Santander and Pru tie-up a "recipe for mis-selling"
Santander’s announcement to sell Prudential’s investment bonds from 2011 has been attacked as an inefficient moneymaking scheme and a "recipe for mis-selling".
The initial partnership is set for five years offering Prudential’s flexible investment funds to Santander’s 25 million customers, however many people believe this move is a response from commercial pressures and will be inefficient to most high-street customers.
In August our sister publication Money Observer condemned the banks for undermining public confidence and flagged up the huge potential investment mis-selling scandal.
Although millions of people buy investment products from the banks, evidence shows products promoted by banks have high charges and tend to languish at the bottom of the performance tables.
Reza Attar-Zadeh, director of savings and investments at Santander, says the bank's strategy is to offer "value for money products across all areas in which it does business". However, Justin Modray of financial website candidmoney.com, thinks this is "not an efficient investment" and unlikely to be a tax-efficient investment for most Santander customers.
"I fear letting branch-based advisers loose with this product will be a recipe for mis-selling. Prudential's investment bond also offers access to with-profits, an opaque and outdated investment. This is yet another clear example of commissions and commercial pressures standing in the way of common sense, something that has sadly been prevalent in this industry over the years," says Modray.
Zac Ghadially, financial adviser at Yellowtail financial planners, says this announcement is nothing new as it’s a model that has already been trialled by Barclays and Axa.
"Santander just wants to earn more money and this will not be efficient for the majority of its customers."
Barry O’Dwyer, managing director of retail life & pensions at Prudential, commented: "Winning this deal demonstrates the appetite and ambition that Prudential has for growing our UK business in areas where we have a strong competitive advantage.
"We are investing to build multi-channel distribution while demonstrating our commitment to develop market-leading products that help people as they save for the long term."
The practice of a dishonest salesperson misrepresenting or misleading an investor about the characteristics of a product or service. For example, selling a person with no dependants a whole-of-life policy. There have been notable mis-selling scandals in the past, including endowment policies tied to mortgages, employees persuaded to leave final salary pensions in favour of money purchase pensions (which paid large commissions to salespeople) and payment protection insurance. There is no legal definition of mis-selling; rather the Financial Services Authority (FSA) issues clarifying guidelines and hopes companies comply with them.
Issued by life companies and designed to produce medium- to long-term capital growth, but can also be used to pay income. The minimum investment is typically £5,000 or £10,000 and your money is invested in the life company’s investment funds, so the bond can either be unit-linked or with-profits. They offer a number of tax advantages, such as the ability to withdraw up to 5% of the original investment amount each year without any immediate income tax liability. Also, a number of charges and fees apply, such as allocation rates, initial charges, annual charges and cash-in charges. As investment bonds are technically single-premium life insurance policies, they also include a small amount of life assurance and, on death, will pay out slightly more than the value of the fund.