profiling questionnaire.
When investment advisers use a risk profiling tool, it should form the basis for a discussion around investment risk and not be the sole factor in determining how much risk an investor is prepared to take with their money.
Attitude towards investment risk is only one factor in determining a suitable investment approach. It is also important to consider capacity for loss and the level of risk you need to take to reach your financial objectives.
If you go down to your bank today, it would be unreasonable to expect the gold standard of investment advice. Speak to an independent financial adviser instead and remove the risks associated with bank ‘advice’.
Photo credit: Flickr/surfistaseco
