In a review published today the FSA said the use of mystery shopping was an example of the more “intrusive approach” that will be used by the Financial Conduct Authority (FCA) when it is formally launched in April.
It also warned it would continue to supervise the investment advice sector in this manner to monitor how firms act in response to the RDR and ensure they deliver good advice.
In this instance the FSA assessed 231 mystery shopping trips across six major firms in the retail banking sector, focusing on the quality of advice given to customers looking to invest a lump sum.
It found that in a quarter of cases there were reasons for concern surrounding the quality of advice.
Poor advice
In 11% of cases the regulator felt the advice was unsuitable for the customer either because of a risk mismatch or because the adviser had not taken customers’ financial circumstances and needs into account. Another cause for concern was the situations where the adviser did not properly adhere to the length of time the customer wanted to hold the investment.
In a further 15% of mystery shops the FSA said the adviser had not gathered enough information to make sure their advice was suitable and so it was unable to tell if the customer received good or poor advice.
The review was conducted between March and September 2012 after the FSA employed a specialist mystery shopping market research firm (GfK Mystery Shopping).
The FSA said the technique allowed it to find out what advisers actually say to customers in ‘real sales’ situations.
Customers with assets over £150,000 were excluded from the exercise to avoid any potential referrals to any firm’s advice services for wealthier customers as the project was focused on high-street advice.
Following the project the firms involved agreed to take immediate action in response to the regulator’s concerns.
Corrective actions
The FSA said this would include: retraining advisers; making substantial changes to their advice processes for new customers; putting stronger controls in place to monitor the quality of advice; and undertaking past business reviews to identify historic poor advice and put this right for customers.
In relation to one firm’s advice process the FSA is also pursuing an enforcement investigation.
Previous enforcement cases have seen Santander, HSBC, Coutts & Co and Barclays fined for poor advice standards. The penalties in these cases ranged from £1.5m for Santander in February 2012 to £10.5m for HSBC in December 2011.
After Payment Protection Insurance (PPI) was investigated in 2008 the FSA and Financial Ombudsmen Service set up a process for consumers to claim back for any mis-selling that might have taken place.
Since January 2011 £8.05bn has been paid back to consumers for PPI mis-selling by financial services firms.
