All financial advisers must adhere to the Treating Customers Fairly (TCF) principles established by the Financial Services Authority.
Outcome six of these principles is Consumers do not face unreasonable post-sale barriers imposed by firms to change product, switch provider, submit a claim or make a complaint.
Whilst advisers and product providers must adhere to this TCF outcome, it is not always easy for investors to get out of investment products.
As we saw in the NHFA/HSBC case earlier this week, many Investment Bonds have exit penalties attached that can result in big charges if the product is surrendered during the first five years.
The structured investment products so often sold by the banks typically have a five year term, or longer.
Whilst investments should only be considered for terms of at least five years, and preferably longer, using investment products that actively prevent earlier access can be a bad idea.
Circumstances and objectives change. It makes sense to retain a degree of flexibility that enables earlier than anticipated access to investments, should this happen.
Very often, the reason for exit penalties on investment products is to fund the payment of upfront commission to the financial adviser.
From 31st December 2012, this form of commission funding is abolished, so hopefully Investment Bonds with hefty exit penalties will quickly become a thing of the past.
At the moment, there is far too much in the way of smoke and mirrors when it comes to the charging and pricing structure of some investment products.
There can be valid reasons for using Investment Bonds in some instances, including for the funding of care fees shortfalls.
Applying a five year exit penalty to these products in order to create opaque upfront commission is probably not a valid reason for trapping investors, as HSBC and NHFA have discovered this week.
Photo credit: Flickr/dirkstoop
