Two thirds of tied advisers fail Which? test

27 September 2007

More than two thirds of tied financial advisers failed to pass all the benchmarks for giving good advice in an investigation* carried out by consumer organisation Which?

Just 32 per cent of tied advisers**, who mainly work for high street banks or building societies, passed all the benchmarks. Independent financial advisers (IFAs), who can recommend products from the whole market, fared better with an overall pass rate of 48 per cent.

Seven of the tied advisers made misleading statements about the providers they could recommend, giving the idea that the choice was much larger than it was. Thirteen advisers made misleading statements about costs.

Fact finding about the individual, their circumstances and their financial needs is a vital part of the advice process, but fourteen advisers failed to carry this out to the expected standard. More than a quarter failed to establish attitude to risk correctly.

Which? was disappointed that, based on the scenario presented to them, half of the advisers didn’t recommend paying off debts before investing***.

Which? is the only consumer organisation to test the quality of financial advice in this way and has been reporting on it for over 20 years. The pass rate has improved slightly since 2006, when 34 per cent of IFAs and just 16 per cent of tied advisers passed overall.

Neil Fowler, editor, Which? magazine, says:

“For more complex financial products such as investments, mortgages and pensions you really should see an adviser unless you’re confident that you understand the market, but with a shocking number of advisers failing our test it’s clear that you need to choose your adviser very carefully.

“On the whole you’ll get better advice from an independent financial adviser, as you’ll have more choice – but be clear about the advice you need, contact at least three advisers and check their qualifications and charges up front. That way you stand a better chance of getting the good quality advice that is so vital for financial decisions.”

Footnotes

* During April and May 2007, eight researchers posed as individuals who had received an inheritance of around £30,000 and wanted advice on how to make the money work for them. They weren’t saving for anything in particular, but had a mortgage and personal loan. Most were in their mid-50s to early 60s, cautious and novice investors with no other savings or investments other than an emergency fund of about £3,000. Which? visited 40 advisers - 21 independent financial advisers (IFAs) and tied advisers from two branches of the following nine banks and building societies: Abbey, Barclays, Bradford & Bingley, Halifax, HSBC, Lloyds/TSB, Nationwide, NatWest and the Royal Bank of Scotland. Which? also visited one adviser from the Co-operative Bank.

Which? assessed the advisers on how they explained their services, collected information and established the individual’s attitude to risk, as well as what they recommended.
** Tied advisers can only recommend products from a small number of providers, unlike independent financial advisers (IFAs) who can recommend products from the whole market.
*** 15 out of 40 recommended that the individual pay off their mortgage before investing and 19 out of 40 recommended paying off a personal loan.

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