It's the naming convention stupid!

I watched Panorama yesterday which was about whether banks had learnt their lessons from the various misselling scandals of recent years (e.g. Payment Protection Insurance).

They used undercover filming to show how financial advisers in various banks don't seem to be following the correct procedures or guidelines when it comes to advising people about how to invest their money. One of the biggest bones of contention was regarding people's attitude to risk. They had numerous examples of people who they interviewed who strongly felt they had been misled or even in some cases hoodwinked into investing in products that were much more risky than they had thought.

The undercover filming appeared to show the potential for this to happen. However I felt that the biggest problem the programme highlighted was in how the naming conventions used for products can be utterly misleading.

They followed an undercover reporter who had made it clear to the adviser that they wanted to make sure their investment was low risk. As the adviser took them through the process they kept referring back to how they understood the level of risk the person wanted was low. This happened a few times in the clips they showed. Then at the end of the process the adviser proudly announced that the best product for the customer was something called a "balanced fund". The customer agreed this sounded right.

Cut back to the experts watching the footage all of whom straight away made it clear that the "balanced fund" referred to was not appropriate for the customer and was too risky given what else had been said. Fair enough. They know best and I would fully accept their arguments.

But had this been a real life situation I would not be at all surprised if a real life customer would have accepted that too. Of course all customers should read the small print and be sure they are clear what they are getting into but a product described as "balanced" would seem to me on the surface to suggest a good balance between risk and safety. Of course the reaction of the experts demonstrates this is not the case at all.

So call me crazy, but maybe these sales-people keen to flog their risky products would have a much harder time of it if the products were named more accurately. For example I have read elsewhere that "balanced funds" can have as much as 80% in shares. Well maybe the percentage of equities should be in the title of the fund? That way it would be clear what they were selling and anyone who actually would be a lot more comfortable with say 50% or 30% shares would see straight away that the fund was not right for them.

Interestingly though, this was not picked up by the programme. Perhaps they needed a lay-person among the experts to point out that the definition of the word balanced that they all seemed to intuitively understand actually meant "pretty risky" doesn't mean that in plain English!

You can still watch the programme for a few days via this link.