Home—Blog—Never go to a bank for financial advice
Dec 05, 2011, 03:19
Posted byMerryn Somerset Webb
Comments (14)
In 2005, HSBC bought NHFA, then the UK’s leading adviser on long-term care spending. NHFA spent the next five years selling over 2,000 elderly people (average age 83) investment bonds. They did so with a total disregard for the needs of those in or entering long-term care.
Investment bonds were a bad idea for so many reasons it is hard to know where to start. Money that needed to be kept safe was invested in the stock market, one of the least-safe places on the planet. They tied the money up for five years – significantly longer than the life expectancy of most 83 year olds. They charged high penalty fees if they were redeemed early (which, given that they were supposed to be being used to pay for care, they often were).
The bank reps flogging them failed to take any of this into account when they sold the bonds. They also failed to suggest any better alternatives – presumably thanks to the fact that they got paid much more commission for selling investment bonds than for selling anything else.
HSBC finally shut NHFA down in 2010, and now says it “recognises the need to compensate victims and their families promptly”. They are doing so to the tune of around £11,000 each. They have also been fined £10.5m by the FSA. That’s the largest ever retail fine.
All’s well that end’s well, you might say. But it isn’t so. The banks have a long track record of this kind of behaviour (note Barclays’ £7.7m fine earlier this year) and the odd fine here or there is very unlikely to make it go away.
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The truth is that neither banks nor their sales people make anyone money out of suggesting that people put their money into a savings account (the only really suitable product for an 83 year old with care to finance). But they do make money out of investment products (all those lovely fees and commissions).
That’s why pretty much every investigation into the quality of the financial advice given by the banks - be it by Panorama or by Which? - concludes that it is almost entirely rubbish.
The vast majority of the people conned out of their savings by HSBC would have been much better off putting their money into an ordinary savings account and using a mixture of interest and capital to pay for their fees.
What does it all tell you? Never, ever go to a bank looking for a financial adviser. You’ll get a commission-driven salesman. And that makes it almost inevitable that you’ll definitely end up with a product that is over priced and most probably grossly unsuitable too.
• If you want to talk about this or anything else with me, why don't we do it over lunch? Bid here
Published in Blog More articles by Merryn Somerset Webb
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(06 December 2011, 09:07AM) Complain about this comment
I can't agree with the following:"The truth is that neither banks nor their sales people make anyone money out of suggesting that people put their money into a savings account"I would expect they DO make profit even from saving accounts, after all they borrow money at a lower rate than can make them grow, so they pocket the difference.
(06 December 2011, 09:34AM) Complain about this comment
My mother went to her local branch of said bank ( HSBC ) and asked them how she could invest her money ( a quite large sum ), they set her up with a cautious portfolio, I've looked over it, largely gilts, corporate bonds, defensive blue chips, okay she pays them a fee each year to run the thing, about 0.75% I think, but given her only complaint last year was "well it hasn't gone up in value much over the last four years" ( which given what's been happening over the past 4 years is I'd say a very good performance indeed ). Actually it has gone up by about the rate of inflation as the capital value has been static but the portfolio yield is about 4.5%. Yes banks want to make money out of their customers, yes they break the rules if they can....that is common to every single company sector. There are also bad examples but there are equally many good examples of the services offered by all companies.
(07 December 2011, 10:36AM) Complain about this comment
Never go to an IFA either. They may be independent, whatever that might mean, but they sure as hell aren't impartial.
(07 December 2011, 01:21PM) Complain about this comment
So where is your average Joe on the street meant to go for financial advice?
(07 December 2011, 03:32PM) Complain about this comment
They aren't. In the modern age, you can't trust anyone. If you are fortunate enough to have any money then you have to educate yourself. You will do a better job with a bit of work and common sense than the average fund manager, or just buy an index tracker. Asset allocation is not a science and even sophisticated banks are no better at this than a toss of a coin although they may try to bamboozle you with how many phds they have. If you need tax advice of any kind, get a tax barrister. Not a solicitor/accountant who will try to sell you a package. Generally cheaper too!
(07 December 2011, 03:38PM) Complain about this comment
(BTW I would strongly suggest you do not buy an index tracker; indeed, in today's world, I think the mainstream advice from the average IFA to buy one is outrageously bad, considering that e.g. 55% of the FTSE 350 index is banks/financial companies, and foreign mining and oil exploration companies!! not a suitable place for *anyone's* savings or pension. If you must speculate on the solvency of the banking system, the 'commodities supercycle', or peak oil, then you should do so in a specialist fund and it should be a small proportion of your net worth. Sadly, the whole financial services system is corrupt, you cannot trust *anybody*.
(07 December 2011, 07:13PM) Complain about this comment
Most of the comments are about bad/good advice whereas the problem here is about breach of trust in selling something (not advice) totally inappropriate or in other cases that the something is not even what it is meant to be. The discipline applied by the FSA is why this problem persists - they fine a large company pocket money. The problems are caused by greedy, unscrupulous and dishonest people and they are the ones who should be punished by fines, banning from the industry and in extreme cases jail (this is kind of expensive itself so I favour banishment to a foreign country where they can buddy up with all the big bonus bankers who have left the country).
(08 December 2011, 09:50AM) Complain about this comment
I entirely agree with previous comments that average Joe has to take matters into his own hands and with Internet and self select brokerage accounts it has never been easier. I work among these advisers and know their deceits. What we need to all do is start litigation against fund trustees for breaching their fiduciary duty of care. A few Fat Cats sent to jail might shake up the industry.
(08 December 2011, 11:12AM) Complain about this comment
Litigation against fund trustees won't work; there has already been a legal case whose results essentially mean that it is nigh impossible to prove negligence for a trustee or indeed fund managers. The only possible scope to change matters *might* be if trustees were paid but even then, I very much doubt it. I can't remember the details as I did the law conversion course some time ago now ... I'm afraid if you want to hold onto your money you need to devote serious time to it. Dare I say it you are doing some of the right things by reading moneyweek but that is not enough ...
(08 December 2011, 11:14AM) Complain about this comment
(ps I'm an investment professional and I don't pay much attention to their stock tips. I don't have a view but am inclined to be somewhat skeptical, particularly of their guest interviews with fundmanagers trying to sell their wares (but thats me by nature. You HAVE to do your own research).
(13 December 2011, 09:33PM) Complain about this comment
@DrGrumpyIndeed, never listen to an IFA. They are *never* independent, and are always claiming some sales fee for what they sold you somewhere down the line. I went to see an IFA when I was less educated but fortunately I got jittery and have never put much money into the products I was sold that have since plummeted.You need to acquire your own financial intelligence. Never let anyone take control of your money, and that includes pensions. Cash in at a time of your choosing.
(17 January 2012, 12:53PM) Complain about this comment
Most IF'A' firm champion their 'independence'. I'm not exactly sure what that means, as most use the big life insurers as they pay the most commission.
(15 February 2012, 10:49PM) Complain about this comment
I work for a Bank as a Financial Adviser and whilst I try to provide 'best advice', I am always under pressure from my Manager for sales.This means that I can sometimes have rose tinted glasses. I hate this but what am I to do. Pack my job in and go on the dole. My place will soon be filled. I have many years experience in this area and it annoys the hell out of me that I cannot just advise. Instead, I have to sell.
(14 May 2012, 02:03PM) Complain about this comment
Independent means an adviser is not under the influence or associated with another organisation, such as a bank, meaning that it is entirely down to them as to how they run their business, i.e. whether it is advice led or sales led. You can find examples in every industry of good and bad and it seems pretty closed minded for some people to make sweeping statements about the whole IFA industry when in reality there will be a number of advisers who genuinely wish to help their clients. It is ludicrous to think you can just do a bit of research and then manage any of your financial affairs other than cash and other simple matters. The complexity of just the rules around personal pensions and various other types of investments and tax means if you go it alone you'll more than likely either make a mistake or miss something you should have really been doing. At least if you find a good IFA and he makes a mistake then you have some recourse.
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