Financial Advisers NHFA Limited has been found guilty of providing pretty poor investment planning advice to it’s customers in the UK.
NHFA a subsidiary HSBC and appointed by some local councils in the UK to provide investment advice for it’s elderly that needed to cover nursing home costs which just goes to show how much due diligence these authorities carried out when recommending a firm like NHFA.
Some 87% of recommendations made by NHFA have proven to be flawed.
There was widespread mis-selling of investment bonds and other products without any decent processes in place in order to check the quality of the advice provided and now after a review has been a carried out by the Financial Services Authority (FSA) there is at last some action to compensate the investors (many of which are elderly) for the poor advice received.
Far too many of these investors were sold Investment Bonds that had a level of commission that was beneficial to NHFA and not to the consumer. Something the FSA has now spotted.
If you have had investment advice from NHFA in the past 5 years it is important you consider getting the advice reviewed independently. Whilst the FSA has instructed the firm to review and compensate all of the past advice, from our experience the level of any compensation settled is less that could be achieved if you opt for an independent review which is something we can offer with our experienced ‘past advice review team’.
If you have had any advice from NHFA it is vitally important that you get an opinion on the advice they have provided and if they have offered any settlement you get an expert opinion about their review. As always please contact us for some further guidance before you make any decisions.
The full press release is below.
Tracey McDermott, enforcement and financial crime at 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.
“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.
HSBC’s subsidiary NHFA Limited (NHFA) was found to have mis-sold to elderly customers.
HSBC estimates that the amount of compensation to be paid to NHFA customers will be about £29.3m in addition to the fine.
Between 2005 and 2010 NHFA advised 2,485 customers to invest in asset-backed investment products, typically investment bonds, to fund long-term care costs for elderly customers.
The products were sold to individuals entering, or already in, long-term care and in many cases these elderly customers were reliant on the investments to pay for their care.
Typically these investments were recommended for a minimum period of five years.
The advice and sales were found by the FSA to be unsuitable because in a number of cases the individual’s life expectancy was below the recommended five-year investment period.
As a result customers with shorter life expectancies had to make withdrawals from these investments sooner than is recommended.
The combination of withdrawals and product charges led to faster reduction of capital than should have been the case if customers had received the right advice, according to the City watchdog.
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.
The FSA stated it was clear that HSBC’s subsidiary, NHFA, had not considered the individual needs of its elderly customers and failed in many cases to recommend suitable products for their circumstances, for example higher fixed interest rate savings accounts and Isas.
It was also apparent, according to the regulator, that NHFA’s advisers failed to consider the tax status of customers before making a recommendation.
The FSA stated itb viewed the failings as particularly significant because:
* NHFA’s customer base was particularly vulnerable. The average customer age was almost 83 and they therefore had limited means or opportunity to make up any financial loss resulting from an unsuitable sale.
* NHFA was the leading supplier in the UK of independent financial advice on long-term care products to help pay for care costs, with a market share in recent years approaching 60 per cent.
* The mis-conduct took place over a period of about five years.
* A significant number of customers may have suffered financial detriment. During the relevant period 2,485 customers invested in asset-backed products. The total amount invested was close to £285m, meaning the average amount invested per customer was about £115,000.
According to the FSA, the failings breached principle nine, which states a firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgment.
HSBC is undertaking a past business review to determine if customers of NHFA or their families are entitled to redress and will contact customers directly.
HSBC indicated it expects the cost of redress alone to be £29.3m.
HSBC agreed to settle at an early stage entitling it to a 30 per cent discount on its fine.
It also plans to make changes to its operations.
HSBC closed NHFA to new business on 1 July.
Tracey McDermott, acting director of enforcement and financial crime at 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.
“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.
“This penalty should serve as a warning to firms that they must have the right systems and controls in place to manage and identify risks when they acquire new businesses. A failure to do so can lead not only to detriment to their customers but to significant reputational and regulatory cost.”
NHFA was bought by HSBC in July 2005 and, until May 2010, was separately authorised and regulated by the FSA.
