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Investor protection regulation is failing 57% of all Bank and Building society customers, says study


New research released confirms that investor protection regulation is failing 57% of all Bank and Building society customers. A separate study also confirms that excessive commissions are costing customers thousands of pounds in terms of the final value of their investments and pensions.

The second publication of the Financial Blissfully Ignorant (FBI) monthly Monitor reveals a further surge in the number of investors  who do not understand the charges they are paying for regulated investment products sold to them by banks and building societies including the recent end of tax year rush to sell them ISA’s.

Charges and commission Ignorance amongst Bank and Building society customers has risen by 16% during the biggest month of the year for ISA sales.

Since its first publication in March 2011, the FBI Monitor has shown that the majority of those now surveyed, 57% – up from 49% in the first report, are unaware of the charges and commissions being levied on their investment by their bank or building society. This damning revelation should be of particular concern to the Financial Services Authority (FSA ) given the weight of recent Bank TV advertising promoting their own brand ISAs which has prompted record sales of those products.

The FBI survey confirms the abject failure of the FSA to protect Bank and Building society customers at point of sale.

This dramatic rise is despite the strict industry disclosure regulations imposed by the FSA .The FBI Monitor, sponsored by Linlithgow-based IFA Alan Steel Asset Management, clearly highlights the abject failure of the FSA to protect investors from ‘hidden’ charges and excessive commissions.

A separate study exposes the continuing abuse of charging excessive commissions.

A separate review of commissions charged to bank customers by Alan Steel Asset Management has also found evidence of banks charging 7% commission on lump sum investments made into their own in house funds.

“The impact of such excessive costs will dramatically reduce the final value of the pension pots of these clients.” warns Steel.

Worse still is the staggering level of complacency that has also been confirmed by bank customers surveyed.  

Those investors surveyed who either don’t know what their charges, or think they are zero, when asked the question: “How satisfied are you with the value for money that you are receiving in respect of (regulated) advice from your bank and building society?” showed an alarmingly high 66% average satisfaction score.

Alan Steel (pictured), Chairman of Alan Steel Asset Management says: “We have now had 25 years of regulation, and a legal requirement for full and transparent disclosure of all charges at the point of sale for pension and investment products. Despite the alleged desire on the Regulators part to ensure that customers are being treated fairly, this new survey has confirmed that it has failed much more than 1 in every 2 customers who purchased a regulated product through their banks and building societies in the last 6 months .They are "blissfully ignorant” of the level of charges or commissions they are paying. “And alarmingly this ignorance level is still rising.

“Not only do more than half of bank and building society customers obviously not understand the charges and commissions they are paying but even worse they seem to be “happy” in this state of blissful ignorance showing an average 66% satisfaction level with the value for money that they were receiving in respect of that advice. If they really knew they were paying as much as 7% of their hard earned savings simply to be placed in an investment fund managed in another part of the same banking group would they really think they were getting “value for money?” And yet “transparency” as defined by the FSA should ensure that these facts are absolutely clear to them.”

The award-winning Linlithgow-based firm launched the independent FBI Monitor survey to place a strong spotlight on why even tougher regulation is required on financial services charges and value received.

Alan Steel Asset Management has a long history of campaigning on behalf of the consumer.

Alan Steel Asset Management was the first in the financial services sector to bring to light the Equitable Life scandal before its collapse in 2000. The now infamous case recently concluded with a total vindication of Alan Steel’s early warnings, despite the fact that they were initially ignored by the Financial Services Authority. Equitable Life even threatened to sue Alan over his meticulously researched claims at the time.

He also exposed the flaws in both with profits bonds and endowment mortgages which have both subsequently failed the UK consumer.

In the absence of any industry or regulatory research into disclosure effectiveness, Alan Steel Asset Management has sponsored the research work behind the Monitor since April 2010. The FBI Monitor has now surpassed 11,000 face-to-face interviews giving it the statistical accuracy and credibility to enable its’ now regular monthly publication. Alan describes the monitor’s findings as “a situation of financial and hugely costly investor blissful ignorance. We had found more and more examples of this ignorance amongst new clients who had previously taken regulated advice from their banks. We wondered how widespread this was and were staggered to find that no research had ever been conducted by the industry or the regulator to measure how well the customer was being protected by the current disclosure regime. So we decided to sponsor our own independent work.”

What has happened to the concept of “treating customers fairly “? asks Steel

Steel says: “The FSA regulations, under which we all operate, clearly dictate that every authorised financial adviser must present prospective clients with a key facts document. One of the specific inclusions in this document is the written confirmation that the adviser will tell that customer how they get paid and the amount, BEFORE they carry out any regulated business with them. If subsequently, as the research confirms, it is found that 57 of every 100 customers who went ahead with a purchase from their Bank and Building Society had no idea of the level of these charges (and in many cases they even thought they were zero) then serious questions must surely be asked by our regulators. Did the clients ever receive the information that regulation insists they must be given in a manner that they could understand?  Clearly in more than half of these cases with our high street banks and building societies this did not happen. Can the banks and building societies in these cases really believe that they are treating customers fairly?  Does the regulator still really believe they are?”

IFA’s are not blameless but in their favour they can claim that only a very low percentage (5%) of their customers who were surveyed expressed dissatisfaction with the value for money of the advice given by them.

Steel says: “As one of the most experienced Independent Financial Advisors in the industry, it would be wrong of me not to add that the monitor also confirms that 26.47% of IFA clients are also unaware of their charges, and those clients, too, are, “Blissfully Ignorant”. It has already been forecast that well in excess of 20% of IFA’s will be weeded out by the implementation of the Retail Distribution Review (RDR) in January 2013 and leave the industry. I would hope that included in those will be the IFA’s who are currently failing clients in their disclosure regulation. On the plus side for those IFA’s planning to remain in business post the RDR the survey confirmed that only 5% of IFA customers were dissatisfied with the value for money in the services they were being provided by them.  When coupled with the relative low ‘Blissfully Ignorant’ numbers of IFA customers confirmed by the monitor it is quite clear which sector of the advisory market is taking their regulatory duties most seriously.”

Is the Bank regulated advice model working to the advantage of the bank rather than the investor?

Steel says: “The combination of the recent FSA record retail investment fine of GBP7.7m  and the (up to) GBP59m of compensation they have been forced to pay back to some 12000 customers who were not given adequate investment advice, appears to have prompted Barclays Bank to withdraw completely from the advisory market. Given the highly significant level of failure of customer care exposed by this survey I sincerely hope other banks will now revisit their own practices. Perhaps they, too, may now conclude that their business model in the advisory sector is also failing their customers.”

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