When good banks go bad

Posted on: 24 November 2009 by Mark O'haire

Financial regulators have taken some abuse of late in relation to their monitoring of banks, yet banks have seemingly been allowed to close the door behind them on their antics of the last few years.

But consumers and investors are now in the wonderful position of finding out if their bank is one of the bad boys or not.

The Financial Ombudsman Service has made available for the first time a range of complaints information relating to individually-named financial businesses.

Banks unfortunately do not do very well. Indeed Lloyds and its subsidiaries accounted for 15,233 complaints to the Financial Ombudsman Service (FOS) over the first six months of 2009.

This includes complaints to the FOS but not complaints direct to the firm. Complainants have to complain firstly to the firm who have a chance to put the situation right before the complainant has the choice to accept the firm’s decision and refer on to the FOS.

Lloyds and its subsidiaries accounted for more than a fifth of all complaints to the Ombudsman. Interestingly seven banks each had more than 2000 complaints, which accounted for almost half the total complaints the FOS received. The largest firm of IFAs, Sesame, had just 144. St James Place Wealth management and Santander asset management are also listed in the report.

Barclays suffered almost 8300 complaints, Bank of Scotland more than 5,800, and Abbey National, HSBC, MBNA Europe and Natwest all received more than 2000. The Royal bank of Scotland received more than 1812.

It is a pretty dire report and I wonder how many people didn’t actually get to complain to the FOS at all after the banks disagreed with the initial complaint.

The regulator hopes that by shaming the biggest culprits, they will put their house in order and not only deal with complaints quicker before the FOS is involved, but also ensure customers are treated more fairly so that they do not have to complain in the first place.

It is most interesting that of the 69,841 complaints received at the FOS during the first six months of the year that just 144 were received by Sesame the largest IFA firm. It is a clear sign that Independent Financial Advice is the most trusted option but consumers should not let their guard down in this respect.

Just because an Independent Financial Adviser is classed as such, doesn’t mean under current rules that they are fully independent. Many Financial advisers are still compensated by commission and this calls into question their true independence.

If your finance adviser is only paid if you take out a product, are you likely to receive truly independent advice?

It is more than possible that the correct advice for you is actually to cease a product you have rather than start a new one, and how many advisers will be prepared to put in hours of work, if they know the outcome is that they won't be paid.

Be prepared to pay a fee and ensure your independent financial adviser offers you this option.

Under new rules that may well come into play soon, an Independent Financial adviser will only be allowed to hold this title if they do not receive commission.

All other advisers will be allowed to receive commission but will have to refer to themselves as ‘restricted’, a term that I should hope would deter even the most apathetic from using them.

One has to call into question the thought process of an adviser who would choose to limit the solutions or options for their customer. What can the benefit be to the customer? None, given that product terms change daily and furthermore, a considerable percentage of customers need advice rather than a product and would be disadvantaged by this service offering.

Of the complaints above, almost 60% were actually upheld by the FOS showing that the customers were indeed justified in their concerns. Caveat emptor remains.

By Peter McGahan

Need Expert Advice?

Peter McGahanPeter McGahan is an Independent Financial Adviser and Managing Director of Worldwide Financial Planning. Worldwide has won 16 Financial Times awards in the last four years. Peter has also been named the top media IFA of the year by Unbiased.co.uk in 2009.

Peter comments regularly in major journals such as the Mail on Sunday, Irish News and Sunday Times and is a weekly columnist for FT Adviser. He has also appeared on Working Lunch and the Today programme. In addition he is an expert on international tax matters for a range of international publications.

Worldwide Financial Planning Ltd are authorised and regulated by the Financial Services Authority. 'The FSA does not regulate Credit Cards, Will Writing and some forms of mortgage and Inheritance Tax Planning.'

Information given is for general guidance only, and specific advice should be taken before acting on any suggestions made. The above represents the personal opinions of Peter McGahan. All information is based on understanding of current tax practices, which are subject to change. The value of shares and investments can go down as well as up.

If you have a financial query you would like Worldwide Financial Planning to respond to, call 0845 230 9876 or email info@wwfp.net.


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