The Financial Services Authority (FSA) has issued its biggest ever retail fine of £10.5m to HSBC as a result of them delivering inappropriate investment advice to elderly customers.
The bad investment advice was provided by the now defunct HSBC subsidiary NHFA Limited in respect of funding long term care fees.
They advised 2,485 elderly customers between 2005 and 2010 to invest in asset-backed investment products, typically investment bonds, to fund long-term care costs.
This represented nearly a quarter of the customers advised by NHFA during that time.
The FSA found that the advice was unsuitable because the typical life expectancy of these customers was less than the five year timescale required for the investment bond products. As a result of early withdrawals and product charges, capital was eroded faster than it should have been if these customers had received suitable advice.
A third-party review of the NHFA customers who were advised to use investment bonds found that 87% had received unsuitable advice.
In the Final Statement, the FSA points out that HSBC did not consider the individual needs of its elderly customers. It failed in many cases to recommend suitable products, such as savings accounts, to meet their individual circumstances and objectives.
The advisers at NHFA also failed to consider the tax status of customers before making recommendations.
This is a significant fine and censure because the customers of NHFA and HSBC were particularly vulnerable. The average age of these customers was 83 years old and therefore they had little time left to make up any financial loss incurred as a result of bad advice.
NHFA was one of the biggest providers of independent financial advice in the UK to those who required help with care fees planning.
An important FSA principle is that a firm must take reasonable care to ensure the suitability of its advice for any customer who is entitled to rely upon its judgement. It appears that HSBC failed in its duty to uphold this principle.
In addition to the £10.5m fine, HSBC will also have to undertake a costly past business review and expects to pay redress to customers of around £30m.
It is really disappointing to read about the details of this fine as it is yet another example of how poor financial advice from the banks is undermining confidence in the increasingly professional retail financial services sector.
Whilst NHFA was providing independent financial advice, since 2005 it was owned by a bank. It seems that the combination of banks and financial advice rarely results in a good outcome for investors, particularly elderly customers.
The provision of independent financial advice in respect of care fees planning is a specialism of ours here at Informed Choice.
We will be reviewing the FSA Final Notice in detail and our next team meeting to ensure there is nothing we can learn from these examples of bad practice at NHFA and HSBC.
If you or a relative needs advice on care fees planning, always ensure you meet with a professional Independent Financial Adviser who holds the mandatory CF8 care fees qualification and considers all of the planning options before delivering suitable advice.
Update: Informed Choice chartered financial planner Nick Bamford was a guest on ITV News on Monday evening, talking about the topics covered in this blog. You can watch his TV appearance here.
Photo credit: Flickr/Will Survive
