Financial advisers 'dupe' customers into buying

Poor advice and emotive sales tactics may be causing consumers to waste hundreds of pounds each year on unnecessary or unsuitable insurance, the Consumers' Association magazine Which? said today.

Researchers posing as first-time homebuyers visited 39 advisers at banks, building societies and estate agents to find out what advice they would receive on insurance products sold alongside mortgages.

According to Which?, the overall result showed the majority of advisers were offering misleading advice, urging consumers to over-insure themselves by buying cover they already had through other policies, or unnecessary products that would over-stretch their budget.

Just one adviser asked enough questions and made the right recommendations. Twenty-three urged the researchers to buy life insurance that was unnecessary as they were covered elsewhere.

A number of insurance policies are available to cover mortgage repayments if the holder is unable to work due to illness or an accident, such as income protection insurance, which pays out 65% of someone's income until they return to work or retire. Other potentially suitable policies include mortgage payment protection insurance, which covers mortgage repayments (although it normally only lasts for 12 months), critical illness cover, which pays out a lump sum if you are diagnosed with one of a list of serious illnesses, and life insurance, which pays out a set amount if you die.

Financial advisers can earn generous commission, often worth hundreds of pounds, on the sale of such insurance products. But the policies are complicated and cover can be expensive, with premiums for income protection insurance ranging from ?35 a month to ?108 a month.

In its research, Which? found that only three of the 25 advisers who recommended the researchers should take out critical illness insurance explained what conditions were covered, and out of the 30 advisers who recommended some form of cover, only 11 worked out whether their client could reasonably afford it, while 18 advisers suggested a level of income protection that was too low.

The group also found that some companies resorted to shock tactics to sell the cover. An adviser at Halifax Estate Agents told one researcher that his cousin had just developed breast cancer, while an adviser at Your Move said he was attending a funeral later that day for a 42-year-old who had died of leukaemia.

In a couple of cases, advisers even reduced the level of the researcher's outgoings to make the insurance seem more affordable. From January next year the advice given to people buying mortgage and income protection policies will be regulated by City watchdog the Financial Services Authority.

Malcolm Coles, editor of Which?, said: "Our investigation exposes serious problems with the way advisers work. It's appalling to use scare tactics that could dupe people into spending hundreds of pounds each year on cover they don't need.

"We're glad a tightening-up of selling practices is on the horizon, but we're not convinced it will be enough. We think the FSA needs to do its own mystery shopping, and fine any company that breaks the rules."

A spokeswoman for Halifax Estate Agents said: "All of our advisers are fully trained before they sell critical illness cover. When advisers are explaining complicated financial products it is good for that to be understandable for the consumer."

She added that it was unfortunate that Which? was suggesting someone drawing on personal experience to explain a product was using shock tactics.

A Your Move spokeswoman said: "As the recent study for the Office of the Deputy Prime Minister found, it is a fact that there is a serious risk of Britons losing their home because too few have adequate savings or insurance. The study found that four in 10 borrowers had no mortgage payment cover.

"We use this type of information in our sales process to help highlight the need for and identify suitable and adequate protection for the customer's mortgage, within the customer's budget.

"Obviously Your Move is very concerned about the content of the report and we take training of our staff very seriously. We would welcome any specific feedback so that we can conduct our own internal investigations to ensure that all our consultants are following procedures."