FSA has published the results of a mystery shopping review into the quality of investment advice in banks and building societies. It carried out the review over six months in the middle of 2012 and assessed six major firms in the retail banking sector over 231 mystery shops. The mystery shoppers claimed to want to invest a lump sum.

FSA found evidence that

 advisers gave unsuitable advice in 11% of the shops (mainly in respect of the risks customers were prepared to take and failing to take account of the customers’ financial circumstances and needs), and
 in 15% evidence suggested the adviser did not get enough information to be sure that the advice was suitable.
The firms involved immediately agreed to take action, such as retraining staff and changing their processes and controls for new business, as well as undertaking past business reviews.
Clive Adamson said FSA was disappointed at the results of the review, but pleased at the action the firms were taking. Since the review, the new rules on advice resulting from the Retail Distribution Review (RDR) have taken effect. (Source: FSA Publishes Investment Advice Mystery Shopping Review)

The Financial Services Authority (FSA) has published the results of a mystery shopping review, carried out between March and September 2012, looking into the quality of investment advice given by banks and building societies. This is the first time that the FSA has published the results of a mystery shopping exercise since the Payment Protection Insurance (PPI) mystery shopping exercise in September 2008.

Mystery shopping was used to gather first-hand evidence of what someone looking for investment advice from a bank or building society might experience. The use of mystery shopping as a supervisory tool is an example of the more intrusive approach that will be used by the Financial Conduct Authority (FCA). This commitment was made in ‘Journey to the FCA’ which was published in October 2012.

This mystery shopping review assessed six major firms in the retail banking sector, focusing on the quality of advice given to customers looking to invest a lump-sum. In total 231 mystery shops took place.  The results show that, while approximately three-quarters of customers received good advice, there were concerns with the quality of advice in the other quarter:

• In 11% of mystery shops, the evidence suggests that the adviser gave the customer unsuitable advice.
• In 15% of mystery shops, the evidence suggests that the adviser did not gather enough information to make sure their advice was suitable – so it was not possible to assess whether the customer received good or poor advice.

The main reasons for poor advice were that advisers’ recommendations were not suitable for:

•  the level of risk customers were willing and able to take (15% of mystery shops);
• customers’ financial circumstances and needs, for example, advisers failing to recommend the repayment of unsecured debts (such as loans), where this would have been the right option for the customer (13% of mystery shops); and
•  the length of time customers wanted to hold the investment (6% of mystery shops).

In response to this report, the firms involved were cooperative and agreed to take immediate action. This includes retraining advisers, making substantial changes to their advice processes and controls for new business, and undertaking past business reviews to identify historic poor advice and put this right for customers. Firms have also been required to employ an independent third party to either carry out or oversee this work. One firm has been referred to enforcement.

Clive Adamson, director of supervision at the FSA, said:

“Mystery shopping allows us to understand what customers experience when they purchase financial products. This review shows that customers are not consistently getting the quality of advice on their investments that they should expect when visiting an adviser in a bank or building society.

“Whilst we are disappointed by the results of this review, we are encouraged by the action that the firms involved have taken to rectify the situation for their customers. Since this review took place, we have introduced new rules on investment advice which have increased the professional standard of the advisers operating in the market and have removed the potential for advisers to recommend products that pay the largest commission but may not be right for the customer.”

The FSA has also published  information for consumers to explain what to expect when getting investment advice and to help them check that the advice that they are getting is suitable.

http://www.fsa.gov.uk/library/communication/pr/2013/014.shtml