Bank advisers ripped off thousands of old people in care homes

A SUBSIDIARY of HSBC that sold savings products to elderly customers who were likely to die before the recommended investment period was up has been hit with £40 million in fines and compensation payments.

The Financial Services Authority (FSA) watchdog has issued its biggest ever fine to a retail bank, of £10.5m, after HSBC’s care homes advice arm, NHFA, “inappropriately” advised 2,485 customers to invest in “unsuitable” investment bonds between 2005 and 2010.

The FSA estimates NHFA customers will be paid a total of £29.5m in compensation.

In a number of cases, the individual’s life expectancy was below the recommended five-year investment period, meaning these customers had to make withdrawals from their investments sooner than recommended – leaving them out of pocket.

Elderly care charities warned that old people were already struggling to make ends meet without being mis-sold products by financial institutions.

Greg McCracken, policy officer at Age Scotland, said: “With older people’s income being depleted across the board, that a company would create and market a product which had little chance of making a return on older peoples’ investments is appalling.”

He added: “At a time of high inflation and rising living costs, banks need to develop products which help older people weather the financial storm, rather than finding novel ways of making matters worse for them whilst lining their own pockets.”

The products were sold to elderly individuals entering, or already in, long-term care, and in many cases these customers were reliant on the investments to pay for their care.

The products were mostly sold through the elderly person’s families or representatives, but the length of investment needed was not made clear.

HSBC has apologised for what happened at NHFA, which closed for new business in July, and reassured affected customers that they would be contacted within weeks.

A review by a third party of a sample of customer files found unsuitable sales had been made to 87 per cent of customers involving these types of investments, with the total amount invested in the period hitting £285m, the FSA said.

The watchdog said NHFA, the leading UK supplier of independent financial advice on long-term products to help pay for care costs, had not considered the individual needs of its customers and failed to recommend suitable products.

The failings were deemed significant as the customer base, with an average age of 83, was particularly vulnerable and a high number of customers suffered financially, with the average amount invested £115,000.

Tracey McDermott, the FSA’s acting director of enforcement and financial crime, said NHFA, which had a 60 per cent market share in recent years, had been trusted by vulnerable customers.

She said: “HSBC, who owned NHFA, has now recognised the issues and taken steps to do the right thing. They have been given credit for that – but for some customers, it will be too late.”

NHFA was acquired by HSBC in July 2005 and until May 2010 was separately authorised and regulated by the FSA.

Brian Robertson, HSBC Bank 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. That is why when we suspected something was not right at NHFA, we took action. We advised the FSA of our findings and closed NHFA to new business.”

He said customers treated unfairly “will not be disadvantaged”.

BAD PRACTICE

Mis-selling – when a salesman misleads a prospective customer into buying a financial product that may not be in their best interests – has become a major issue in recent years.

Millions of pounds have been set aside or paid out by banks over problems with the mis-selling of personal protection insurance (PPI).

In the case of NHFA, the products were single-premium life assurance contracts, under which a lump sum was invested for the customer until the bond was either cashed in or until the death of the last life assured.

Typically, it is recommended that people invest in these products for five years. However, because many customers had a life expectancy of less than five years, they began to withdraw from the investments sooner than expected.

By doing so, their capital was eaten away more quickly than should have been the case if the products had been sold properly and were suitable for the customers.