With the recent news that Santander has been fined £12.4m after the Financial Services Authority (“FSA”) uncovered “serious failings” in the Bank’s investment advice following a “mystery shopping” exercise in Autumn 2012, questions arise surrounding how widespread the misselling was and what recourse options are open to clients who received poor advice from their Bank. The Bank’s staff were found to be inadequately trained and did not have a sufficiently comprehensive understanding of the customers’ personal circumstances and their risk appetite.
It is clear that Santander were not the only financial institution guilty of poor investment advice and the misselling of investment products. The 2012 mystery shopping exercise into the quality of investment advice of six major banks and building societies uncovered that of the 231 mystery shops carried out, in 11 percent of cases the adviser gave unsuitable advice to the client. Santander were penalised as they were the Bank found to be most at fault. Since the findings, Santander has said that it has overhauled its branch-based investment advice and since early 2013, no longer offers advice to new customers.
The misselling issue is not confined solely to bank and building society customers. There can be no doubt that some IFA’s were also guilty of selling products based on the level of commission and trail income they would earn as opposed to recommending the best solution for the customer.
The Retail Distribution Review (“RDR”) which came into effect from 31 December 2012, has had a significant impact on the number of financial advisers in the UK, with bank advisers being particularly badly affected. RDR has had significant ramifications for the investment community requiring increased knowledge and professionalism, disclosure of advice services as either independent or restricted and significant changes in adviser charging away from commission based remuneration.
RDR has highlighted the cost and quality of advice/products to such an extent that it is clear that many clients have been receiving a very bad deal until now! Clients were given the ‘hard sell’ by banks to purchase poor products.
In 2011 Barclays closed their investment advice arm and in November 2012, Lloyds closed its mass market advice offering. HSBC is now only offering advice to customers with a relatively modest net worth of £60,000. It is apparent that these banks realise they can’t operate a viable model due to the constraints and requirements imposed under the RDR.
The performance of an investment portfolio relies heavily upon the asset allocation being reviewed and rebalanced on a regular basis, reflecting the client’s attitude to risk and reward. So with the withdrawal, to varying degrees, of many of the banks from the advisory arena, where does that leave the hundreds of thousands of customers in the UK who have invested in risky, fluctuating asset-backed investments with little understanding of what they are caught up in?
So What Next?
It is not always straightforward to prove misselling actually took place and indeed, the whole investment community should not be tarred with the same brush. However, the 2012 FSA mystery shopping exercise revealed that it is a very serious issue which has been exacerbated by the consolidation in the sector resulting in less advisers.
If you are one of the tens of thousands of customers who acted on advice from your bank / building society or independent financial advisor only to find you have been left with an investment product(s) which has failed to deliver in accordance with your expectations, there is a possibility that you may have been the victim of financial mis-selling. However, you should bear in mind that it may simply be that the recent economic turmoil has impacted on the performance of your investment(s) under circumstances that could not reasonably have been foreseen.
The key to establishing whether there has been a missell, will depend on the depth of diligence undertaken by your advisor into your personal circumstances, aspirations and risk appetite and the ultimate product recommendations and performance assurances given, in light of these factors, at the point of sale.
Please note if you wish to avoid litigation then you may be able to submit a claim direct to the Financial Ombudsman Service (FOS) but remember any compensation awarded by the Ombudsman is capped at £150,000.
If you feel you may have been missold, it is worthwhile seeking professional advice. MBM Commercial’s experienced Financial Services and Banking Disputes Team may be able to assist you. Please call 0131 226 8200 if you wish to speak with someone to see whether we can be of assistance.
While every effort has been made to ensure the accuracy of this blog post, it is not intended to provide legal advice as individual situations will differ. No recipients of content in this blog post should act or refrain from acting on the basis of the blog post without seeking the appropriate legal advice on the particular facts and circumstances at issue from a qualified solicitor in their jurisdiction. The blog post is for general information only and is not legal advice. The law changes frequently and varies from jurisdiction and jurisdiction. No solicitor-client relationship is formed nor should any such relationship be implied. If you require legal advice, please consult with a solicitor qualified to practise in your jurisdiction. Should you be interested in seeking our assistance with a legal matter, please contact the Dispute Resolution team on 0131 226 8200.