Huge numbers of savers are in danger of unwittingly putting their money at risk as online marketing for financial products blurs the lines between cash savings accounts and high-risk investments, new research from Which? has found.
Following the collapse of London Capital & Finance (LCF), which saw almost 12,000 people lose £236 million, the consumer champion investigated online marketing targeted at savers, amid concerns that consumer confusion is being exploited.
Which? ran a series of online searches for popular savings terms, such as ‘best cash Isa’, ‘best savings rate’, ‘best Isa rates’ and ‘cash Isa comparison’ throughout July and August 2019.
The searches returned numerous examples of high-risk investment products. Many promised high fixed returns, but included no mention of risk. A number of these were paid ads on Google, which appear prominently at the top and bottom of the search giant’s pages of results.
Which? then showed savers a selection of Google paid ads for products with varying levels of risk and asked which they would want more information about if they were looking for a cash savings account. A cash Isa from well-known high street brand Nationwide attracted the most interest from savers (31%).
But worryingly, a substantial number of respondents said they were most interested in ads for investment products promising generous “asset-backed fixed returns” of as much as nine per cent – one in five (20%) were drawn to an ad for Daily Investor and 14 per cent to UK Bond Hub, but neither included any information regarding risk in their ads.
Both names were unknown to Which?, and when the consumer champion tried to contact them for further information about their products, it was unable to get a response.
These dubious options appealed to more people than two other investment providers that promised decent returns but were clear in their ads that savers’ capital would be at risk. They also appealed to more people than a cash savings account from challenger bank RCI.
Which? also found that two-thirds (66%) who have opened a cash savings account conducted at least some research online, with nearly a quarter (24%) using a search engine to explore their options, which would bring up paid ads such as those from Daily Investor and UK Bond Hub.
Across the UK, this equates to more than a million prospective people who could be heavily influenced by online ads or internet search results promoting these products.
The research also found that more than a third (36%) of savers were most driven by interest rates when choosing their latest savings account.
Many people who lost their life savings in the LCF scandal were attracted by the high returns offered, and reassured by the firm being authorised by the Financial Conduct Authority (FCA), wrongly believing this meant its risky mini-bonds had been vetted by the financial regulator.
But these savers remain unsure if they will ever get their money back as mini-bonds are unregulated products, and therefore not protected in the same way as regulated cash savings and investments. Crucially, this means it is usually not possible for savers to get their money back under the Financial Services Compensation Scheme (FSCS) if a company fails.
The consumer champion found that nine in 10 (90%) of people were unaware that regulated companies can sell unregulated products.
Which? is concerned that following the LCF scandal, other companies are still exploiting savers’ confusion around savings products by failing to make clear the risks involved in investing in unregulated products, and blurring the lines between cash savings products and high-risk investments.
The consumer champion is urging savers to be wary of investing in unregulated products, even if offered by regulated companies, as such products are not protected by the FSCS. Savers should also thoroughly research any products being advertised on search engines or comparison sites before investing. Anyone considering investing in unregulated products should always take independent financial advice before making their decision.
Which? believes consumers need much greater clarity about the risks involved when investing in unregulated products, and that more needs to be done to tackle misleading marketing practices that downplay these risks.
Following recent high-profile scandals that have seen some consumers lose their life savings, the regulator and government must closely monitor this area of growing concern and be ready to intervene with strong action if firms are not doing enough to be transparent with customers.
Jenny Ross, Editor of Which? Money, said:
“It’s concerning to see that despite thousands of savers losing millions as a result of risky, unregulated investments, savers are continuing to be confused and misled as a result of ads omitting crucial information about risk.
“Firms offering unregulated products need to be much clearer about how they differ from cash savings accounts, specifically in the level of risk involved – if they fail to do so, the regulator and government must be prepared to take strong action.”
Advice for savers:
- Unregulated investment products aren’t inherently bad – provided you fully understand the risks, there is potential for higher returns than those offered by cash savings. However, you should never put money you can’t afford to lose into unregulated investments.
- Beware of improbably high interest rates or claims of ‘guaranteed’ returns. The best fixed-rate cash savings accounts currently pay less than three per cent interest – anything offering more is likely to be a riskier investment product.
- If a financial firm claims it is registered, check it against the FCA register and pay attention to the regulatory permissions it has. FCA regulation doesn’t guarantees the products it offers are regulated – as was the case with LCF – but it does mean it has to follow FCA rules and you can complain to the Financial Ombudsman Service if it doesn’t.
- If you can’t tell if a product has FSCS protection, ask the company and keep a record of its answer – if it doesn’t give a clear answer though, walk away.
- Always take independent financial advice when dealing with unregulated products, especially if they’re offered by unregulated firms.
- While some unregulated firms are legitimate, some may be scams and without taking financial advice, you could lose your life savings with no recourse for complaint.
A spokesperson for the FCA said:
“In relation to those specific adverts on Google, the FCA does not pre-vet advertisements and we cannot comment on a particular firm’s promotions. However, we are aware that Google searches for financial products and services can return misleading results and many of these scams involve financial products which we don’t regulate under the Financial Services and Markets Act 2000. The scale of the challenge calls for concerted action from everyone involved, pooling our resources and expertise to maximise impact.
“We have made it clear to regulated firms that if they are approving financial promotions, even for products that are not regulated, they must ensure they are fair, clear and not misleading. And that we will take action against firms who don’t meet those requirements.”
Notes to editors:
- Which? surveyed 2,010 UK adults between 25 and 29 July 2019. Fieldwork was carried out online by Deltapoll and data have been weighted to be nationally representative of the UK population (aged 18+).