Barclays: advise caution...

Myrmidon_J

Banking on Bad Advice

Yet another tale of horror has come to light about appalling financial advice given to consumers approaching or already in retirement, with devastating effects to their financial wellbeing. And the villain of the piece is another major high street bank - this time Barclays.

... advisers at different branches across the country have been advising clients to cash in with-profit funds, bonds and other investments and put the lot into a single, high-risk unit trust. The advisers all chose the same unit trust in fact, which, incidentally, has high levels of trail commission... The fund that was recommended by Barclays was the Aviva (formerly Morley) balanced global income fund... The fund has seen huge losses of 45 per cent in the 12 months to March 2009.

...

One client with three with-profit bonds with a surrender value of £360,000 was also told to cash them in and reinvest the money in the same unit trust in July 2007. Last month his investment was worth £172,000.

Syndaxi Chartered Financial Planners managing director Rob Reid says: “If this is an institutional approach it is further evidence that the quality of advice emanating from the banks still has a long way to go before it is acceptable.”

...

Some complaints are with, or are on their way, to the Financial Ombudsman Service. It is hard to imagine they won’t be upheld.
As consumers continue to suffer at the hands of the banks, in some cases watching their lifelong savings disappear, what has to be done to stop this kind of bad practice

It is well-known the banks are responsible for the vast majority of complaints to the Ombudsman, while IFAs account for just 4 per cent.The FSA has already rejected industry calls for a clear split between sales and advice under the RDR, but perhaps the behaviour of the banks in recent times could see the regulator change its mind.

Full story: http://www.moneymarketing.co.uk/cgi-bin/item.cgi?id=184579&d=593&h=341&f=342

Is anyone really surprised?

This is yet more proof - as if it were needed - that the 'financial advice' offered by high street banks is in fact worse than useless; indeed, it is dangerous!

The incompetence, greed and arrogance of Barclays (one of many culprits, no doubt) is staggering.

Gwhiz

TBH - anyone who actually believes a tied financial advisor (salesman) can give good, impartial advice is mad!

dunstonh

Is anyone really surprised?

No. Its a salesforce and that is common for them.

I will just post some clarifications on the info for those that dont know why its bad or what bits of it are good, bad and ugly.

Barclays advisers at different branches across the country have been advising clients to cash in with-profit funds, bonds and other investments and put the lot into a single, high-risk unit trust. The advisers all chose the same unit trust in fact, which, incidentally, has high levels of trail commission.

1 - Cashing in an investment bond to go into unit trusts is not necessarily bad advice. Indeed, it can be very good advice. Especially if you utilise ISAs at the same time. You cant assume a mis-sale here and indeed, it would be quite easy to justify.

2 - Barclays salesforce don't receive trail commission I believe (although maybe they do now on the multi tie?). So, its unlikely that would be a motive.

3 - Single fund investing is usually an indication of low quality advice (although certain funds do have an inbuilt allocation control which can be useful for inactive investors). However, that is typical of tied/multi-tie sales forces as they dont usually have the remit or the authorisation to portfolio build. In itself not something you can normally complain about.

4 - The fund is quite a movement up the risk scale from most with profits funds. It has averaged around 30% fixed interest and 70% equities. Almost the exact reverse of most with profits funds. The FOS has a history of finding in favour of the consumer when there is a movement in the risk profile that is higher than one notch up the scale unless well documented to why. With the FOS taking the view that most consumers are cautious, anything above that has to be well documented and evidenced ideally. Whilst 70/30 may not sound high risk (indeed, it sounds lower risk than 100% equity fund), it has a range of higher risk investments within it and risk profiling the fund shows it comes out much higher risk than a 100% UK Equity fund or 100% global equity fund.

5 - The fund has never shown any indication of why it would be considered a good choice. However, that isnt something you can complain about and its a salesforce with a limited panel.

6 - for the fund to be recommended by multiple advisers and the activity widespread within the salesforce you do have to wonder if encouragement for them to do this has occured. However, they are a multi-tie so dont have the market leading options to choose from and only a limited range. So, it could be coincidence. More likely poor training and high pressure sales managers trying to make sure targets are met.

7 -Tied agents and multi-tied advisers are not allowed to discuss other providers products and provide advice on products that they themselves do not have available to them. Only IFAs are allowed to do that. So recommending cancellation of products from other providers and then selling your own in-house products takes a lot of documenting to protect your backside. Usually tied agents try to get round it by documenting it as your choice to do it or even ignoring the cancellation and hope it never comes to light. Tied agent "advice" on cancellations is usually very weak and the FSA has taken action in the past on companies with high churn rates. However, its hard to prove statistically that it is happening when products from other companies are being cancelled and there is nothing documented to say a cancellation took place.

It is as the article reflects and M_J says, another good reason to avoid tied/multi-tied salesforces. Advice and sales dont go together. The sooner the FSA realise this the better.

TEDDYRUKSPIN

Dish the banks. LOL.

Not being funny the whole market is corrupt at the moment. You only get one idiot and the whole world believes the company is corrupt.

I know many IFA's who have deliberately sold a pile of rubbish to clients and they were the most expensive insurances. Reason? Commission.

But I have seen many who have done the good thing and they constantly get the same clients renewing everytime.

This applies to banks as well. When I worked for a couple of companies, I did'nt sell I pile of rubbish! I advised. The same clients cameback everytime...

Dish the dirt. But don't believe everyone is bad and corrupt. Otherwise the new financial institutions will find a way to obtain your money. If they end up unable to sell their products they will just hike the initial prices for administration alike.

What goes around comes around!

But..... I am glad these cowboys have been caught. These people need to be ousted out of the so called community.

Lokolo

^^ as with any trade, word of mouth from friends and family very important!

sabretoothtigger

Isnt half the point of taking professional advice that you can sue the bank if it really is trash or so biased as to be corrupt.
Theres risk and theres negligence, I know how I'd judge this at first glance

dunstonh

Isnt half the point of taking professional advice that you can sue the bank if it really is trash or so biased as to be corrupt.

Yes. The FOS is pretty good on that front.

However, the problem is that the banks have had favourable treatment from the FSA (and PIA/SIB before it) for years. IFA and brokers pay more in FSA levies etc than the banks. That isnt logical. The last 20 years have seen a range of regulatory requirements that have undermined IFAs and favoured banks. Yet when you look at the complaints stats, IFAs do the majority of transactions but account for 4% of complaints (2% if you use the FOS latest figures). Banks account for the majority of complaints. So, why has the FSA been so focused on an area which, whilst not perfect, creates the least issues, has little impact on the economy if there is an issue yet allows the worst offenders get away with things that everyone in the industry has known about for a very very long time?

Last year the FSA proposed splitting advice and sales with IFAs being the only ones able to use the term "adviser". We thought we were finally getting somewhere. However, all the sales companies complained and the FSA backed down. Everyone knows that sales and advice dont mix. Or obviously not as the salesforces still exist and people use them and the FSA backed down.

Myrmidon_J

TEDDYRUKSPIN wrote:

Not being funny the whole market is corrupt at the moment.

I certainly agree that the 'financial crisis' appears to have encouraged a great deal of corruption in the industry. ('Churn and burn.') I think it could be interesting, a few years down the line, to see where this leads...

But the point I'm trying to make - and I posted another thread, a while back, about various NatWest shenanigans - is that whilst there will always be good and bad IFAs (as with any profession), there exists a systemic failure on the high street. The majority of 'advice' offered by banks and tied agents amounts to no less than institutionalised thievery and deception.

Personal experience has perhaps coloured my views: whilst I am young (and therefore poor, with little to save or invest), I know of seven friends or relations who have suffered (and eventually surrendered to) the sales pitch from one of the big banks.

I work for an IFA - and I like to think that I can spot bad advice. In five of the seven cases, my friends or relations were ripped off (in my opinion); they have since complained, and all complaints have been upheld.

Whilst they have largely "got their money back" (in most instances, the decision of the bank complaints dept. / FOS was to return the investor to the position they would otherwise have been in, etc.) - and so, one might think, "the system works" - I imagine there are hundreds of thousands of customers who are ignorant of their rights, or who do not understand the system at all.

It is outrageous that banks are permitted to sell "advice", when their record (as Dunstonh points out) is so abysmal - and that they are able to do so at such a (relatively) low regulatory cost!

dunstonh

Isn't anyone who works on commission, as do both most bank advisers and IFAs, a salesman?

No. Increasingly, the commission system is being used to pay the fees. Under current FSA rules that is technically classed as commission. Under revised FSA rules coming in that will be classed as fee. Wherever the remuneration is agreed in advance and known before anything is done then that is a fee. It shouldnt matter if you pay by cheque or use the commission system.

Would you also agree that people calling themselves "Independent" Financial Advisers should be stopped from receiving commission and trail commission from fund managers as they do?

No. Nearly all servicing IFAs use the trail to pay for servicing. If you remove it then servicing will stop or have to be paid by other means and that probably means those that want servicing would end up paying more as in reality trail tends to be lower than an hourly fee with the average consumer.

Aren't most IFAs ex bank salesmen anyway?

No. However, looking forward, that is more likely as the banks are considered the natural training grounds nowadays.

Usually the best salesmen who thought they could earn more on their own.

Nothing wrong with that. Isnt that one of the reasons most self employed people will give?

What about those IFAs who call themselves "fee-based" where in fact the fee is a percentage based on the amount they can persuade the prospect to invest?

Nothing wrong with that under the revised FSA rules and as the amount is known in advance then it is a fee.

Isn't it time where the only advisers allowed to call themselves "Independent" should be those who work on a flat rate basis based on the time involved - not on how much they can sell?

Not unless you want the average consumer to not have access to IFAs as they are too expensive for them.

whiteflag_3

dunstonh wrote: »

No. Nearly all servicing IFAs use the trail to pay for servicing. If you remove it then servicing will stop or have to be paid by other means and that probably means those that want servicing would end up paying more as in reality trail tends to be lower than an hourly fee with the average consumer.

But in reality most IFAs take the trail and dont do any servicing!

Question Dh - Does it cost twice as much to service a client with £200K invested than £100K invested?

tradetime

TEDDYRUKSPIN wrote: »

Not being funny the whole market is corrupt at the moment.

Equally, not being funny, but it always has been, it's just a little more obvious at the moment, perhaps not even that, just a little more in the limelight.