- FSA said bank’s NHFA subsidiary ‘inappropriately’ advised 2,485 customers to invest in
- HSBC fined £10.5m and ordered to repay £29.3m in compensation
- Sample of files found ‘unsuitable sales’ had been made to 87% of customers
- Average investment of £115,000 by customers with average age of 83
- Many of those given poor advice were more likely to die than see a profit on their investment
Giant fine: HSBC has been fined £10.5 million by the FSA for giving ‘inappropriate investment advice’ to elderly customers
Thousands of frail elderly people struggling to pay care-home fees were lured into gambling their life savings on risky investments.
The ‘serious and systemic’ scandal went unnoticed for an astonishing two decades.
It came to light today as HSBC, Britain’s biggest bank, was fined a record £10.5million and ordered to repay £29.3million to vulnerable savers it had misled.
There are fears that thousands more pensioners could have fallen victim to the banking industry’s latest mis-selling scandal.
Salesmen working for the Nursing Home Fees Agency (NHFA), a subsidiary of the bank since 2005, persuaded people as old as 94 to bet their nest-eggs on stock-market schemes which many would never live to see pay out.
Incredibly, leading charities including Help the Aged and the Royal British Legion and even the Government’s own advice website might have pointed elderly people in the direction of rogue investment advisers.
Some of their victims were even targeted in their care homes and persuaded to hand over an average of £115,000 – often the proceeds from the sale of the family home.
As a damning report from the Financial Services Authority concluded that nine out of the ten sales were mis-sold, it also emerged that:
- The victims had an average age of 83;
- Help the Aged was paid commission for passing on names to the NHFA while the Royal British Legion listed the firm as a place to seek advice on how to pay care fees;
- The founder of the NHFA now runs a firm called First Stop Care Advice and is still providing fees advice to the elderly;
- This firm, a partner of NHFA, is listed on the Government’s advice website.
Dr Ros Altmann, director general of the over-50s organisation Saga, said: ‘How many times do banks have to be hauled over the coals for behaving inappropriately before they improve?
This disgusting behaviour takes the banks’ reputation to a new low and will make it difficult for consumers to ever trust them.’
The FSA report revealed how, between July 2005 and 2010, NHFA mis-sold investments to 2,485 customers who were persuaded to put their life savings in the stock market – typically via investment bonds.
The victims had turned to NHFA for sound advice on paying care-home fees. But of the cases investigated, nine out of every ten sales were unsuitable.
Salesmen routinely locked up their money for five years by effectively banning withdrawals, despite many of the victims having not long to live.
In other cases the salesmen, who earned handsome commission payments for every bond they sold, left savers with only enough cash to pay for one year’s nursing-home fees.
This meant that when they ran out of money they would have to take money out of their investment – incurring strict penalties.
In some cases families lost their inheritance after being forced to pay these fines when their loved one died.
The products were sold to elderly individuals entering, or already in, long-term care and in many cases these elderly customers were reliant on the investments to pay for their care. (Posed by models)
The salesmen broke not just one, but three of the most basic rules of investment advice: Don’t lock up your customers’ money if they are going to need it. Don’t put all your eggs in one basket. And don’t take more risk as the customer grows older – take less.
The FSA report says: ‘Failings in the suitability of advice were serious, systemic and persisted over a long period.’
Its investigation covered the five years when NHFA was owned by HSBC, Britain’s most profitable bank, which made £7billion in the first half of 2011.
Although it was HSBC which raised concerns with the FSA, it took the bank four years to spot the problems. NHFA was closed in July this year.
Huge sum: The Financial Services Authority estimates NHFA customers will be paid a total of £29.5 million in compensation
Experts fear this could be the tip of the iceberg as NHFA was the biggest financial adviser specialising in helping those going into care in the UK, with a 60 per cent share of the market.
It had been giving advice on care-home fees since 1991.
Marc Gander, founder of Consumer Action Group, said: ‘This could have been going on for decades. This systematic mugging of older people, with the unwitting help of charities like Help the Aged and even the Government, has to stop.
‘This is a disgusting betrayal of an enormous number of trusting elderly customers nearing the end of their lives.
‘It undermines any remaining confidence in the banking industry and will set alarm bells ringing for anyone with an elderly parent or grandparent who has gone to their bank for advice.’
Age UK, Britain’s biggest charity for older people, had close ties with NHFA during the height of the mis-selling.
Salesmen at NHFA would set up meetings with care-home residents and their families, often after receiving a tip-off from charities such as Help the Aged – now part of Age UK – the Royal British Legion and the Government’s financial advice website Direct.gov.uk.
Between 2003 and 2009, Help the Aged referred anyone wanting advice on funding care-home fees to NHFA, receiving a payment for each case.
An Age UK spokesman said: ‘Help the Aged did not advise potential customers or have any input in investment decisions.
‘The contract was reviewed as part of the Age UK merger process and it was decided to terminate the contract.’
The scandal comes after a series of revelations which have shattered confidence in the UK’s High Street giants.
In January Barclays was fined £7.7million and ordered to pay £60million compensation to thousands of elderly customers missold risky investments.
‘I fully accept that NHFA failed to give suitable financial advice to some of their customers. This should not have happened and I am profoundly sorry that it did’
In April the banks lost a High Court case over the misselling of rip-off payment protection insurance and were forced to set aside billions in compensation.
And in May, Bank of Scotland – part of Lloyds Banking Group – was fined £3.5million and forced to pay £17million compensation after being found guilty of mishandling complaints from elderly customers missold risky investments.
Tracey McDermott, acting director of enforcement and financial crime at the FSA, said: ‘NHFA was trusted by its vulnerable and elderly customers. It breached that trust to sell them unsuitable products.’
Brian Robertson, HSBC chief executive, said: ‘I fully accept that NHFA failed to give suitable financial advice to some of their customers. This should not have happened and I am profoundly sorry that it did.
‘We have high values here at HSBC and this runs contrary to everything that we stand for.
‘We are undertaking a full review and I can guarantee that every customer found to have not been treated fairly will not be disadvantaged.’
- Were you or a relative mis-sold an investment by the NHFA? If so, please contact the Daily Mail newsdesk on 020 7938 6372 or email email@example.com
A MULTIMILLION-POUND MIS-SELLING SCANDAL
Who does this impact?
The FSA has said that 2,485 people were advised by NHFA to invest in bond products as a means to fund their long-term care.
The investment bonds were designed to grow capital but also generate income to cover care costs.
Most victims were elderly and the FSA said their average age was 83.
What went wrong?
NHFA ‘advisers’ told clients to put their savings into bonds that invested in stocks and shares and that tied their money up for a fixed period, typically five years.
Problems arose because clients often had a life expectancy shorter than the term of the bond.
In order not to lose their money on death, they had to withdraw cash before the bond matured and thereby suffered withdrawal penalties.
What should have happened?
NHFA sales staff should have advised clients that the product would only work if they survived the whole investment period.
Advisers should have first recommended no-risk, tax-efficient savings products, such as ISAs, which would have been cheaper and safer.
The FSA said a shocking 87 per cent of sales were inappropriate.
How much money did victims lose?
The average investment in the bonds was around £115,000 and the average loss arising from the bad advice was £11,790. HSBC has to pay £29.3million in compensation on top of a £10.5million fine.
How much did the advisers get?
Advisers received commission for selling the investment bonds. HSBC said
that it was typical for NHFA advisers to be paid 5 per cent of the
investment amount up front and then a further 1 per cent each year.
Based on the average investment, NHFA advisers would have received
£5,750 for selling the investment product, and then a further £1,150
each year. A five-year investment bond would have netted advisers
Why is HSBC paying the fine?
HSBC has owned NHFA since 2005. It was an HSBC audit of sales that flagged up the problems at NHFA. The bank closed NHFA in July this year after the mis-selling came to light.
What do victims need to do?
HSBC has said that those who have been mis-sold will be contacted in the coming weeks and do not have to do anything until then.
Given the fact that many of the victims are very elderly, the bank has promised to deliver compensation quickly.
How can I get safe advice about funding long-term care?
It is important to get advice from an Independent Financial Adviser that is not tied to any one, or group of, product providers. Advisers can only call themselves ‘independent’ if they are not tied in this way.
Additionally, paying via an upfront fee for the advice you get, rather than letting the adviser collect a commission from the company that provides with the product, is more likely to secure impartial advice.