The finance industry is often complex, so you'll typically need to turn to a financial adviser for assistance when making investment decisions. Unfortunately, your financial adviser may not always have your best interests at heart, as they can sometimes mis sell your finances, making you pay for something you did not expect.

So what is mis selling a finance product to you? Mis selling meaning is actually quite broad but focuses primarily on those situations in which you, as a customer, purchase a product based on false representation by your financial adviser or by the financial institution that sells the product.

When financial institutions or advisers mis-sell products to customers, it is often referred to as "mis selling." When a financial advisory firm mis sells a product, they are said to be operating outside of their "duty of care" to the client.

Here is a Tangible, Real Life Example of Mis selling meaning: 

1. An Insurance Policy Without Any Investment Represented as an Investment

The most common cause of mis selling is when insurance and investments are bundled together so that it is in the seller's best interest and not the buyer's.

For example, if an agent pushes a Unit-Linked Insurance Plan (ULIP)/ Whole Life policy aggressively onto a young investor who is looking to make high returns by emphasizing the returns and bonus with little to no mention of the high up-front fees, the long lock-in, or that a good portion of the premium will go toward a life insurance policy the investor does not require. The investor ends up with a poor performing investment and less life insurance than they expected.

2. An Unsuitable Pension Transfer

An unsuitable pension transfer is a very serious form of mis selling. It can put your retirement savings at serious risk.

Example: A financial advisor persuades a client with a defined benefit (final salary) pension scheme to transfer their pension benefits into a defined contribution scheme (DC) or self-invested personal pension (SIPP). The advisor will likely present this transfer in a very positive manner by providing an overly optimistic view on future investment growth and flexibility, while being completely ignorant of the significant value that the guaranteed, inflation-proof income would provide to a client, which the client will no longer have once they transfer their pension. The client would then be transferring a secure retirement income for an uncertain, risky alternative.

3. Unsuitable and High-Risk Investments

An unsuitable and high-risk investment is when a financial advisor does not take into account a client's individual financial situation or comfort level regarding risk.

Example: A retired client with a low tolerance for risk who requires steady income is sold a portfolio of high-risk speculative stocks and/or complex structured products; an advisor might describe them as safe and/or guaranteed. However, they do not adequately explain the risk of capital loss to the client. The product is not suitable for the client because they cannot afford to lose their initial investment. As such, it is a breach of the "Know Your Customer" rule, and what is mis selling.

4. The Loan with Hidden Costs

Mis selling isn’t just limited to investments, it also affects the credit market.

Example: A bank offers a ‘pre-approved’ personal loan. The sales agent rushes to the customer via the process, failing to disclose the high fees for any late payments, or how the interest rate can implode after the introductory period. The borrower, therefore, is trapped into a costly debt cycle which they didn’t understand when signing.

5. The Unnecessary Payment Protection Insurance (PPI)

This became the most infamous case of widespread mis selling in recent history.

Example: For years, banks and lenders routinely added PPI to loans, credit cards, and mortgages, often without the customer's knowledge or consent. Even when sold actively, customers were not told that the insurance was optional, that the cost was high, or that they were ineligible to claim due to pre-existing conditions (e.g., being self-employed). The scale of this practice led to a massive global redress program.

Also Read: Insurance Agent

Conclusion 

In conclusion, a classic example of what is mis selling, is the act of breaching a consumer's trust in selling a product through lies or deceit. It is transferring the risk of an institution on to a consumer that did not have adequate information about that transition. You can transition from being a passive consumer to being empowered to make your own financial decisions that reflect your best interest by recognizing the common "red flags" and asking the right questions as you go through the process of purchasing products. If you believe that you have been a victim of mis selling, you can file a complaint with the organisation that sold you the product, and if your complaint is not resolved, then you should file a complaint with the financial ombudsman in your country.