Bank advisers cop flak

The way banks are selling managed funds has come in for criticism from Banking Ombudsman.

Tuesday, January 8th 2002, 5:10AM

An increasing number of complaints are coming before the Banking Ombudsman over the way banks sell financial services products, particularly managed funds, to their customers.

Banking Ombudsman chief investigator Susan Taylor says the ombudsman is becoming concerned about the increasing number of complaints in this area.

Currently a number of complaints have been resolved and there are at least half a dozen more being investigated.

Taylor says there may be many more complaints that are being resolved by each bank's internal complaints procedure. She says a complaint only gets to the ombudsman's office if the bank can't resolve it internally.

The rising number of complaints come against a background of banks capturing a majority of funds flow into the industry, and a down turn in markets.

According to figures from research house Morningstar banks have been top fund gathers in the past year. Two of them, WestpacTrust and ASB Bank, have been hugely successful at attracting money into their mortgage funds.

In the 12 months to September 31 more than $351 million, representing 40% of total retail funds was put into their mortgage funds.

Taylor says bank advisers have been 'overselling' funds on past performance. However, with negative returns in the past 18 months customers have felt as though they have been misled.

She also notes that in some cases single products are being sold, as opposed to a diversified portfolio.

One case which, has been highlighted by the ombudsman, relates to an older woman who had almost $300,000 dollars in a savings account and term deposit. The adviser persuaded her to break the term deposit and shift her entire retirement savings to a managed fund.

Four months later the woman had lost nearly $9,000.

The ombudsman won't name the particular bank involved in this case, however she says the problem is widespread across all the banks, and that they are generally "quite defensive" when the complaints are being investigated.

Taylor says banks need to better target their sales programme as quite often funds are sold to elderly people who don't understand the product.

The woman in the above case was an inexperienced investor who did not understand that she could lose so much money so quickly.

She says getting an investor to sign a piece of paper saying they understand what they are buying isn't sufficient protection.

Read a full copy of the Ombudsman's case study and commentary here

Do you agree with what the Ombudsman's saying, or have they got it wrong? What is your experience? Have your say in the Online Forum section of the site here

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