September 17, 2021

HSBC faces £40m bill for mis-selling to elderly in care

This particular scandal unfolded between 2005 & 2010, during which period NHFA (an HSBC subsidiary) sold completely unsuitable investments to 87 per cent of their customers – 2,485 people in total –  in order to fund their care costs.

NHFA was the leading supplier of financial advice on products to help pay for long-term care, and had a market share of nearly 60 per cent.

These elderly customers, with an average age of 83, were either already in care, or were about to enter long-term care, and took NHFA’s advice on a product to fund this.  Typically, it is recommended that people invest in this kind of product for five years.

However, because many of these customers had a life expectancy of less than five years, they started to withdraw from their investments sooner than expected.

The combination of withdrawals and charges meant their capital was eaten away quicker than should have been the case if the products had been sold properly.

The City watchdog, the Financial Services Authority (FSA) fined HSBC £10.5 million for mis-selling the bonds, the largest retail fine to date from the FSA, and the fifth largest of any kind levied by the FSA.

In addition HSBC will pay £29.3 million in compensation.  This fine should serve as a warning to other businesses.

Tracey McDermott of the FSA said: “NHFA was trusted by its vulnerable and elderly customers. It breached that trust to sell them unsuitable products. This type of behaviour undermines confidence in the financial services sector.”

In fairness to HSBC, when it realised there was a problem, it closed the NHFA subsidiary to new business in July, and alerted the FSA.

Brian Robertson (Chief executive of HSBC Bank) 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 we stand for.”

For some customers it will be too late, and the bank said it did not know how many of those affected by mis-selling had since died.

There is a further sting in the tail.  In his analysis, Simon Gompertz, the BBC’s personal finance correspondent quoted Roddy Kohn of Kohn Cougar, a leading financial adviser.

He pointed out that the commission earned from selling the investments could exceed the value of the £10.5 million fine.  As Simon wrote:  “Customers typically paid a 5% upfront charge for the investments, followed by 1% a year.

“Apply that to the £285 million worth of care plans NHFA sold, and you end up with a tidy sum.”

We are left wondering just how much of a deterrent this seemingly large fine will prove in practice.