Complaints rise over investment hard-sell by banks

By HELEN TUNNAH

Banks have been told to improve their sales pitch for managed funds after an increase in complaints to the Banking Ombudsman by customers unaware of the risks of such investments.

Banking Ombudsman Liz Brown reported a big increase over the past financial year in complaints about investments by banks, possibly because of the poor performance of sharemarkets.

However, she said it seemed that some bank staff may not be properly explaining the risks of investments such as managed funds.

Ms Brown also said some customers were complaining they had felt pressured to move funds from conservative investments such as term deposits into more risky managed funds portfolios.

In cases investigated by her office, one woman who invested $280,000 in managed funds had lost $9000 in four months.

In another case, a retired couple lost 10 per cent of their $53,000 savings within a year of investing in a bank's "growth fund".

Ms Brown outlined the concerns of banking customers in her annual report, issued yesterday.

In the past 10 years, complaints or phone inquiries to the Banking Ombudsman have increased from 300 a year to about 4000.

She said that although the overall number of complaints had dropped slightly this year, the number of investigations carried out had increased by 12 per cent.

She thought this might be because banks were making a greater effort to settle complaints through internal investigations.

That could also mean that complaints reaching her office involved a deadlock between the two parties, which needed requiring the dispute to be investigated.

Ms Brown said in her report that in the year to June there had been an "unusually" large number of complaints about investment advice, up from about 12 a year to 40.

Twenty-three of those were formally investigated.

She said it was to be expected that sharemarkets had the occasional bad year, and that some customers made little effort to understand their investment risks.

However, banks should also remember that some customers might prefer not to risk their savings and should not be pressured.

She said greater care was needed in explaining the risk of losing capital if an investment did not perform well.

Bank staff were reluctant to emphasise disadvantages of an investment product they were selling.

Ms Brown said there was often no disclosure as to whether a staff member had to meet sales targets for such products, or was to be paid a bonus for selling a particular investment package.

For the first time, most of the complaints to the Banking Ombudsman concerned the use of bank cards and pins, usually through fraud.

However an increasing number of complaints also centred on the breakdown of a marriage or relationship.

Customers were often not aware that a bank was not bound by any agreement reached between couples about who is responsible for the mortgage over a family home.

Ms Brown questioned the legal advice given to those couples.

Examples of cases heard by the Banking Ombudsman

The office does not identify banks and complainants.

Ms A was diagnosed with a terminal illness, but a bank would not pay out a terminal illness benefit through her life insurance because she was not going to die within six months.

Ms A could not work, her partner had recently died and she wanted to provide for her two children. She asked her solicitors to contact her bank to ensure her life insurance premiums continued to be paid.

Later, the solicitors contacted the Banking Ombudsman because a bank error meant the premiums had not been properly paid, and the insurance policy had lapsed. After the intervention of the Ombudsman's office, the policy was reinstated a few days before Ms A died.

* * *

On the advice of her bank, Mrs Y invested $280,000 into managed funds, including $100,000 which had been in a term deposit paying 7 per cent interest. Within four months, the value of the investment had dropped by $9000.

The bank claimed Mrs Y had willingly changed her investments, and had understood the risks. Mrs Y said bank staff had harassed her to make changes.

The Banking Ombudsman felt the bank adequately explained why the value of the funds dropped, but that the type of investment had not been understood and was not suitable for Mrs Y's requirements.

The bank reimbursed Mrs Y for the loss of capital, and the loss of interest on the broken term-deposit account.

* * *

A young professional man was advised by his bank to invest his $56,000 savings in a portfolio, including international shares. His investment declined over the coming months and he complained that he had been misled about the investment risk.

However, the Banking Ombudsman found the man had been properly informed of the risks, and had documents from the bank detailing his position.

* * *

Mrs C's Visa card was stolen by her son, who spent $5000 on it. She has not seen her son since. The bank would not accept she had not told her son her personal identification number. She complained, and the bank accepted the son may have "shoulder surfed" to obtain the pin number and agreed to reimburse her the money.

But the bank warned that if it did pay her, it would complain to the police about her son who may be charged with fraud. Mrs C accepted the bank's offer.

* * *

Mrs H and her husband separated, but had joint liability on a housing loan. Under their matrimonial property agreement he moved into the home, and agreed to take over the loan repayments. But he failed to make the payments and the bank claimed the money it was owed from Mrs H.

The bank was correct in arguing it was bound by the loan agreement, not the couple's arrangements.

* * *

Mr B took his son swimming and used a security locker with a pin code for their possessions. Later that day he discovered cards and cash missing from his wallet, so contacted the bank and stopped the cards.

The bank would not reimburse Mr B because of concerns he had carelessly disclosed his pin when using the locker, and questioned if he had colluded in the theft. The Banking Ombudsman recommended Mr B be reimbursed.

* * *

Ms C had full signing authority over an account held in trust for her young daughter. After about seven years the bank began asking her to write down the reasons for any withdrawals. The bank claimed the type of account was being misused.

Ms C complained about a breach of privacy. The dispute was settled after both parties agreed to a covering statement about the withdrawals, and Ms C was paid $500 compensation for embarrassment.

* * *

Ms G asked to close an account, owing $33. When she went to settle the debt, she discovered a bank error meant she had been charged various fees and now owed $170.

She disputed this, and after talks the bank said she owed them $140. The woman objected, and eventually the bank referred her to its collection department, and she received a negative credit listing. Ms G complained to the Banking Ombudsman. The office found that while the bank made mistakes, Ms G should not have ignored bank correspondence including about her credit rating. The Ombudsman recommended $300 compensation, minus some of the amount owing on the account.

* * *

A former director of a company used the telephone banking system to withdraw $70,000 from the company's accounts. The company complained this should not have happened, because all other accounts required two signatories. But the Ombudsman found the company should have changed the password for the telephone account when the director left, and found the company 80 per cent liable for the loss.

* * *

Mr T was concerned that his elderly father was being exploited by a third party, so took him to his bank and asked that his credit card be destroyed and the account closed.

Mr T settled the $5000 owing on his father's card. Mr T asked that the card not be reissued. But when his father died, he discovered the card had been reissued three times and $4300 was owing on it, which the bank was claiming from his father's estate.

The Banking Ombudsman found Mr T had been explicit about his instructions, and eventually the bank chose not to pursue the debt.

* * *

Another Mr T was the director of a company in a small town.

A bank mistake meant a number of the company's cheques and automatic payments were dishonoured. The bank offered $300 in compensation. Mr T said this was insufficient to compensate for embarrassment, and the financial risk to his company because it was likely rumours about the state of his business had already started.

The Banking Ombudsman said that under common law a bank could defame a client if it wrongly dishonoured a cheque and suggested a person had insufficient funds for it to be cleared. Mr T was compensated $1500, plus costs.