Brokers Have a Responsibility To Prevent Mis-sold Investments

Investments come in all sorts of guises, and the majority of us will deal with them at one time or another during our lives, whether it is an ordinary savings plan, an ISA, a lump sum investment, an investment bond or one of many others.

With such a wide range of products, it’s no wonder that the finance industry occasionally gets things wrong, leading to mis sold investments.

Many of the cases relate to mis-sold bond, but they are far from being the only product which is sold inappropriately and regardless of the actual product there are some common factors that salespeople have to assess before recommending or selling a product to a customer. The main ones are listed below:

  • They have to assess a customers’ attitude to risk. Some people want to play safe, others are happy to take more of risk. Some products are very safe, and others carry a higher risk. The advisor should be able to take both into account before settling on a suitable product that the customer is happy with. They shouldn’t just focus on the potential rewards of an investment, because the products with the biggest potential returns are usually the riskiest.
  • They have to assess the customers’ needs. Everyone is unique, with their own circumstances that affect the suitability of products. For example, a customer may want a regular income from their investment. That’s fine, but the advisor needs to establish whether the investment will be the customers’ only source of income. If so, then an investment bond where the income gained can fluctuate may not be suitable, and it may be better for them to recommend a different product such as a fixed rate or guaranteed return may be better.
  • They have to understand what the customer wants, and more appropriately what they need, from the investment. This is an important one, more so because customers themselves are sometimes not sure what they want, and the advisor needs to guide them through the decision making process. A customer may think, for example, that what they want is an investment that provides a high return. They may not appreciate, however, that such an investment is likely to be long term and may not provide any return at all for the first few years, thus ruling out the chance of them being able to obtain their money quickly if they need it.
  • They have to put the customer first. Everything a financial adviser does has to be in their customers’ best interests, once all the other things mentioned above have been taken into account. To put it another way, a financial advisor can’t do something that will benefit them rather than the customer – if they recommend a product which gives them a large commission, for example, but which doesn’t suit the customer as well as another product would, then they are in breach of this point. Admittedly cases of this are rare, and the FSA does come down hard on brokers, who do this, but it does happen and customers need to be aware of it.