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FSA fines HSBC £10.5m for mis-selling to elderly

FSA fines HSBC £10.5m for mis-selling to elderly

by Michelle Abrego Dec 05, 2011 at 10:40

The Financial Services Authority (FSA) has issued its largest ever fine of £10.5 million to HSBC due to one of its subsidiaries, NHFA Limited, providing inappropriate investment advice to its elderly customers.

The amount to be compensated by HSBC in addition to the fine will be approximately £29.3 million. NHFA, which was the leading supplier of UK independent financial advice on long-term care products, advised 2,485 customers entering, or already in, long-term care to invest in asset-backed investment products from 2005 to 2010. It was closed to new business on 1 July.

The FSA said the investment products, typically investment bonds, were recommended to individuals whose life expectancy was below the recommended five-year investment period, and as a result customers with shorter life-expectancies had to make withdrawals sooner than needed.

It added the advice meant clients saw their capital drop more quickly than had they been advised appropriately.

A review by a third party of a sample of consumer files found unsuitable sales were made to 87% of consumers sold these types of investments.

The FSA said it was clear NHFA did not consider the individual needs of its elderly customers and failed to recommend suitable products for their individual circumstances. It also found NHFA's advisers failed to consider the tax status of customers before making a recommendation and there was no consistent approach to assessing customers’ attitude to risk. 

'NHFA was trusted by its vulnerable and elderly customers,' said Tracey McDermott, acting director of enforcement and financial crime. 'It breached that trust to sell them unsuitable products. This type of behaviour undermines confidence in the financial services sector.'

The FSA viewed the failings as significant because:

  • NHFA's average customer age was around 83, making them particularly vulnerable because of their limited means or inability to make up for 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%.
  • The mis-leading advice occurred over a period of approximately five years
  • A significant number of customers may have suffered financial detriment. The total amount of money invested during the relevant period in asset-backed products was close to £285 million, meaning the average amount invested per customer was approximately £115,000.

According to the FSA, the failings breached its principle nine, which states that a firm must take reasonable care to ensure its advice is suitable and must make discretionary decisions for any customer who is entitles to rely upon its judgment.

McDermott said: '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.'

HSBC has agreed to settle at an early state entitling it to a 30% discount on its fine, as well as making a commitment to changing its operations. The bank acquired NHFA in July 2005 and, until May 2010, the subsidiary was separately authorised and regulated by the FSA.

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Comments  (46)

  • Bozo: 

    What's £10.5 million to HSBC? Why is no individuals from the big banks get fined yet an IFA got fined for £49,000 perosnally last week.

    The FSA make me sick.

    10:52 on 05 December 2011

  • Barman: 

    Thats a lot of redress!

    10:53 on 05 December 2011

  • Lady IFA: 

    Immediate care plans from their care fees planning arm by the looks of it. In which case, refunding the purchase prices of the annuities will be substantial.

    What would happen to the annuities though?

    11:00 on 05 December 2011

  • Anitaki: 

    £10.5 million is at least some way towards paying the FSA's staff bonuses

    11:02 on 05 December 2011

  • Fimbra: 

    With the regulator being staffed by ex bank personnel and influenced by them continually - this inaction is only to be expected.

    They should fine the Directors personally and withdraw their authorisation to give financial advice.

    They will claw this fine back with trumps post 2013 - it is only a loan anyway.

    11:03 on 05 December 2011

  • glesga: 

    why were these contracts allowed at all for people entering care?

    11:05 on 05 December 2011

  • Barry Woolley: 

    Until the FSA take up proceedings against the people in charge of these banks and their subsidiaries nothing will change. Just take one Bank official( the higher up the food chain, the better) to court and not only would the Bank boards take notice, so would the whole of our industry and many other industries as well. But then that would mean the FSA taking action against the establishment of which they are a part.

    Dream on!!!

    11:07 on 05 December 2011

  • David Salmon: 

    Simply a disgusting abuse of trust to meet sales targets. Will the instigators of this disgraceful practice be held to account? I think we already know the answer

    11:10 on 05 December 2011

  • Jonathan Kirby: 

    Anyone selling LTC products has to have a suitable specialist qualification.

    Yet more proof that qualifications are all but meaningless.

    Being ethical is what matters.

    11:16 on 05 December 2011

  • David Cathcart: 

    I assume NHFA with have their permissions suspended - no thought not.

    Now that not TCF is it

    11:17 on 05 December 2011

  • The Rumpo Kid: 

    No doubt NHFA were dealing with attorneys in most of these cases. In my experience they (attorneys) are not keen on forking out for what seem to them, expensive immediate care annuities, despite the fact that they are very often a very suitable solution to funding care fees. As is quite often the case, the attorneys are the beneficiaries of the (care recipient's) will and they are rather more keen to retain as much cash in the estate as possible and are therefore easily 'persuaded' to take a chance on an investment portfolio providing some or all of the funds needed rather than take the annuity approach.

    It's not clear from the report what the investments in question were designed to do; if they were supposed to provide income to pay care fees ok - if they were invested for longer term growth - why?

    Either way, the old bank model of get'em in, sing 'em up and on to the next one is just not appropriate when advising the elderly (or anyone else for that matter).

    11:20 on 05 December 2011

  • P Taylor: 

    Is this why NHFA closed to new business in July 2011

    11:23 on 05 December 2011

  • Julian Stevens: 

    Whilst this fine and order to pay redress go some way to countering all the accusations that the FSA is biased against IFA's whilst on the other hand giving the banks an easy ride, the overwhelming implication of this ruling is that the banks are the instituions that pose the biggest threat of consumer harm.

    The reason is simply that the Banks have the biggest client banks to tap into and they drive their sales staff extremely hard to meet large targets. The FSA cannot fail to be aware of these facts and seems at last to be taking action. Yet, perversely, the crippling regulatory pressures being applied to the IFA sector may well result in clients still choosing the banks as their first port of call, simply because after next year so many IFA's will have either thrown in the towel or had to hike their fees to levels unacceptable to most members of the public.

    Still, never mind, as far as the FSA is concerned, that's all acceptable collateral damage on the road to its Utopian vision of a perfect financial services world. Change, evolution, improvement, better working practices are all very well as objectives for a progressive regulator, but it's a path that's going to be strewn with an awful lot of wreckage.

    11:27 on 05 December 2011

  • Anitaki: 

    ....and immediately after the announcement, HSBC share price RISES1% as the City feel they got off lightly

    11:27 on 05 December 2011

  • sol trader: 

    to Lady IFA - I hope they are not immediate care fee plans because a.) these are not "investment" backed in that they should provide a guaranteed lifetime (tax free) income. They are also rated on how long the doctor gives you, and if they only give you 3 years it can still be a worthwhile product.

    I would have thought more likely a deferred LTC plan where you invest the money in some kind of bond with a view to buying a future LTC annuity. In this case, the regulator might have a point.

    I am still uneasy when banks pay blanket redress on a whole book of business when some of the circumstances might have been justified???

    11:36 on 05 December 2011

  • Christopher Petrie: 

    Sorry to bring up the Old Chestnut again but this is a prime example of why it's hard to argue with the new RDR system.

    I do wonder if the FSA are finally waking up (albeit very late) to the financial carnage the banks have been inflicting on their "customers" for the last 20+ years?

    Interesting to note that HSBC have since pulled out of NHFA sales from July this year - following Barclays and Co-op who have pulled out of direct sales entirely now. Other banks will be looking at this fine + redress, and may well decide that with this kind of come-back plus the new RDR requirements, it may well be time for them to get out of flogging bad products and go back to doing some decent basic banking. I very much hope so.

    11:48 on 05 December 2011

  • Barman: 

    Its true the £40 million is easilty affordable for the firm but the fact it is now all over the national press will cause huge reputational damage for the bank.

    11:58 on 05 December 2011

  • Dhan Sharma: 

    There's alot of noice currently about ETHICS, gap-fill, etc from the various professional bodies.

    Does this situation demonstrated by NHFA warrant closer inspection by the professional bodies on the individuals concerned as well as NHFA management?

    Or is the whole concept of ETHICS just lip service?

    12:00 on 05 December 2011

  • Jonathan Kirby: 

    Have done a bit of trawling:

    "NHFA was purchased in 2005 by HSBC Actuaries and Consultants Ltd (HACL) and was transferred to HSBC Bank plc when HACL was sold in 2009.

    It had a 20-strong network of advisers that provided specialist advice to "a few hundred" customers a year on structuring their own finances to meet ongoing care costs, HSBC said.

    HSBC also said that the long-term care advice sector "is very much a niche market". As a result, it no longer forms part of the Group's "strategic direction", it said in a statement".

    The snag is that company was purported to be a specialist IFA. The fact that they were owned by HSBC probably won't count in the public perception and when our friends at the FSA want to prove just how bad we are, they will be able to include this despicable episode against us.

    12:07 on 05 December 2011

  • Ian Coley: 

    The FSA can continue doing this until the cows come home.

    Essentially,, finding evidence of misselling at banks and looking like you#ve done something worthwhile now and again, this is the equivalent of shooting fish in a barrel.

    Ian Coley

    Partner

    Medical Investment Services

    12:23 on 05 December 2011

  • Julian Sunley: 

    Can't say I was surprised when I saw this story - that is a sad endictment in itself

    13:03 on 05 December 2011

  • Anitaki: 

    1) The BBC have just announced that the actual cost to HSBC wil be £40 Million as over £29 Million+ will be paid out in addition as compensation

    2) There are 2 HSBC pop-up ads on this thread as l write this.

    13:21 on 05 December 2011

  • Stephen Cooper: 

    When many years ago NHFA was set up, as a spin off from a local firm of accountants, I did some free-lance work with them, whilst setting up my own IFA practice - I think around 1992, for about a year or so. They were obviously independent then, but there was no doubt whatsoever that they acted in the best interests of their clients at all times. Frequently clients were in care, or about to go into care, and the advice was all about being able to meet ongoing care fees and where possible, protection of capital for the next generation. Most of this was via Care Fee Plans, such as the Eagle Star plan, PPP or BUPA etc.

    I was not aware that NHFA had been 'sold' or 'taken-over' by HSBC, but presumably there were not problems before this happened? I can't believe that an 'independent' NHFA would have been recommending ordinary investment bonds to their clients, given the ages involved.

    13:23 on 05 December 2011

  • Bob Donaldson: 

    How many senior compliance or sales staff will actually lose their jobs and be held personally responsible for this shoddy advice? How many will be banned from holding senior posiitions in a financial services company in the future?

    As I have stated many times until the individuals are personally fined for the bad advice given to their customers it will continue to happen.

    It would be interesting under the new proposed regime, how many of the sales staff would have had so many complaints against them that the FSA would have stopped them being registered in the future.

    13:44 on 05 December 2011

  • James Clancy: 

    Why can not the FSA start holding the individuals personally responsible in the bank for these decisions .Legally it may be impossible to personally fine them,but naming senior managers for these decisions and those responible for the sales or advice will severely damage their reputation.

    Maybe it is around time that the FSA or the new regulator looked at the possibility of personally holding anyone working in the financial services industry to account for their actions. After all as mentioned above the FSA are quite happy to find directors owner managed practicies responible for their actions.

    13:52 on 05 December 2011

  • Mac Kotecha: 

    What should happen is that HSBC pays the fine and individuals that signed each relevant business off should be put on the FSA sanctions list 'not allowed to provide fincial advice'.

    There should also be some action against the compliance officer of HSBC under whose watch this took place.

    Unless this happens people working for the banks will follow the income targets.

    And any bonus paid for any of this business be reversed.

    14:25 on 05 December 2011

  • Barman: 

    Would it not be NHFA's compliance officer? My understanding is that HSBC just bought the business wholesale and it ran as a subsidury. HSBC bought a bad apple and now they're paying the price.

    14:34 on 05 December 2011

  • Mr Ed: 

    Anyone else peevish about HSBC receiving a 30% discount on the fine for agreeing to settle early?

    As disgusting as the act which led to it.

    I'm amazed that such actions could be committed by a company paying lip-service to credibility for it's customers. I'm equally amazed - in response, if not expectation - that the regulator should miss the issue for such a prolonged period; and then extend a discount.

    Disgusting.

    14:35 on 05 December 2011

  • Hickky: 

    How many of these elderly investors were advised that by purchasing a bond the asset would not be counted for local authority assessment for care home costs as it is a life assurance?

    NHFA were not clever enough to get their paperwork straight, and not putting a second life so the policy can continue etc.

    If the plan was to take out income, a distribution fund would be diminished less quickly than a deposit account over most of the period in question, but following 2008, things changed.

    Is this a complaint about investment returns? Risk?

    15:03 on 05 December 2011

  • Julian Stevens: 

    Neither the Banks not the FSA "do" individual accountability ~ that's something preserved exclusively for IFA firms. For the FSA's take on holding its own officers to account, we need cast back our minds no further than Clive Briault. Whether a similar policy pertains within the Banks, I know not.

    15:23 on 05 December 2011

  • Chartered Mark: 

    Read elsewhere that the number of cases was 2485 at an average of £115,000 per case. That makes around £285,775,000 total funds invested. So a fine of £10.5m is less than 4% of the total and the Compensation at £29m is only 10% of the funds invested.

    I would say that HSBC got off very light. Again.

    15:47 on 05 December 2011

  • You must be joking: 

    Reuters win the award for the best headline relating to this article:

    "HSBC hit with record fine for ripping off elderly"

    http://uk.reuters.com/article/2011/12/05/uk-hsbc-fine-idUKTRE7B40J420111205

    17:45 on 05 December 2011

  • Tony Laverick: 

    The IFA sector is not entirely free from blame on this. It was an IFA sold to a bank and many of the advisers remained. The FSA should fine (and ban) the management for institutional mis-selling but those individual advisers who sold these products knew what they were doing and should also be debarred.

    Unfortunately, far too many advisers with little knowledge and experience are permitted to advise the elderly and vulnerable.

    09:43 on 06 December 2011

  • Gillian Cardy: 

    Given that much advice on this area is predicated on the understanding that assets held in investment bonds as life policies fall outside the means testing / funding rules but that you can't say so, because to admit that in the suitability letter would provide evidence of deliberate deprivation, I can understand how so many people are in investment bonds when other options might have been more tax efficient, or why it could still have been worth taking the higher initial charges when compared to other options.

    10:28 on 06 December 2011

  • Tony Laverick: 

    Good point Gill but why do I not have confidence that this would be the reason for the recommendations? Maybe I am being harsh as charges can largely be levelled out but if the client already has need of LTC, the Investment Bond exemption won't work unless there is some other major consideration. Clearly advsers can and should include reference to having discussed this subject and any tax disadvantages in meeting notes.

    What worries me more is the ATR employed since there is reference to the asset backed make up of the funds. Too many LTC (and IHT) investments are based on the ultimate beneficaries' objectives and not the investor's, which is thrown by the early (or timely) death of the investor.

    11:00 on 06 December 2011

  • Hickky: 

    When we talk about higher initial charges, remember life bonds have no bid/offer/ initial fees, although there could be a reduced allocation rate to start according to age. However if surrender because of death of the life assured occurs before the end of the early surrender penalty period, the penalties are waived, so the charges could be less than alternatives. Some pland also had capital guarantees!

    The tax argument is not proven as, if the average investment was £115,000, and the interest in a deposit account was say 4% = £4,600,together with their state and other pension income as well as interest from cash reserve for a while, probably would have made a lot o them a basic rate taxpayer in 2005. Therefore no significant tax differential.

    Gillian is right, most of these were probably sold because of local authority funding rules, but not documented, as to do so could have brought deprivation rules into play.

    What beggars belief is a whole company, with the lions share of the business in this specialist area, did not document good, valid, reasons why it sold these products and did not discount other options with valid reasons why they were not appropriate. This has been fundamental for a long time.

    Just goes to show guys, get your paperwork right, as well as doing a good job for your clients, is essential to remain in this business.

    HSBC, your fine is for your inability to document adequately the reasons why these products were recommended. Costly Eh?

    12:06 on 06 December 2011

  • Michael Mason-Mahon: 

    WILL THIS BE THE NEXT SCANDAL for HSBC PLC?

    To the Chairman of HSBC PLC (Mr. Flint) will this be the next scandal for HSBC PLC? Is it true that the FSA is investigating you for giving false and misleading information to shareholders at this year’s AGM about complaints in India?

    Help Stop Bankers Cheating?

    This fine is an obscene joke? If the FSA wanted to make an example of HSBC, START THE FINE AT £100 MILLION (they can afford to pay this amount).

    FSA acting director of enforcement and financial crime Tracey McDermott says: This type of behaviour undermines confidence in the financial services sector.

    Yet in the next breath: HSBC, who owned NHFA, has now recognised the issues and taken steps to do the right thing. They have been given credit for that (IS THIS ANOTER OBSCENE JOKE?).

    The fine is £ 10.5 million yet the FSA give HSBC a discount of 30%, HSBC HAS TO PAY £ 7.4 million? IS THIS THE REAL JOKE?

    Is a fine from the FSA like a parking ticket, pay up fast and we will give you a discount? Why not say if you do not pay in ten days, we will charge you INTEREST per day.

    The Chairman (Mr. Flint) states “maintaining our reputation and our integrity”

    “Everything we do is governed by the imperative of upholding HSBC’s corporate reputation and character at the highest level” (IS THIS ANOTER OBSCENE JOKE?).

    HSBC chief executive Brian Robertson says: 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 (IS THIS ANOTER OBSCENE JOKE?).

    What about the USA and INDIA (ask them of your HIGH Values) What about the last time the FSA fined HSBC?

    What will HSBC HAVE TO PAY IN THE USA, for what they have been doing there? The Chairman (Mr. Flint) calls it a number of weaknesses.

    What a CHAIRMAN you are Mr Flint?

    What about HSBC PLC’s REPUTATION and INTEGRITY?

    Should not the CHAIRMAN of HSBC PLC MAKE THE APOLOGY?

    Mr. Flint will you call THIS an INVIDIOUS IRRATITION?

    REMEMBER THE AGM Mr. Flint.

    13:08 on 06 December 2011

  • Julian Stevens: 

    To be fair to HSBC, NHFA was an acquired subsidiary and HSBC themselves reported to the FSA their findings of inappropriate advice having been given.

    It's a good job that these failings weren't discovered on an FSA arrow vist, eh? Otherwise nothing at all would have happened for about three years, by which time the whole thing would have ballooned into yet another scandal on which the FSA had the relevant information but, as seen so many times in the past, it failed to act. Too busy steamrollering through really important things like the RDR and flattening half the IFA sector in the process.

    13:41 on 06 December 2011

  • Barman: 

    I agree that HSBC deserve an element of credit, they could have tried to cover this up, they could have taken the stance that NHFA should bear the brunt as they gave the advice, in many cases before HSBC even aquired the company. Of all the banks HSBC come out on top for pretty much all the KPI's. They've suffered huge reputational damage from this and appear to have accepted it quite gracefully. I would bet they sort out the redress within weeks.

    14:04 on 06 December 2011

  • You must be joking: 

    @ Gillian and Tony

    I've always found it a useful exercise, when discussing investments with those of advanced years to ask them the following straightforward question:

    If you had to go into LTC and the choice was using your own money and staying in the home of your choice, or the local authority paying and deciding where you live - which would you choose?

    It's amazing how many client fall in the "I choose, I pay" answer.

    Unfortunately, the 'bond peddlers' using CRAG as an excuse to ignore tax planning usually fail to consider the value of other assets (cash, national savings, premium bonds, house) and ongoing income.

    All for that magical 7% up-front!

    14:17 on 06 December 2011

  • Hickky: 

    @ You must be Joking

    I take your point regarding your 'straightforward' question, but this does not tell the whole truth either. Many local authorities will maintain a chosen home of the individual's choice once the self funding has run out, providing the home will agree to look after that resident under reduced local authority payments.

    It is well known that in many care homes the residents that are funded by the local authority subsidise the self funded residents, or to put it another way, the care home's main profit probably comes from the self funding resident.

    Therefore by making this 'straightforward' question you are introducing some element of fear into an elderly persons mind.

    Whilst not ignoring tax planning, and remembering the alternative assets you quote are not exempt under CRAG, an investment bond can be appropriate.

    Many elderly persons' decisions are influenced by their children who are also potential beneficiaries, and perhaps the loss of inheritance to them will also influence the answer to your question, therefore I suggest you modify it to read:

    If you had to go into LTC and the choice was

    1 Using your own money and staying in the home of your choice, or the local authority paying and deciding where you live.

    2 Go into a home of your choice for a while, although you may not be able to stay unless you use your own money later on.

    3 Using option 1 your children could suffer a large loss of their inheritance

    4 Option 2 your children could suffer a lower loss of their inheritance

    - which would you choose?

    Now how many clients would say "I choose, I pay"

    14:51 on 06 December 2011

  • You must be joking: 

    @ Hikky

    Quite the contrary... my question is designed to make cllient sthink about what is important to them and, even more importantly, WHY they have save.

    Is it not the case that people save for THEIR future?

    You appear to believe that people save for their beneficiaries!

    Of course, under CRAG the local authority can challenge anything it deems as depravation of assets, so, far any client who isn't using their ISA allowance and/or isn't using the annual CGT allowance whereby investment via an ISA or Collectives would be more tax efficient than an investment bond, you;d have to come up with some 'cock'n'bull' reason for using a bond (can't of course recommend to deprive assets).

    SO, the old dear goes into a home, of her choice, paying £750 a month, uses continuing income and then runs down her other assets until such time as the local authority take an interest (cash, NS, premium bonds, house etc etc).... and you;d rely on the homw owner saying, "yeah, go on local authority, I'll let the old dear stay here for £375/m, even though we're now getting £750/m and we have a waiting list a mile long"

    As my name says, you must be joking??

    Have you also considered the average length of time spent in Long Term Care??

    BUPA did a report that indicated the average stay is 801 days

    That half of residents die within 452 days

    Only 27% stay in care for more than 3 years

    I'd suggest that you're questions 3 and 4 above contain the REAL elements of fear...

    15:20 on 06 December 2011

  • Hickky: 

    @ You must be Joking

    Two points here

    1 You assume everyone saves for themselves, what utter rot!

    People save for any number of reasons. One of the main reasons I have found in over 20 years of advising for people taking out investments at an inappropriate time is to help their children when they need it. Even if is ruins their own future plans.

    This suggests to me that the duty parents feel towards their children does not stop when they leave school, home or whenever, does not stop.

    Why on earth has there been so much contention about who pays the cost of long term care (it is after all the beneficiaries who pay if not the state or some insurance scheme) if you totally neglect the basic human instinct for people to care for their families and themselves.

    You could be accused of projecting your own, self-centered beliefs on your clients by asking such a loaded question. All I am saying is ask some other questions to both your client and their family to get to what they really want.

    An elderly person may worry themselves to an early death if they felt the paying of large care home fees from money they assumed was going to their children on their death, so much so that often I have heard the elderly say 'I don't want to be a burden on my children' Ask about this emotion for a change.

    2 I have known the average stay in a nursing home has been about two years for a long time, so if you are saying to the elderly 'don't worry about spending all your money dear, you'll probably be dead within two or three years' you must certainly be joking!

    Perhaps your hatred of capital investment bonds, and the upfront higher commission paid to some advisory companies has warped your sense of balance, and the phrase ' Bond Peddlers' is offensive to people who probably didn't know any better. Yes they should have been trained better, and HSBC were to a certain extent negligent.

    The FSA has recently finished an investigation into Life Bonds, and concluded that the tax disadvantages often are mitigated by lower costs, no upfront initial fees compared with investment ISAs and collectives, therefore felt this is not a great concern for them. Indeed if investment is the most appropriate solution to an elderly persons' situation, then investment bonds, with no early surrender penalty on death in the first five years, may be better than ISAs and Collectives with an upfront 5% fee.

    If your advice is only on an advance fee paying basis, into wholesale funds with no initial fee, and no platform fees, then the tax benefits of investment bonds can still benefit some clients who wish to take income over the age allowance maximum, so just don't diss them in this way.

    P.S. I have not sold an investment bond for four years now, and only then in conjunction with trust work. I left a firm who wanted to turn me into Bond Peddler!

    11:09 on 07 December 2011

  • Julian Stevens: 

    I watched on tv the other day a bit of one of the many programmes currently being made on the subject of money and how we manage it. A number of people on British high streets were asked how much of their income they save each month. The answers ranged from 0 and 10%.

    The same question was put to a similar number of people in China and their answers ranged from 20% to 50%.

    Makes you think, doesn't it?

    13:28 on 07 December 2011

  • You must be joking: 

    @ Hikky

    If you were to believe your own arguement in point 1, then no elderly client would have any discernable assets, they would have given them away to their adult children. Actually, you do answer your own point to some degree - people save for their families and themselves.

    As far as 'burden on their children' we're talking about the use of the parents money here...

    In point 2 you refer to the FSA's review of bonds vs collectives. Yes, they came to that conclusion, but you forget, in 12 months time, no high allocations, no hidden charges etc etc.

    And who on earth charges 5% up front on collectives/ISAs any more?

    Thankfully the FOS don't take the same view as the FSA on this, as we've just secured compensation for a client based purely on the tax wrapper involved (bond instead of ISAs and collectives) for non and basic rate taxpayers.

    The award, to compensate the investor for the loss of return due to taxation and charges incurred unnecessarily via the bond.

    The product involved, high allocation (106%) no early surrender on death, but a 2.5% pa.a. establishment fee for 5 years, plus underlying fund charges, plus the (now EX) IFAs 1% p.a. trail.

    As I said, HSBC's bond peddlars deserved the kicking that they've had.

    PS I never said investment bonds had no place, it's just that their place for most people isn't until ISA and CGT allowances have been used, the latter being far more effective at avoiding the loss of higher personal allowances that converting capital to income within an investment bond.

    13:35 on 07 December 2011

  • Tony Laverick: 

    @ You Must Be Joking

    I am not supporting the peddling of Bonds on this and agree your approach is the only sensible one. Thankfully, some clients have sufficient capital to choose homes but in practice, many have to restrict their choice to homes on the Local Authority's list.

    There may or may not be supporting reasons for using Bonds but the further suggestion of gungho investment advice, which would apply equally to collectives, is arguably more worrying. Probably bad advice regardless of product choice.

    21:43 on 07 December 2011

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