Just when it appears the banks couldn’t do any worse…The Financial Services Authority’s press release and Final Notice sets out why it has fined HSBC for mis-selling investment bonds to elderly people with an average age of 83 who were ”entering, or already in, long-term care…typically these investments are recommended for a minimum period of five years”:
“The Financial Services Authority (FSA) has issued its largest ever retail fine of £10.5 million to HSBC because of inappropriate investment advice provided by one of its subsidiaries, NHFA Limited (NHFA) to elderly customers. HSBC estimates that the amount of compensation to be paid to NHFA customers will be approximately £29.3 million in addition to the fine.
Between 2005 and 2010 NHFA advised 2,485 customers to invest in asset-backed investment products, typically investment bonds, to fund long-term care costs for elderly customers. The products were sold to 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. Typically these investments are recommended for a minimum period of five years.
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.
The FSA views the failings as particularly significant because:
- NHFA’s customer base was particularly vulnerable. The average customer age was almost 83 and they therefore had limited means or opportunity to make up any financial loss resulting from an unsuitable sale;
- NHFA was the leading supplier in the UK of independent financial advice on long-term care products to help pay for care costs, with a market share in recent years approaching 60%;
- The mis-conduct occurred over a period of approximately five years; and
- A significant number of customers may have suffered financial detriment. During the Relevant Period 2,485 customers invested in asset-backed products. The total amount invested was close to £285 million, meaning the average amount invested per customer was approximately £115,000.”
HSBC’s failings breached Principle 9, which states that a firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgment.
Friendly Corporate PSL
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