The consumer watchdog Which? has found that building societies and banks are not giving customers quality advice, and in some cases are actually giving bad advice.
Which? conducted a clandestine investigation on a total of 37 high street banks to see what kind of advice they would give when quizzed about making a lump sum investment. Worryingly they discovered that only four of the 37 gave good advice with regards to investments. The 33 that came up short were found to either suggest inappropriate financial products, not highlight potential risks or simply not deal with the customer in a helpful manner.
The Which? investigators posed undercover as retirees who were interested in making a £55,000 lump sum re-investment, after previously having gained a 7 percent return from a fixed rate one year bond. According to the researchers, out of the 37 banks approached 21 advised that the money should be put into capital-guaranteed products, however eight of the banks falsely stated that these products carry no risk whatsoever.
Investment bonds were suggested by six of the banks yet all failed to detail some of the risks that came hand-in-hand with what is one of the more complex products available on the market. A further 14 advisers also neglected to tell the ‘customers’ about the Financial Services Compensation Scheme (FSCS) a scheme set in place to aid customers who have lost money due to the collapse of the firm that held the investment. Out of all 37 advisors, only one told the researchers that by splitting the investment money over two institutions they would not exceed the FSCS’s £50,000 compensation limit.
Which? chief executive Peter Vicary-Smith had this to say about the findings: “It's disappointing to see yet more evidence that the way many banks treat their customers hasn't improved since our taxes were used to bail them out. Our research, evidence we've heard at the Future of Banking Commission and calls to our Money Helpline show that consumers are being convinced to take out high-risk products that they simply don't understand”.
He also added “Banks and building societies need to buck up their ideas and make sure that their sales practices don't exploit consumers by encouraging their staff to recommend inappropriate products.”
However a spokesman from the British Banking Association hit out at the Which? findings. Speaking to The Telegraph he said: “Which? took a small sample and tested its views against them: this is not valid research. Banking is a relationship business. Banks' investment recommendations are the result of a two-way process: the advice can only be as good as the information received.”