The FSA has fined HSBC £10.5m for misselling investment products to elderly customers through its long-term care advice arm Nursing Homes Fees Agency.
HSBC estimates a further £29.3m will be paid to NHFA customers in compensation.
Between July 2005 and July 2010, 2,485 NHFA customers were advised to invest in asset-backed investment products, typically investment bonds, to fund LTC costs. The average customer age was almost 83 and total amount invested was around £285m, with an average customer investment of £115,000.
In June, HSBC said it was closing NHFA to new business, saying it “no longer forms part of the group’s strategic direction”.
A third-party review of 421 NHFA customer files found sales were unsuitable for 87 per cent of customers. In a number of reviewed cases, the customer’s life expectancy was less than the five-year minimum recommended investment term.
NHFA failed to adopt a consistent approach in assessing attitude to risk. It failed to consider other investments such as unit trusts and Isas and reviews of customer files show in many cases a different product should have been recommended or no product recommended at all. Advisers also failed to consider customers’ tax status.
NHFA was launched in 1991 and was bought by HSBC in July 2005. It regularly received customer referrals from health authorities and charities supporting the elderly and in recent years achieved an LTC market share of nearly 60 per cent.
HSBC’s compliance team did not detect misselling until July 2009. The bank will write to clients in the next few weeks and will write again once it has assessed where redress should be paid.
HSBC chief executive Brian Robertson says: “I fully accept that NHFA failed to give suitable financial advice to some of its customers.This should not have happened and I am profoundly sorry that it did.”
Examples of NHFA unsuitable sales
- In a number of reviewed cases, the customer’s life expectancy was less than the minimum recommended investment term of five years.
- One customer was aged 94 at the point of sale and had a life expectancy of three years and three months.
- One customer, after buying an investment bond, only had enough cash on deposit to fund care costs for just over a year. The customer then needed to withdraw 12 per cent of the money originally invested a year, which did not allow the bond to cover the charges applied.
- More than 30 per cent of a customer’s investment was in property funds, which the FSA says was an “unacceptable proportion” which may have posed “inappropriate investment risk”.