Which? has accused the financial services industry of being rife with poor advice and questionable sales tactics, following a year-long undercover investigation.
Researchers posing as first-time home-buyers visited banks, building societies and estate agents to test the advice given on insurance products sold with a mortgage.
Overall, the advice was misleading and lacking in care. It would have resulted in people being under or over insured, or buying unnecessary products that stretched their budget to the limit.
Just one out of 39 advisers gave acceptable advice, asking enough questions and making the right recommendation. The rest were a poor show: 23 recommended life insurance that wasn't needed – the researchers had enough - and only three of the 25 who recommended critical illness insurance explained what was and wasn't covered; and of 30 advisers who recommended cover, only 11 worked out how much their 'client' could afford.
Companies earn fat commissions, typically worth hundreds of pounds, for selling protection including life cover, critical illness and income protection to home-buyers.
But Which? says these policies are expensive and complicated, and the investigation shows that too many advisers can't be trusted to ensure people will be properly protected if they can't work.
Some advisers even resorted to cynical shock tactics to sell policies. An adviser from Halifax estate agents told one undercover researcher his cousin had just developed breast cancer. A Your Move adviser said he was attending a funeral later that day for a 42 year old who had died of leukaemia.
From next January, the Financial Services Authority will be responsible for policing this type of advice. But Which?'s investigation shows that companies have a long way to go to comply with regulations. Which? is also concerned that complicated products such as CI and IP are to be regulated in the same way as simpler car and house insurance.
Malcolm Coles, editor, Which?, says: “The 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.
“And while Which? is glad a tightening up of selling practices is on the horizon, we're not convinced it'll be enough. The FSA needs to do its own mystery shopping, and fine any company that breaks the rules.”