How banks flogged risky investments to savers ...then abandoned them
HUNDREDS of thousands of inexperienced savers sold i nvestments by High Street banks have been left stranded, a Money Mail investigation can reveal.
Our probe has uncovered how the life savings of loyal bank customers are left to languish in duff funds with high charges that they signed up to in branches.
Customers have been shut out of getting help with their investments because banks scrapped their financial advice services following a series of mis-selling scandals and the introduction of tough new rules by the City watchdog.
It means that in some cases, customers are only told how their savings are doing once a year.
If they want to top up their investment, they sometimes have to pay charges of 5 pc.
And they can only get help if they are wealthy, or are willing to pay a £500 fee.
The revelations come as Santander announced that it was going to begin offering investment advice in branches again, three years after abandoning sales under pressure from fines for mis-selling.
It now plans to employ 225 advisers across the country by March.
Other banks are also thought to be planning a return to investment advice via an automated service — ‘ roboadvice’. These systems generate recommendations based on personal information entered into a website.
But many of these services will turn out to be either too expensive or too complicated for the hundreds of thousands of savers who were convinced to bet their nest eggs on stock market investments before the banks withdrew investment services.
Patrick Connolly, from independent financial advisers Chase de Vere, says: ‘ Investors who were sold products through bank branches are offered very little support.
‘The performance of funds run by banks is typically mediocre at best. Banks don’t spend money hiring top fund managers. Investment companies live and die by their performance. Banks don’t as they have a captive audience. They don’t have to compete on price either and there is no incentive to reduce their fees.’
HOW THESE DUFF FUNDS WERE SOLD
BEFORE the banking crisis most of the High Street banks had advisers in branches to sell investments.
Often these were the bank’s very own range of funds. Advisers targeted those who had a few thousand pounds in their bank account.
Typically, savers were invited to pop in for a free financial review or assessment — it all sounded very friendly and informal.
At the meeting a financial adviser would then recommend a fund. The adviser was paid commission for making the sale, which could be around 5 pc of the amount invested.
On top of this there would be an annual charge which would be shared between the investment company running the fund and the bank.
If customers wanted to check their investment, add to it, or withdraw it, they’d just need to pop in to the branch and speak to an adviser.
But as the years passed, HSBC, Lloyds, Barclays and Santander all faced complaints over the way these investments were sold.
And these were just the latest in a series of scandals where commission paid to advisers was blamed for persuading salesmen to recommend inappropriate deals.
In 2013, City watchdog the financial Conduct Authority acted: it banned the payment of commission. It decided that any organisation which wanted to offer financial advice had to charge customers a fee, and they also had to spell out the annual cost of their investments.
And they had to make it clear whether advisers were qualified to offer funds from across the whole market, or just a limited range.
Banks knew that these would make i nvesting unattractive to their customers, so shut down their branch-based advice services to all but the very wealthiest.
Suddenly ordinary savers were left with no help. This left those who had already been sold investments out in the cold.
WHY ONLY THE WEALTHY GET HELP
IF YOU pop in to or look at the website of any major bank you’ll find lots of information for anyone that wants a new investment — but very little help for those already saving.
Information about older investments is available on bank websites, but finding it can seem almost impossible.
Among the big High Street banks, Lloyds Banking Group, which includes Halifax, only gives advice in branches through its Wealth Advice Service. To qualify you need an annual income of £100,000 or to have investments of this amount.
At Santander you must have a minimum of £50,000 to invest or already have £25,000 with them and be prepared to invest another £25,000.
HSBC only gives advice to those with more than £50,000 in savings.
At Natwest and RBS you can get financial advice no matter what your income or amount of savings. But it costs £500 for an initial session and if
you invest you are charged 2.5 pc of the money you put in — though the £500 advice fee is deducted from this charge. The a bank estimates that, on the average Isa saving of £6,064, that works out at a total charge of £150. If you want to invest money through Barclays you have to do it through its wealth and Investment Management service and need a huge £500,000.
WHAT CAN EXISTING CUSTOMERS DO?
IF YOU don’t have enough savings or income to match the bank’s criteria you can get information — not advice on investments through their websites or by phone. But these websites are difficult to navigate for those unused to the world of investing. A key problem is that often the funds existing customers bought are no longer available to new investors. For example, with Lloyds exactly where on its website you look for information depends on when you bought your investment. You have to find the right product name and then look at the date you were sold it.
From June 2010 until April 2014, it sold four specific funds run by Scottish Widows Unit Trust Managers — Balanced Growth, Cautious Growth, Progressive Growth and Adventurous Growth. Around 175,000 customers have money invested in these.
Before this, HBOS and Lloyds TSB offered a range of more than 30 funds — all run by Scottish Widows.
These have high charges. Scottish Widows’ tracker fund annual charge is 1 pc. By contrast, popular investment house Fidelity charges just 0.06 pc a year on its Index UK Fund — that’s a difference of £9.40 in fees for every £1,000 invested.
If you cash in some or all of your investment within three years of your first payment, you face an exit fee. This amounts to 2 pc if you cash in your fund in the second year or 1 pc in the third.
The bank no longer sells these funds. Barclays customers who signed up in branches have been unable to manage their investments in branches or online, except to sell, since February 2011 when it withdrew its Financial Planning Advice Service. These investors not only lost their access to advice, they were forced online or to use the phone.
Santa nd er sold its Portfolio Investment Service, which allowed investors to buy growth or income funds through its branches. Since April 2014, they haven’t been able to add to their investment, use their annual Isa allowance or switch between funds.
There is no easy link on the bank’s main website for investors who bought funds through the bank before January 2013. You have to go to a tag that says‘ financial advice’. It then sends you to a separate website, a freephone number — or advises customers to read the Financial Times. RBS and its subsidiary NatWest offered Expert Managed Solutions funds in branches between June 2008 and October 2012.
They are no longer available to new customers but existing ones can add money to savings they’ve already got — if they send a cheque.
According to the bank’s website, there is still an initial fee of 5 pc — this should have been to cover the cost of advice, but even though you now get none, you still pay it.
So for every £1,000 you pay out, only £950 actually ends up in the fund.
And if you want to check the value of your investment, it is yet another bank that unhelpfully recommends you ‘ check the price of the fund in the Financial Times and online’, although it does add: ‘Alternatively, you can call us.’
HSBC still offers both existing and new customers its World Selection investments — the £1,663m Balanced, £786m Cautious and the £540m Dynamic funds.
The ongoing annual charges at less than 1 pc, according to its website, are among the cheapest levied by banks.
Performance of funds is mediocre at best. Figures supplied to Money Mail by Hargreaves Lansdown show over the past ten years the FT All Share Index rose by 86 pc but the £2.7 billion Scottish Widows UK Growth fund — sold in Lloyds branches — climbed just 49 pc, the £920m Halifax UK Growth 59 pc, the £810m Santander UK Growth 72 pc and the £417m NatWest UK Equity 75 pc.
Of the bank funds running over ten years, only RBS Growth and NatWest UK Specialist beat the average — at 117 pc and 108 pc respectively.
Since November 2014, the Scottish Widows funds have been managed by independent investment managers Aberdeen rather than Lloyds, so performance could yet improve.
Laith Khalaf, from Hargreaves Lansdown, says: ‘There are no exceptional managers on funds run by banks. They used their branch network to promote their own funds.’
The FCA is investigating how more savers can get access to financial advice cheaply.
Richard Lloyd, executive director of consumer champion Which?, says: ‘It’s vital that people can get the advice they need to help them make important financial decisions.
‘But too many consumers don’t have anywhere to turn for good quality, affordable advice. This review must ensure consumers have access to the right support and protection that helps financial services work better.’
Santander this week announced a new advice service, but also said it was developing a new investing website for customers.
A spokesman adds: ‘If customers want further information they can contact Santander customer service either by phone or by post.’ Barclays says: ‘We expect to provide a full investment service which allows clients to invest new money and switch investments in 2016.’ Lloyds says :‘ Our market review showed demand for a feebased financial planning service decreases when customers have lower amounts to invest. ‘We made the decision not to offer an investment advice service for customers who hold less than £100,000 in savings and investments.’ At RBS, a spokesman says: ‘As there is a fee for financial advice, we do not offer it unless it is likely to provide sufficient financial benefit over and above the fees involved.
‘A customer with £10,000 invested would not meet this criteria. However, with £25,000 invested they could get advice if they were happy to pay the relevant fees.’
HSBC says: ‘ We offer our World Selection funds for those with at least £50,000 investable assets. Existing customers who no longer qualify receive a monthly statement and use our helpline for assistance.’