More misselling in the high street
Readers of the weekend FT might have spotted last weekend the very readable ‘under-cover economist’ Tim Harford writing in the main section (as well as his usual slot in the magazine section). Tim quoted Clive Adamson, a director of the Financial Conduct Authority, quoting (in a recent speech about asset managers) Nobel-laureate economist George Akerlof: ‘in a market plagued by asymmetries of information, the quality of goods will decrease and the market will come to be dominated by crooked sellers and gullible or desperate buyers’.
Right on cue, HSBC reported this week a provision of £90 million for compensation (not fines) due to customers of its financial advice business. The investigation of misselling leading to these payments was required after the FSA conducted last year a ‘mystery shopping’ exercise, posing as an individual with a lump sum to invest. The targets were six major banks and building societies. Even allowing for the footfall in high street banking, £90m implies a pretty staggering scale of poor practice.
Reporting its findings back in February, the FCA, the successor regulator for conduct of business, found that in 11% of 231 mystery shops unsuitable advice was given and in a further 15% of cases insufficient information was gathered to be able to give suitable advice. One firm was referred to the FCA’s enforcement arm.
What Clive Adamson had to say then was ‘Whilst we are disappointed by the results of this review, we are encouraged by the actions that the firms have taken to rectify the situation for their customers’.
One action, chosen by many of the high street banks in response to the FSA’s commission ban and increase in minimum qualifications, has been to withdraw from the advice business altogether and retreat to private banking. It’s difficult to know whether to celebrate this as a lucky escape for customers or to regret the loss of easy access to the advice they really need.