Are banks putting investors in peril? Jan 2010

 With interest rates at their lowest for centuries, returns are lean on even the largest cash deposits.

They might be funds investing in world stock markets or complex 'structured products' where returns are 'guaranteed' only if an array of conditions are met. These deals are highly profitable for the banks but can leave savers facing serious losses.

Barclays has compensated many investors and apologised to some, but the Financial Ombudsman Service has many more complaints on its desk.

'The most egregious case I am aware of involved a man of 85 who went into his Barclays branch and came out 20 minutes later having been persuaded to put £200,000 into a single, risky stock market fund. The value of his investments halved within months.'

That customer was compensated, but the wider problem remains. Davis says: 'I'm very concerned about the sales ethos in banks.

A customer deposits a large sum in an account, perhaps an inheritance, and details are instantly passed to a sales person who is then under pressure to sell a stock market investment of one case where a woman was badgered so often by her bank to take out an investment that she had to demand in writing not to be called again.'

In many cases it is not the investments that are the problem, but the failure of the sales person to spell out the risks. Builder John Bailey from Chatteris, Cambridgeshire, was among Barclays customers encouraged to invest almost all his money in a single stock market fund that subsequently crashed in value. He has since helped to run a lobby group encouraging others to complain.

John, 68, describes how he was sold the investment in 2007.

'I could see there was some risk so I asked about it,' he says. 'The salesman just said, "There's a shade of risk, but you should be OK. You will get five or six per cent per year, no trouble".'

Fellow investor John Regan, 54, a retired policeman, had substantial sums saved with Barclays as a result of criminal injury compensation paid to him in the Nineties.

But in 2007, John, from Gateshead, Tyne and Wear, wanted all the money in low-risk, income producing investments.

'I stipulated to Barclays that I did not want much stock market exposure,' he says. 'I did not want to take risks with this money.'

Half his capital was put into an insurance-backed bond with growth linked to the stock market, but with the capital protected.

However, he was wrongly advised to put the rest into a single stock market fund. The £113,000 investment halved in value in 18 months.

John complained last year and Barclays finally admitted a week ago that the investment was inappropriate and offered compensation. 'I feel it is a fair offer,' says John.

'It doesn't compensate for the white-knuckle experience of seeing the losses, but I am relieved.'

Spelling out the risks is a priority for professional financial advisers and planners as opposed to bank sales staff.

Joss Harwood of Eldon Financial Planning in Bishop Auckland, County Durham, is at the forefront of a new breed of highly qualified Chartered Financial Planners.

She says: 'Risk is fundamental. How much risk can people afford to take? How much do they need to take?' She worries that bank staff are poorly trained and under pressure to sell, not advise.

'One common failing among bank sales staff is that they do not look sufficiently widely at an investor's circumstances,' she says. 'Unless you stop paying sales staff by the number of investments they sell, this problem will not go away.'

*Source: Daily Mail - 23rd January 2010

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