Alan Steel: Ignorance of bank charges may be costing you dear

Unlike the one that cleaned up at the Oscars, this was a King's speech that didn't go down well. Although the public probably liked it, it's been panned by the critics. No Oscars for Mervyn then.

I'm referring to the recent comments by the Governor of the Bank of England, Mervyn King, who finally spoke out against profiteering at our banks. King didn't pull punches in his remarks, urging banks to stop focusing solely on short-term profits at the expense of their customers.

He accused the banks of routinely exploiting their customers and claimed that they thought it acceptable to make money out of "gullible or unsuspecting" customers. Senior bankers and others who frequent ivory towers weren't amused.

Why do the words "pot", "kettle", and "black" spring to mind?

For years and years I've sat down with former bank customers and tried to right the wrongs done to them after they've been sold inappropriate, expensive financial products. Last April, we instigated an independent survey to find out what the British public felt about the advice given to them when buying financial products.

We have now carried out 11,000 face-to-face interviews and the results suggest that King was correct in his allegations.

The survey found that one in two bank customers, when buying a regulated financial product, had no idea whatsoever of charges or commission imposed, or thought they weren't being charged at all. And this is despite the fact that a typical charge will be anything between 5 and 7 per cent of their lump sum investments.

But the survey found also that 69 per cent of bank customers were either happy or very happy with the advice they had been given, despite being sold inappropriate products with high commission levels - blissfully ignorant then.

But you may ask where has King been all these years? He started 20 years ago with the Bank of England, so he's had a long apprenticeship before delivering these comments. And he didn't start as a tea boy - he joined as chief economist, before handing over that responsibility to Mr (Charlie) Bean.

You may also ask what the regulator - the Financial Services Authority (FSA) - has been up to. The FSA and its predecessors have been around since 1986, supposedly protecting consumers from mis-selling.

Last week, an experienced investment actuary wrote to me to say he shared my concerns over the inadequacies of the FSA and the behaviour of the banks. His view was that the FSA is useless and he is fearful that it is unlikely to wake up any day soon.

He and others have recently called for the regulation of bank dealings with consumers to be separated from other activities. And that you shouldn't be able to manufacture a financial product and be in charge of the distribution of it.

That's not radical.That's what Professor Jim Gower recommended in his report that preceded the Financial Services Act of 1986. His view was that, to protect the consumer, you needed to separate product production from the sales process.

In other words, a bank or insurance company product has to be sold by completely independent organisations. Had that happened, we wouldn't have had all these years of mis-selling from Equitable Life, the banks and others.

If there are folks out of touch with reality, it's the regulators and those at the highest level in the banks. I know of young ladies currently on maternity leave from a local bank who don't want to return to their position as tellers because they were being forced and bullied into selling inappropriate high-commission products to customers, including old ladies, in order to meet targets laid down from on high.

I have seen cases where women in their mid-seventies and older were sold inappropriate, expensive, high-risk investment bonds by bank branch employees. These people were unaware that a simple 7,000 investment as an alternative to a deposit actually earned the bank 420. So the message is simple: if you want proper financial advice, you are unlikely to find it at your local bank. You are just another profit centre. Isn't that sad?

• Alan Steel is chairman of Alan Steel Asset Management