We have frequently warned our website visitors and clients to tread carefully when seeking ‘advice’ from their banks.
There is a world of difference between independent financial advice and bank ‘advice’, particularly when the former is delivered by a professionally qualified adviser working on an impartial charging basis.
The latest information published by the Financial Ombudsman Service (FOS) seems to justify these warnings. Part of this was that only 2% of complaints made to FOS come from IFA clients. This was down from 3% the previous year.
A shocking 63% of FOS complaints came from the banks. General insurers, life assurance providers and investment managers were responsible for the balance.
However, it is not these numbers that give such great cause for concern.
FOS also revealed that one high street bank which has been targeting elderly customers with Investment Bonds, where it has upheld many similar cases where customers were not suited to the product.
Within the report, FOS commented:
“A particular group of cases involved a specific high-street financial institution that targeted the sale of investment bonds at older consumers. In these cases, the consumers were usually investing money for their retirement and frequently had little or no previous investment and savings experience beyond deposit-based accounts.
“The bonds concerned contained a degree of risk that prompted us to ask whether the consumers understood and were suited to this type of financial product. We upheld many of these cases in favour of the customers, as the financial institution was unable to persuade us that these consumers would have been looking for extra financial risk given their age.
“In assessing complaints like these, the individual circumstances of the consumer at the time of the sale are vital. It is evident that some businesses believe that giving us copies of the product literature – containing explanations of how the product worked – should be enough to convince us that consumers must have been aware of, and have accepted, the risk inherent in the product.”
Investment Bonds can be suitable products in some circumstances. It is important to consider both the underlying investments recommended as well as the tax position of the product.
To think that a high street bank has been actively targeting older clients with these products seems to make a nonsense of the regulatory requirement to ensure suitability, instead assuming that a one size fits all approach works.
Banks are mostly sales organisations, interested in selling financial products to their customers rather than providing professional unbiased advice on the best course of action.
This report should act as a wake-up call to any investor who is considering using their bank for financial ‘advice’, unless that is they want to risk being a statistic in a future FOS report.
