Recent mis-selling scandals should have made banks more careful about how they sell investment products to their customers. However, mis-selling continues to be a problem, and if you’re thinking of investing, it’s important to know how to protect yourself against it.
Here’s a quick guide detailing the key ways in which you can protect yourself against mis-selling and poor financial advice while discussing your investment with your adviser.
Step One – The Questions You Need to Ask
When talking to a financial adviser, remember to ask these important questions:
- How long will I be tied into this investment?
- What’s the best / worst results I can expect?
- What are the terms? Is it flexible (e.g. if I want to access my money early)?
- What are the risks associated with this product?
- Are there any other products that might serve me better?
- What level of support do you offer?
- Will you keep me informed of how my investment is performing?
Step Two – What Your adviser Should Ask You
Your financial adviser is supposed to ensure you’re matched with a suitable investment product, and to do that they are obligated by regulators to ask you certain questions. They should ask about the following:
- Your personal circumstances. How old are you? Do you have a job or are you retired? What do you need the money for? How is your health? Is anyone financially dependent on you?
- Your financial circumstances. How much do you earn? Do you have other assets or debts? Do you have any other financial responsibilities?
- Expectations. What do you want to achieve with this investment? Are your expectations realistic?
- Attitude to risk. Are you happy with a higher risk product, or would you rather something with lower returns, but a lower risk involved?
Step Three – Avoid Hidden Charges
Some investment products include charges, and an unscrupulous investment adviser may fail to inform you about them. Here’s a quick list of the charges that you might encounter.
- Platform charges – If you invest via a ‘fund supermarket’ online, you may be charged for this service.
- VAT – All investment products are eligible for VAT – however, your financial adviser may provide a quote without VAT included. If so, add on 20%.
- Set-up fees. Be aware that you might be charged an initial fee to set up your investment.
- Exit fee. You may also be charged if you cancel the investment.
- Advice charges. Additionally, some banks will charge you for advice, or simply include it as part of their ongoing fees.
It’s your financial adviser’s responsibility to inform you of all costs involved in your investment. It’s also their responsibility to:
- Offer you a full range of investment products.
- Provide you with a product that meets your requirements.
- Assess your circumstances properly.
- Be honest in terms of risks involved etc.
Failure to do any of these could be constituted as mis-selling – and if this is the case, you would be within your rights to seek compensation.