Banks, insurance companies and financial advisers all have conflicts of interest. If they tell their customers the truth, they may not get the sale. It's sad, but true, and from time to time leaves individuals in dire financial straits.
I decided to write this column after falling victim to what I believe is a devious sales tactic by insurer YOUI.
Here's what happened. Last month, I was writing an article about haggling. I tried to get a quote from YOUI to see if the company could be bargained down on price.
The sales adviser told me that I had to give him my credit card number, otherwise the system couldn't generate the quote.
Yeah, right. Had I been seeking a quote for personal reasons, he would have been given the verbal equivalent of two fingers. However, I wanted this quote for my article and told him so, which makes what followed even more shocking.
I handed over my credit card number with the assurance that I wouldn't be charged if I "cancelled". After getting the quote, I emailed my cancellation and got confirmation back that he would "action" the cancellation.
Lo and behold, a couple of weeks later, my Visa card was debited $592.67 without my permission.
The member of staff I complained to tried to claim disingenuously that the email I sent (and that was acknowledged by YOUI staff) wasn't sufficient to cancel.
Apparently, because I hadn't replied to texts from the company I had tacitly given permission for my Visa card to be debited, even though I had cancelled by email.
I took a screenshot of these texts, which said: "We have been trying to contact you regarding your recent enquiry, please call YOUI." The 07 number provided in the text was answered by a woman in the Bay of Plenty who had never heard of YOUI.
I've been told since by the company's head of PR that it was in fact an Australian number. How on earth was I supposed to guess that when it started with a New Zealand area code? And why are customers expected to call Australia to cancel policies issued when they asked for a quote?
The Commerce Commission had already had complaints about this sales method when I called and confirmed that it is investigating.
I also had a long chat with a consumer affairs expert from the Ministry of Business, Innovation and Employment and she believes that YOUI is sailing close to the wind on several legal points. The one that she believed was most dubious was charging me after I had cancelled in writing.
YOUI has apologised to me and said that it was one employee whose actions will be addressed. He wasn't alone, however. There are postings on Australian forums such as Whirlpool and Product Review complaining of experiencing the same sales tactic in that country. What's more, at least one of the New Zealand complaints I've read refers to a female employee, not the one I dealt with.
I discussed the experience with Retirement Commissioner Diane Maxwell, who convinced me that I should write this article.
If it had happened to someone else, she pointed out, an unexpected $592 charge could easily have pushed them into financial default. What's more, some people don't always check their credit card bills.
Anyone who is mis-sold to by an insurance company, bank or other financial services company should complain formally to the insurance company first as I did and then the dispute resolution service such as the Insurance & Savings Ombudsman and Financial Services Complaints, which can act on your behalf to solve the problem if appropriate.
It's also important to lodge your complaint with the Commerce Commission on 0800 943 600 and the Financial Markets Authority (FMA) on 0800 434 566. Both collate complaints and can take action if they see a pattern emerging. Your call will help them identify trends.
Late last year the FMA revealed it had been investigating mis-selling of KiwiSaver by banks as a result of complaints it had received.
The FMA has come across a worrying number of examples where banks used subterfuge or devious ways to get customers to switch to their KiwiSaver offering.
One example given by the FMA was of a bank asking customers if they would like to access their KiwiSaver information online alongside other bank information. The bank employees didn't explain that it meant that the customer was going to switch KiwiSaver providers.
Bank customers have also been told that their application for credit would be viewed more favourably if they transferred their KiwiSaver.
Switching customers like this without doing a proper financial fact find is unacceptable, and as the FMA says, reflects poorly on a bank's attitude towards its customers.
The FMA is concerned about the governance and culture of banks and insurance companies and also of what it calls "conflicted conduct".
The concern with insurance is that members of the public are being "churned" by financial advisers. Churning is the process of moving someone from one insurer to another so that the adviser can get another bite at the commission cherry. They tell you that there's this benefit or that. The reality is that it's all about the adviser's income and the customer is just the shark bait.
The consequences of switching a life insurance, income protection, or critical illness policy from one insurer to another can be devastating. If your health has changed in the meantime it could mean that something that would be covered under the previous policy won't be under the new one. That can mean you get zilch instead of the hundreds of thousands of dollars cover that you thought you were paying for.
If, for example, you've had a dodgy smear since taking out the last policy and are switched to a new one, you almost certainly won't be covered for cervical cancer under the new policy. Had you stayed put, the old policy would have paid out.
The financial adviser website Goodreturns.co.nz has articles about advisers moving their entire book of clients from one insurer to another. There is no way this wholesale switching can be in the interest of all clients.
The problem is that the commission-based model under which many financial salespeople are remunerated encourages conflicted advice. Often the advisers get an additional commission for the volume of policies they put through, which encourages them to switch all their clients.
It's not just insurance companies, banks and financial advisers that have poor practices.
There are still property investment companies around that use dubious methods to sell to the public.
Many, but not all of the companies that use the Blue Chip selling model disappeared around the time of the global financial crisis.
But I got a cold call just last week from one that asked if I liked the idea of buying property for which the tenants and taxman pay off the investment. Invariably they invite you for a presentation at which they use flip cards or presentations to hard sell the property investing idea.
Personally, I would never trust any company that needs to cold call to do business.
Kiwis also need to be wary of any company selling "low" or "no risk" investments. There is always risk even if you can't see it. What's more there are many standard sales patters used to cover up the risk.
Just last week, the FMA warned about a company called Eco Investments that advertised a "risk-free" investment with a "money-back guarantee" in local newspapers. Another recent warning by the FMA was about companies cold calling the public and asking them to buy shares in offshore firms. There is a good chance that these are scams.