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MSE News: HSBC to pay £40m for mis-selling to the elderly

edited 8 December 2011 at 5:58PM in Savings & Investments
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Former_MSE_HelenFormer_MSE_Helen
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edited 8 December 2011 at 5:58PM in Savings & Investments
This is the discussion thread for the following MSE News Story:

"The bank's NHFA subsidiary sold risky investments to those in their 80s who had little time to claw back losses ..."
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  • edited 5 December 2011 at 4:01PM
    Beacon_123Beacon_123 Forumite
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    edited 5 December 2011 at 4:01PM
    Greedy salesmen? Victims had little time to claw back losses? Where did this mis-information come from? I was an adviser with NHFA for several years. I walked away from more 'cases' because investments were unsuitable than I ever wrote. Greedy? I KNOW that is not the case. With regards to victims ( as you so unfairly put it) may or may not have had time to claw back losses. We do not have a crystal ball so how are we supposed to predict when someone will die?

    To clarify some of what I am saying, as advisers we were not simply salesmen. We spent many hours with our clients advising on all aspects of care, not just the ways of funding the fees. This was all free of charge. If our clients did not take up any of our investment recommendations we were not paid and the clients paid us nothing. We guided our clients through the maze of legislation with a view to ensuring that they had a clear direction in which to go. Our advice was independent of all other bodies such as social services.

    When it came to investment advice we produced a very detailed report outlining the options available for the funding of the care fees. This allowed our clients the opportunity of making an informed choice and did not lead them down any particular route. Many clients did not wish to invest many thousands of pounds into an annuity based product if the person in care's health was in doubt so they looked at the alternatives. We very clearly spelt out the risks which were, in many cases, less than putting the money in the bank! It was always the clients choice, not ours as advisers.

    I will cite one example:

    One of my own clients purchased an annuity for £30,000 and invested some of the remaining capital in open-ended investment bonds. Her life expectancy was 3 years. TEN YEARS LATER she passed away. The annuity had continued to pY until her death and returned over £100,000. The investments bonds also returned far more than had been invested in spite of regular withdrawals being taken.

    Was this greedy or bad advice? Judging by the delight of the beneficiaries of her Will, I think not.

    I am aware that not all of the cases written were success stories like this one, but I, and my ex-colleagues can hold their heads up and say we did nothing wrong. The bank has applied today's criteria to investments which were made years ago. Had markets risen would the review even have taken place? I doubt it.
  • RollinghomeRollinghome Forumite
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    Beacon_123 wrote: »
    To clarify some of what I am saying, as advisers we were not simply salesmen.
    Of course not. You never are. And what were you selling before you became an "advisor"?
  • As it happens I wasn't selling anything before I joined NHFA. I was in education as an 'adviser' to schools.
  • edited 5 December 2011 at 7:37PM
    ashleyprideashleypride Forumite
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    edited 5 December 2011 at 7:37PM
    Beacon_123 wrote: »
    We do not have a crystal ball so how are we supposed to predict when someone will die?

    [FONT=&quot]Are you for real? Do you really think a 5 year and a 85 year have the same life expectancy? Yes, either could die tomorrow, but statistically which do you think is more likely?
    There's a way of dealing with uncertainty, I think it's pretty clear you guys didn't bother to use it.[/FONT]
  • I am not going to even rise to your slur on my intelligence. However, yes I am for real. I am well aware that the life expectancy of an 85 year old is nt necessarily a long time. However, I was careful to point out to all my clients that there loved one could die at any time and that they should give very careful consideration to whether they would want to purchase a lifetime annuity (which, incidentally HSBC felt that ALL clients should buy) with the potential loss of several thousands of pounds or whether they should invest in an alternative which would wind up on death and pay out whatever it's value was.

    My opinion was not a consideration. It was whatever the client felt was most appropriate for them.

    You have clearly not had any experience of a relative going into care and it's financial implications. Our aim was to try and make sure the person in care received the care they needed for the remainder of their life however long that would be and to preserve as much capital as possible for their beneficiaries. With fees in excess of £1000 a week in many cases how else could people hope to maintain that kind of expenditure?
  • edited 6 December 2011 at 12:15AM
    SnowManSnowMan Forumite
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    edited 6 December 2011 at 12:15AM
    Beacon_123 wrote: »
    However, I was careful to point out to all my clients that there loved one could die at any time and that they should give very careful consideration to whether they would want to purchase a lifetime annuity (which, incidentally HSBC felt that ALL clients should buy) with the potential loss of several thousands of pounds or whether they should invest in an alternative which would wind up on death and pay out whatever it's value was.

    The FSA communication about this is here. To quote from that
    The advice and sales were unsuitable because in a number of cases the individual's life expectancy was below the recommended five-year investment period. As a result customers with shorter life expectancies had to make withdrawals from these investments sooner than is recommended. The combination of withdrawals and product charges led to faster reduction of capital than should have been the case if customers had received the right advice. A review by a third party of a sample of customer files found unsuitable sales had been made to 87% of customers involving these types of investments.

    It was clear that HSBC's subsidiary, NHFA, had not considered the individual needs of its elderly customers and failed in many cases to recommend suitable products for their circumstances, for example higher fixed interest rate savings accounts and ISAs. It was also apparent that NHFA's advisers failed to consider the tax status of customers before making a recommendation.
    I notice Beacon your post makes no mention of ISAs or higher fixed interest rate savings accounts as the products you were recommending. You seem to have been offering a straight choice of two unsuitable alternatives instead.

    Have you considered Beacon whether Tracey McDermott's (acting director of enforcement and financial crime) quote might apply to you?
    NHFA was trusted by its vulnerable and elderly customers. It breached that trust to sell them unsuitable products.

    Or is there still no remorse?
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  • edited 6 December 2011 at 3:21PM
    amsquaredamsquared Forumite
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    edited 6 December 2011 at 3:21PM
    Four years ago, as my mother's attorney, I purchased an impaired life annuity for my mother who was 87 and had just moved into a care home. NHFA provided quotes from 3 different companies and I chose the cheapest option. My mother is still in care, she is 92 next month, and I reckon that even if we take account of the interest her capital may have accrued over 4 years she has now received virtually all of the original investment which is paid monthly to her care home provider.

    I was well aware that my mother could have died soon after making the investment and that risk was fully explained by our NHFA advisor.

    The monthly payments pay about 1/3 of her care home fees and increase 5% every year. If I hadn't purchased the Lifetime Care plan in 2007 I would now have used up all of my mothers assets and would be worrying about how to continue funding her care home fees. By early next year the investment will be in profit and will continue to pay her care fees for as long as needed. The biggest plus for myself and my family is that we have not had to worry about funding her care fees for the past 4 years and for however long she continues to live.

    I think I received best advice from NHFA and I received good advice from them later in 2008 for another member of the family. Don't tar all NHFA advisors with the same brush.
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  • edited 6 December 2011 at 3:44PM
    SnowManSnowMan Forumite
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    edited 6 December 2011 at 3:44PM
    amsquared wrote: »
    Four years ago, as my mother's attorney, I purchased an impaired life annuity for my mother who was 87 and had just moved into a care home. NHFA provided quotes from 3 different companies and I chose the cheapest option. My mother is still in care, she is 92 next month, and I reckon that even if we take account of the interest her capital may have accrued over 4 years she has now received virtually all of the original investment which is paid monthly to her care home provider.

    I was well aware that my mother could have died soon after making the investment and that risk was fully explained by our NHFA advisor.

    The monthly payments pay about 1/3 of her care home fees and increase 5% every year. If I hadn't purchased the Lifetime Care plan in 2007 I would now have used up all of my mothers assets and would be worrying about how to continue funding her care home fees. By early next year the investment will be in profit and will continue to pay her care fees for as long as needed. The biggest plus for myself and my family is that we have not had to worry about funding her care fees for the past 4 years and for however long she continues to live.

    I think I received best advice from NHFA and I received good advice from them later in 2008 for another member of the family. Don't tar all NHFA advisors with the same brush.

    I think I am willing to trust the FSA on this one (and HSBC have accepted the fine) that the NHFA advice process was seriously flawed. It didn't mean in every case (such as yours) bad advice was given but in 87% of cases where investment bonds were sold the FSA identified bad advice. That is a significant number. I don't think we are given the percentage of clients who took lifetime annuities rather than investment bonds so it is impossible to say what proportion of all NHFA advice was faulty.

    The problems don't seem to have been so much with those sold lifetime care annuities (as in your case) it seems to have been those sold investment bonds.

    It was very illuminating in Beacon's post how he explains the the choice was betwen a lifetime care annuity and an investment bond.

    Those sold investment bonds would have been better off with ISAs and fixed interest savings. The FSA info explains why that is the case.

    However that is how commission distorts advice. Advising an ISA would not have paid the adviser any commission. So the NHFA advisers have advised people to take out an investment bond instead (when a lifetime annuity wasn't taken out) without regards to whether it was suitable as it paid the adviser commission.


    Structured projects are another unsuitable product sold in a similar way because of the commission bias. As the adviser will get no commission from advising on ISAs or savings (to an investor who doesn't want to invest in funds) they must sell a commission providing product instead and structured products fit the bill. However they are horribly expensive and inflexible.
    I came, I saw, I melted
  • You rightly say that I only mentioned the difference between lifetime annuities and investment bonds. Unfortunately there is not enough room on these blogs to detail every single word of the 30 odd pages of report which was sent to client outlining the options available and how they were broken down. We always recommended that cash was retained in a high interest account but try getting an account paying a decent enough amount of interest using a power of attorney which most people used. One option we always gave our clients was to put the money on deposit....it was their choice if they did not take that option, not ours. We did recommend ISAs but how far would £3000 go towards a months care fees? Not very far. An Stocks and Shares ISAs? The name speaks for itself. However, if that is what the client wanted they were free to exercise that choice.

    About time the press got their facts straight.
  • dunstonhdunstonh Forumite
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    We did recommend ISAs but how far would £3000 go towards a months care fees?

    ISAs should always be there as number one on the pecking order even if the amounts were limited to £7000-£10000 per year per person unless trusts are involved.

    For most people, UT/OEICS are next in the pecking order (again, trusts can change that). the investment bond is a niche tax wrapper that suits a limited number of individuals. There are a number of scenarios that you could see pensioners being suited to bonds. You would expect a product mix that has a greater proportion of UT/OEICS than investment bonds. Something around the 20%/80% mix (bonds being 20%). However, with NHFA it was clearly heavily focused on bonds.

    As stated on the other thread going on this subject, i don't necessarily blame the sellers. Salesforces and those with sales based employers tend to be fed information and processes that can brainwash the individuals. They are not trained to think for themselves but to rely on the company to tell them what is right/wrong. To have such a high failure rate (87% failure rate) suggests management was telling them to do it this way or encouraging a culture that was very 1980s/90s in style. Compliance are also to blame as they should have spotted this very early on. They were either incompetent or were told to turn a blind eye to it.

    I know that those that worked for NHFA wont like it but with an 87% failure rate, you cannot claim what you did was right. And with you writing off ISAs as effectively pointless and focusing only on the upside of potential returns and not the downside does not make it any better.

    That said, there is some merit in the comments that had the individual drawn say 5% a year from cash savings paying 3% then they would have guaranteed a capital loss and possibly created a spiral of loss that eroded the savings quickly. Investments didnt guarantee that couldnt happen but did offer the potential for it not to happen or for it to happen at a slower rate. The credit crunch/recession impact on returns put paid to that in the short term and there could well be some hindsight based compensation due (which would typically not be due or a complaint upheld on an individual basis but in this case will be given the widespread issues)
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
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