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An Ipswich-based IFA this week staged a one-man protest against Chelsea Building Society for what he insists are 'misleading' claims about its investment products.
Peter Herd, of Essential IFA, believes high street institutions are getting away with claims about potential returns and he highlighted Chelsea Building Society's advertisement of an 18% return on its six-year Protected Capital Account.
He says rolling up the interest for the whole six-year term is "misleading" and adds the quoted maximum return of 60% is also unlikely to be achieved.
The account offers returns linked to the performance of the FTSE 100, although the building society claims it is a deposit account rather than a structured product.
During his protest, he collected almost 100 signatures, which he will present to his local MP, Ian Poulter.
Herd says: "Banks and building societies have been selling structured products for ten years and there has been a steady stream of complaints to the FSA about these types of products.
"Chelsea Building Society have taken this to new heights by advertising a type of structured product with a very large poster claiming 18% interest.
"What they've done is rolled up the interest as a hook to get people in when, in reality, in the small print it says 2.79% AER."
He adds it is the language often used in advertising structured products he objects to.
Herd is also concerned regulatory changes will lead to more consumers being lured by the promises of structured products on the high street.
He says: "I think RDR will give the banks and building societies a license to do even more of these sorts of products and do it under direct offer with no advice given.
"The FSA has had ten years to deal with these products and they say they are producing guidelines.
"They need to say what is wright or wrong and not leave it to guidelines every time, which can be open to interpretation."
Responding to Herd's complaints, Chelsea Building Society says: "All marketing materials are reviewed against the FSA's financial promotions criteria to be clear, fair and not misleading.
"We believe that these coupled with a robust sales process, ensure customers are fully informed before opening a Protected Capital Account."
It adds the 18% figure was quoted because the product was a term account, with interest being paid at the end of the term, and 18% gross was the minimum return.
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Hero or Villain?
Isn't it odd that Mr Sants & Hoban seem to casually cast IFAs as unqualified charletons.... no more qualified than anyone to run a chain of burger oulets....and it's more than acceptable to get rid of the 30% dross by the way.... Yet more & more IFAs find themselves fast becoming the heroes, championing the causes of consumers and standing up for what's right and decent..... against the biggest Villains of all!
Posted by: Julie B
questionable motives?
While I applaud anybody for challenging something they believe is wrong, I do wish Mr Herd had made it clear he used to work in that same branch of the society he was protesting about.
Posted by: len johnson
Serious debate
Dear Len, I did indeed work for Aviva and was based at Chelsea Building Society for some time, but left in 2004, which I think is a suitable length of time before one has any vested interests. My point was to bring to the attention my concerns about this type of product and the fact that this particular Society has come up with a marketing strategy that is design to look better than it is. I would like to see the regulator do something about structured bonds in general, as many other banking organisations offer a similar type of product but do not have big 18% posters. I also used to work for Royal Bank Of Scotland, Britannic, and Sun Life and I'm sure that if any of these organisations had similar posters, I would be more than willing to write about them. I'm wanting to have a serious debate about the advertising and marketing of Bank and Building Society products and whether some of these products benefit the organisation's more than the actual consumer. I personally agree with the coalitions government aim to split investment banking away from deposit taking banks, as this would give the consumer greater clarity. Is it about time that Building Societies acted in a more traditional way and offered only deposit-based accounts together with mortgages? I work as an Independent Financial Adviser now and have to pay into the financial services compensation scheme. I find it surprising that I am paying fees to the FSCS to compensate problems that are normally caused by bank and building society miss selling or problems like Key Data/Norwich and Peterborough. 97% of all of the FSO complaints last year came from banks and building societies source of information money marketing.
Posted by: Peter Herd
It's about credit risk too
I can't comment on Chelsea Building Society as I haven't seen their marketing materials, but I have seen other examples. Just this week, my postman delivered an unsolicited mailshot from a high-profile UK structured product specialist suggesting a possible 70% gain (they didn't say over how many years, nor did they mention credit risk, nor the fact that counterparty failure would not be covered by FSCS). The FSA last year reviewed a sample of marketing materials for 56 retail structured products and reported serious flaws: 1) In one third of cases, the risk of capital loss was not sufficiently clear 2) One half of the promotions were found to be ineffective in explaining counterparty risk 3) Only a handful of promotions explained the context of credit risk ratings 4) References to FSCS needed to make clear the situations in which compensation would not apply 5) 20% of the promotions used language which was too technical for consumers Just two years ago, 6000 ordinary savers lost their money when Lehman collapsed. Most of them had no idea their money was with Lehman (because that had not been declared on their plan brochures). So well done Mr Herd for raising this as a general point. Remember also, it's not just about investment returns, it's about credit risk too.
Posted by: Missold
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Well done that man!
Fair play to Mr Herd. He's a brave man, but he's saying something that needs to be said.
Posted by: South-West IFA