Beware banks selling protected investments

Banks have a history of pocketing high commissions to sell mediocre investment products. Little seems to have changed..

Actually, I should probably change the title to beware banks selling investments, period.

But my focus here is protected investment plans for two reasons. Firstly, they're quite an easy sell to naive, unsuspecting customers. And secondly, the banks seem to receiving rather high sales commissions for flogging them.

To recap, protected plans run for a fixed term, typically 5 years, and link returns to an investment index (e.g. FTSE 100) while protecting some or all of your initial investment.

They're not necessarily bad products, it all depends on the terms offered by the plan (e.g. what proportion of FTSE 100 growth you'll receive). But because sales commissions are paid out of money that would otherwise buy investment returns, it generally follows that the higher the commission the less attractive/competitive the product.

And there's also the risk that banks or building societies will try to sell these plans (to hits sales commission targets) regardless of whether they're actually appropriate for customers - Norwich & Peterborough Building Society was fined £1.4 million in April this year by the FSA for mis-selling these types of product.

Let's take a look at the banks and building societies selling these products (at the time of writing):

Bank/Bsoc	Product	Provider	Commission
Nationwide	Protected Equity Bond	Legal & General	7%
Santander	Growth Plan	Santander	6.8%
Yorkshire BS	Protected Capital Account	Credit Suisse	4%
Chelsea BS	Protected Capital Account	Credit Suisse	4%
Barclays	Growthbuilder	Woolwich	min 3%

It makes for depressing reading - especially in the case of Nationwide pocketing an extortionate 7% commission, equal to £700 per £10,000 invested. But at least the above disclose sales commission in their key features document, HSBC simply says the amount will be confirmed by their adviser when you buy - not very transparent.

Of course, this is nothing new. Banks have long found ways to screw money out of their customers, regardless of whether it's in the customer's interests. Buy despite efforts by the FSA over the years, little has changed.

At the very least financial providers and banks should be forced to display any sales commissions on the first page of product literature - I got the figures in the table above from small print that most customers will never read...

Or maybe banks and building societies should be banned from selling investments unless they start acting more responsibly. What do you think?

Read this article at http://www.candidmoney.com/articles/article227.aspx