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Symponia defends investment bond LTC use following HSBC fine

Long-term care specialist Symponia has defended the use of investment bonds to fund long-term care following HSBC’s £10.5m fine for misselling the products to elderly customers.

The FSA fined HSBC £10.5m yesterday for inappropriate investment advice through its LTC 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 NHFA customer age was almost 83. The total amount invested was approximately £285m, with an average customer investment of £115,000.

HSBC closed NHFA to new business in July.

But Symponia says it is important that consumers know investment bonds can still be a tax-efficient way of generating income.

It argues problems emerge where advisers fail to explain the impact of regular withdrawals.

Symponia joint founder and director Janet Davies (pictured) says: “The fine against HSBC is the first time that care fees advice has been tarnished with misselling and of course even one case is too many for the families involved, with whom we sincerely sympathise. 

“But it is important that bonds are not vilified, as how they are applied is critical. 

“There seems to be an element of NHFA being used as scapegoat here. HSBC would have carried out its own due diligence on the group when it purchased the organisation six years ago and the NHFA model has not changed since then.”

Davies adds she is hopeful the move to adviser charging under the RDR will remove the bias where advisers were encouraged to sell products to fund long-term care, rather than giving them the best advice, which could mean waiting to take out a product.


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There are 13 comments at the moment, we would love to hear your opinion too.

  1. Its not the bond the FSA are concerned about, it is the fact that NHFA were advising a medium term product when realistically most clients life expectancy when they enter long term care is well under the five year recommendation period.

  2. Insider knowledge suggests that the FSA was in regular contact with NHFA throughout its life and had given it a clean bill of health only around 18 months before this investigation.

    There is more here than meets the eye.

    Well done Janet in putting your head over the parapet on this. You are right.

  3. Investment bonds are not being “vilified” by the FSA decision it is the advice process that failed and which is being punished by the fine.

    In the Final Notice FSA has made it clear that;

    In a number of cases the customer’s life expectancy at the point of sale was less than the minimum recommended term of the investment….

    There was no consistent approach to assessing customer’s attitude to risk……

    There was inadequate diversification of investments and savings plans……

    Advisers failed to consider the tax status of customers before making a recommendation.

    Customers were given recommendations to invest a high proportion of funds into asset backed investments with only a small amount of funds left readily available to them on deposit….

    It may well be that an investment bond was suitable for some but the third party review is pretty damning 625 out of 841 (74%) asset backed policies were deemed unsuitable for the customer.

    Investment bonds per se are not under attcak here but the advisory process is.

  4. Anon @10:13am
    Like the FSA, you appear to be able to see into the future with the benefit of 20/20 hindsight.

    So what do you do when you sit in front of a family whose mum is 89 and needs care. They don’t want to buy a care plan, deposits are paying so little they are guaranteed to loose money so they want to invest. How long could Mum live? Life expectancy would suggest around 4-5 years, but she could die after 6 months or she could live to over 100.

    This fine could effectively make it impossible for the elderly to invest. I believe they have the right to do that if they want to.

    Don’t believe the Daily Mail – 99% of NHFA’s business was conducted under powers of attorney. The people that were dealt with were not frail old ladies but intelligent people in their 50’s and 60’s trying to do the best for their parents.

  5. Thank you for your comments.

    We understand all the issues and can see both sides. There was a lot more to our measured and balanced reply than appears in print.

    NHFA pionerred the way forward for a lot of LTC advice, but sadly,it was the processes used, suitability reports written, the actual selection of funds, the retention of full (and trail) commission and lack of annual reviews that led to the investigation.

  6. @ Ex- NHFA Adviser

    You make valid points about the environment in which the advice was provided but what is your response to the FSA analysis of the poor advice process identified in the Final Notice?

  7. This sounds very familiar, doesn’t it ? Echos of the “endowment miss-selling scandal”, and “babies and bath water” spring to mind.

  8. Hi Nick @ 10:48

    My response to the FSA’s final notice is that a lot of what they say is entirely justified. In the early days investment bonds were the right solution but as these products changed NHFA did not update its investment process and use more modern solutions. They basically stuck with what they knew. Risk profiling was amateur to say the least and applying that risk profiling even more so.

    Annual reviews were virtually unheard of and difficult to do. A fund switch was made a virtual impossibility by extraordinary compliance.

    BUT, I doubt that many clients have been significantly disadvantaged by what has been done for them against other investments. The question is whether people with limited life expectancy should be allowed to invest at all. Should all people aged over 80, say, be forced to invest only in National Savings?

    What upsets me and the reason I have come onto these forums is the press reporting that implies that salesmen were preying on the elderly. This simply does not reflect the firm I once worked for where (with one or two exceptions) advisers worked really hard over long periods of time to do the best for their clients. In terms of investments, I firmly believe that clients (99% of which were represented attorneys in their 50’s and 60’s) understood the risks they were taking and deemed them as worthwhile.

    The other thing to note is that I had always understood that NHFA had a very close relationship with the FSA who made regular visits to the firm and were generally happy with what was going on. Basically the FSA could have stepped in at any time over the preceeding 20 years and stopped the ‘consumer detriment’ from happening. They appear, once again, to have been asleep on the job.

  9. @ Ex NHFA Adviser

    I can see why you are upset. It will always be the case that someone who does their job dilgently and professionally and is then subject to censure and attack because the firm fails in its duties of care is upset by the fall out.

    I don’t believe that the FSA is saying that anyone over 80 should not invest. I do think they are saying that any such investment needs to be suitable and evidenced as such.

    To see in the FSA Final Notice that customers were given recommendations to invest a high proportion of their funds into asset-backed investments with only a small amount of funds left readily available suggest a process of advice failure that must surely result in regulatory action.

    When coupled with the other advice process failures (lack of consistency of assessing customer attitude to risk, inadequate diversification of investment savings plans and failing to consider the tax status of customers before making a recommendation) the outcome was surely certain?

    A lot of people/firms claim to have a “very close relationship with the FSA” I am not sure what that means exactly but it implies some sort of softer regulatory treatment or even regulatory sign off but I don’t believe that has ever been the regulators approach.

    I wonder what you mean by “regular visits” because that would imply something negative rather than positive?

    The FSA Final Notice makes very interesting reading and is a clear warning to us all that consistent processes are a requirement to ensure suitable recommendations. Clearly these were absent at NHFA

  10. I am starting to think that what is going on here is that sons and daughters are choosing the wrong investments for their parents. Investment Bonds are being chosen because they allow you to avoid Local Authority means testing.

  11. Intent is very difficult to prove with no record of EXACTLY what was said. Our only complaint in 13 years was successfully defended as it was the second client where we recorded every single word.
    The first client was a long term client who I saw after the first meeting with the second client and was a lightbulb moment.
    First client is still a client, second recorded client who complained then complained about the IFA she moved to and then the solicitor involved who’d handled the attempted fraud against me.

  12. I actually feel sorry for HSBC!! and for the many very honest advisers and staff of NHFA

    I joined NHFA as an adviser approx 4 years ago and whilst on the 2 week training course with them decided that something was not quite right. They had a system which prepared a report for a client showing the various investment options.One of the options was do nothing and your money will run out after x years. I did not feel comfortable and I felt the report “stretched” various situations. I never actually went out and saw a client although I got very close to! To my knowledge HSBC wanted to offer specialist advice in this area and there was a program under way where people like myself would be the chosen specialist dedicated to a number of High Street branches. It appears the major thing HSBC got wrong was buying NHFA in the first! HSBC have said they will compensate and look at cases up to 14 years before they even bought NHFA..that doesnt look like a bad parent to me …in fact the opposite! There will be many people treated VERY fairly as a result of the acquisition by HSBC. I will also expect there are thousands of NHFA clients who were and are delighted with the advice they received. Its a shame we dont all have the power of hind sight and well done Janet Davies for being so forthright!

  13. Another X NHFA Adviser 10th December 2011 at 6:34 am

    RichardV. Richard investing in Investment Bonds to avoid paying for care is a “deprivation of asset” and would serve no point on that basis. As for Ex NHFA Adviser I agree with comments which truely reflects things. Investment Bonds actually did a very good job at one time, and were utilised for for a special investment situation that didn’t fit the usual critiria. When I joined NHFA many years ago there were death benefit guarantees, extra allocations and of course which has not really been reported no exit penalities on death. If the attorney wanted to invest given all the options then tax efficiency shouldn’t always override every thing else.The products were selected because they appeared the most suitable, and it was the insurance company that appeared to bear the most risk! Hence the advantagous products were pulled from the market over time! Perhaps NHFAs fault was not changing their ways as Investment Bonds became less suitable and move towards more tax efficient investments.

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