HSBC acts to stem mis-selling fall-out

HSBC has taken a dramatic step to stem the growing scandal over its mis-selling of long-term care bonds to elderly customers by offering to compensate investors who bought NHFA products long before the bank bought the scandal-hit investment advisor.

HSBC bought NHFA for £9m in 2005, but shut the operation to new business in July after discovering serious deficiencies in the way its customers were sold products designed to help them pay for their long-term care. Photo: REX

By Harry Wilson

10:04PM GMT 07 Dec 2011

4 Comments

In a sign of the serious reputational damage HSBC has suffered since being handed a record £10.3m fine for mis-selling nearly £300m of investment bonds to elderly and vulnerable customers, the bank has pledged to examine cases of mis-selling dating back as far as 1991, some 14 years before it bought NHFA.

The move by the bank could dramatically increase the current £29.3m estimate of the cost of compensating customers who lost money as a result of being advised to buy unsuitable financial products by NHFA salesmen.

HSBC bought NHFA for £9m in 2005, but shut the operation to new business in July after discovering serious deficiencies in the way its customers were sold products designed to help them pay for their long-term care.

The backlash against the bank has been swift with public revulsion at the way NHFA customers, who have an average age of 83, were pushed into products that in some cases resulted in their families suffering losses of thousands of pounds when they died before their bond matured.

Tracey McDermott, acting director of enforcement and financial crime at the FSA, said NHFA had "breached" the trust of its customers.

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Brian Robertson, chief executive of HSBC Bank, said he was "profoundly sorry" at the way NHFA staff had behaved and insisted no customer would be "disadvantaged" as a result of mis-selling.

Sources close to the situation said the move to begin compensating customers mis-sold to by NHFA even before it was bought by HSBC would be done on a "case-by-case basis".

Just under 2,500 customers bought investment bonds between July 2005 and July this year, investing on average about £115,000 in long-term care bonds with a five-year life.

However, in 87pc of the cases examined by the FSA, NHFA was found to have made an "unsuitable sale", with customers encouraged to buy the bonds on which the business's salesmen earned large commissions.

NHFA's three senior managers are each reported to have made millions of pounds from the sale of the business to HSBC, with founder Peter Spiers receiving £3.8m from the sale, while Nick Tyler and Peter Fisher each made £2.85m.

Mr Spiers and Mr Fisher both left the business back in 2008, while Mr Tyler remains an employee of the bank, but is expected to leave early next year.

As yet, the FSA has not launched any individual actions against the three men or any other NHFA staff. It is also not yet known whether HSBC will launch a legal action of its own to recoup commissions paid to NHFA staff for products mis-sold to its customers. A spokesman for HSBC declined to comment.

HSBC, along with all the UK's other major banks, is currently in the process of paying out hundreds of millions of pounds of compensation to customers mis-sold payment protection insurance after conceding defeat on the issue earlier this year.

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8941656/HSBC-acts-to-stem-mis-selling-fall-out.html

HSBC fined £10m for mis-selling to pensioners

HSBC has been hit with a record £10.5m fine for mis-selling investment products to elderly customers needing long term care.

HSBC has been hit with a record £10.5m fine for mis-selling investment products to elderly customers needing long term care. Photo: IAN JONES

By Emma Simon

11:17AM GMT 05 Dec 2011

87 Comments

HSBC has been hit with a record £10.5m fine for mis-selling investment products to elderly customers needing long term care.

This is the biggest ever fine issued by the Financial Services Authority to a retail financial services company. It has ordered HSBC to pay almost £30m compensation to those affected.

The FSA said that between 2005 and 2010, a subsidiary of the bank, NHFA (previously known as the Nursing Home Fees Agency) advised 2,485 customers to invest in investment bonds, and other asset-based products, to fund long-term care costs. The average age of these customers was 83 – and a sample review suggested that almost 90pc of these cases were mis-sold.

In total the amount invested in these products was close to £285m – meaning the average amount invested per customer was about £115,000.

The FSA ruled that this advice was unsuitable, because these products were designed to be held for a minimum of five years; but many of these customers were not expected to live this long. A combination of capital withdraw, and high product charges meant that people's money was reduced far faster than if they had been recommended alternatives – such as a high-interest fixed-rate account, or an Isa.

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In addition the FSA said it was also apparent that the banks advisers had failed to consider the tax status of customers before making these recommendations.

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

"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."

She added that the FSA viewed the as particularly significant because NHFA's customers were very vulnerable, due to their age and health. NHFA was also the leading supplier in the UK of independent advice on long-term care products with a market share in recent years approaching 60pc.

Separately, HSBC announced that it would cut 330 jobs in the UK due to "the very challenging economic environment".

"HSBC is today announcing some proposed changes to various areas of our business that will result in the loss of approximately 330 roles in the UK ... in response to the very challenging economic environment and the bank's need to ensure it is working as efficiently as possible," a statement said.

The 5 Most Dangerous Places to Get Investing Advice

By Hans Wagner Tuesday, November 16, 2010

Where do you get your stock investing ideas? Inspiration can come from many places, and while some resources make a lot of sense, others are a sure path to financial ruin. Here is my list of the five most dangerous places to get your investing advice.

1) Internet Message Boards
If you're currently turning to an online message board for investing advice, stop right now. The people posting on these web forums are notorious for making over-the-top predictions with little, if any, rationale supporting their claims.

The majority of posts can be broken down into a few categories: baseless claims, bragging, spam, and name-calling.

But the biggest problem with online investing message boards is the rampant manipulation. Some users post comments to purposefully manipulate the trading activity in their favor. For many companies, especially those lightly traded, it might be possible for the right comments to move the stock price in one direction or the other.

There are even cases where executives of companies use the message boards to influence the price of a stock by making inappropriate comments. Papers filed by the FTC revealed that for several years Whole Foods Market (NASDAQ: WFMI) CEO John Mackey posted highly opinionated comments under the pseudonym "Rahodeb" on a Yahoo! Finance message board.

Investors who make buy and sell decisions based on the message boards are playing a dangerous game.

2) Penny Stock Spammers
Right up there with the internet message boards are those annoying emails claiming that some new discovery (still widely unknown to the media) is about to send this $1.00 stock soaring into the stratosphere, quickly making millionaires out of anyone who buys shares.

That'd be fine, except for there's never very much information to substantiate the claim. But these emails are still going around, so someone must be taking the bait.

3) Hot Stock Tips
These aren't quite as bad as the penny stock spam emails, but that's not really saying a lot. These messages, usually filled with exciting language and testimonials from other investors, claim to have some inside information that, once disclosed, will make the stock double in price. According to the "researchers," only a crazy person would turn down such a sure-fire offer.

But the reality is if they did have inside information then someone has broken the law by disclosing it. Yet just like the penny stock spam, these hot tips don't ever seem to stop finding their ways into people's inboxes and mailboxes. While hot stock tips might be interesting, do yourself a favor and carry out the necessary research before making a commitment.

4) The Inexperienced Advisor Making a Commission on Their Sales
Would you take the advice of someone who was just beginning to understand stocks and the stock market? Can a newly minted broker address all of your questions in a thorough and complete manner? I know each broker must start somewhere, just be careful of the newbie who is selling what the firm is pushing.

Any time you rely on a broker's advice (regardless of their experience), remember to ask yourself if their suggestions are really right for your portfolio. This is especially true if the broker receives a commission each time he or she makes a sale. In Little White Lies from Your Broker, Amy Calistri urges investors to be wary whenever a broker is pushing a stock. "...Sometimes, a firm decides that its traders hold too much of a certain stock. And guess who has been told to help get rid of those shares? The broker." [Even the most well-intentioned brokers don't always deliver the straight scoop. Read Little White Lies from Your Broker to find out if your broker is watching your back.]

If you want to use a broker or advisor, be sure their interests align with yours. Many quality advisors do a commendable job. Most of them structure their compensation around your success, whether it is a straight fee or based on performance.

5) Financial News Networks
Don't get me wrong, I like CNBC and Bloomberg. They provide a quality product that includes views from each side of an investing issue. Many of their guests are very successful investors who deserve attention.

The problem arises whenever they recommend a stock -- many investors enter orders immediately. In some cases, you can see the price jump up on the ticker at the bottom of the TV. With millions of viewers, any comment on a stock can move the market.

Just because a noted investment advisor thinks a particular company has potential to appreciate, does not mean it is right for you. The traders buying the stock do not understand the fundamentals nor do they have a good entry or exit strategy.

Jim Cramer's Mad Money show is a good example. Jim features several stocks during his show. In each case, he exhorts his listeners to do their homework and not to buy immediately. Yet you can see the price leap up as many followers try to get in on each stock he commends.

The Bottom Line
Consider where your investing advice comes from. Is it from a reliable source? One with a proven track record of accomplishment? Does it fit with your personal view of the market? If you can answer "yes" to each question, AND you've already done your own homework, pat yourself on the back -- you've managed to navigate through the muddy waters of dangerous investing advice.

http://www.investinganswers.com/a/5-most-dangerous-places-get-investing-advice-1980

What price for good advice?

Annette Sampson

October 30, 2010

Get a grip

HOW much should you pay for financial advice? That's the $64 million question raised by recent research that found a huge gap between what consumers think they should pay and what financial planners reckon they need to charge.

The research by Investment Trends found the average consumer thought about $300 was the appropriate price for both an initial financial plan and ongoing advice. But planners say that's way short of the average $2700 they need to break even for providing full financial advice and the $1200 needed for a simple plan.

This ''disconnect'', as Investment Trends dubs it, must be worrying news for the financial-planning industry, which is facing government regulation to reform the way it charges its customers. Under the Future of Financial Advice reforms set to apply from 2012, advisers will be banned from receiving commissions and other asset-based fees from financial-product providers. Instead, they will have to clearly spell out their charges to their customers, not just once but every year through an opt-in provision in the legislation.

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The changes will only apply to new investments but who'd want to be an adviser explaining to a loyal, long-term client why new customers are getting an improved transparent deal but he or she is missing out? Whether they like it or not, planners are moving to a system where their income is going to come from fees for service and they're going to have to justify that those fees are worth it.

On the face of this survey, they're facing an uphill battle. Investment Trends found while consumers were prepared to pay more for some sorts of advice - most notably retirement planning - there was still a gulf between what consumers thought advice was worth and what planners are charging. Interestingly, consumers with an existing financial plan were prepared to pay more than first-timers, which suggests planners are adding value. But an Investment Trends analyst, Recep Peker, says many existing investors still seem to be unaware of just how much they're paying for advice under the current arrangements.

Part of the problem is that while planners are required to disclose their fees, their true impact is often buried in complex detail and fine print. Commissions and other asset-based fees are charged as a percentage of money invested and come out of your investment, which makes them less in-your-face than fees that require you to physically make the payment. And let's face it, 1 or 2 per cent sounds a whole lot cheaper than $5000 or $10,000 - which is what you might be paying if you have a sizeable investment.

But perhaps a more significant problem is that the advice offered is often overkill. While some planners manage to provide simple, affordable advice to ordinary consumers, there's a widely-held view that in their zeal to protect investors, the government and Australian Securities and Investments Commission have pushed up both the cost and the level that must be provided.

It's like selling a Rolls-Royce to someone who wants to nip down to the local shops. In giving advice, planners are required to take your full circumstances into account - which usually involves an in-depth meeting and the production of a Statement of Advice that ticks all the compliance boxes required by the regulator and the planner's lawyers. These statements are expensive, can weigh a tonne and, according to a speech made by a legal specialist and director of Gold Seal, Clare Wivell Plater, at this week's Association of Financial Advisers conference, many of them contain irrelevant information that adds to their preparation costs and bewilders clients.

The enthusiastic take-up of the limited advice that can now be offered by super funds suggests there is a real market for a simpler form of financial advice that doesn't come with all the hoopla. Many investors, particularly those planning for retirement, can get enormous benefit from a full financial plan. But if you simply want help sorting out your super, starting a share portfolio or drawing up a plan to pay off your debts, you really don't want to be paying big bucks for the Rolls-Royce product.

The financial-planning industry has been pushing to have limited advice extended so it can be offered by financial planners as well as super funds - and so it should be. It's an obvious way to make advice affordable for a wider range of consumers. While super funds often provide limited advice as part of their member service, planners could mount a good case for selling such advice at a reasonable price. We'd still need protection to ensure the advice is in our best interests but if it is tied in with the Future of Financial Advice reforms, that shouldn't be too difficult.

The financial-planning industry has grown from a sales culture in which a planner's income was solely dependent on how much money the client had to invest. That thinking is still apparent in the push by many planners to simply replace commissions with asset-based fees of the same amount.

A full financial plan is worth much more than $300 but if consumers are undervaluing advice, the industry largely has itself to blame. It is time for planners to kick the sales culture and charge appropriate fees for the level and quality of service on offer.

http://www.theage.com.au/money/investing/what-price-for-good-advice-20101101-179qs.html

How good is your financial adviser?

More insight

The industry has to do more to get younger people, who would benefit from good advice, coming though its doors. A survey conducted last year for the Industry Super Network, which represents the industry superannuation funds, showed only 19 per cent of those in households earning less than $100,000 had spoken to an adviser.

The survey found that those on moderate incomes do not seek advice until the age of 55, with only one in 10 seeking advice. Over the age of 55, the proportion rises to one in three. More than half of over-55s on any income seek advice, much of it relating to super.

Further insights into the way the big planning groups treat consumers is on the way. The Financial Ombudsman Service will, reportedly, release the names of planning firms involved in the highest number of consumer disputes.

Under the changes required of the service - outlined by the Australian Securities and Investments Commission in theFinancial Ombudsman Service 2009-10 annual report, to be released in late September - it will need to show the number of complaints received and the outcomes.

Case study 1: A lesson well learned

 Jenny Garvey, 63, used to have a financial planner that she rarely heard from. When she tried to contact the financial planner, who was employed by a big financial institution, during the global financial crisis, she would have to wait. Then she would get a different person each time who did not know her and who was abrupt.

After a while, she realised it was pointless ringing them, yet she was paying fees. She was not getting the personalised advice she needed.

The retired teacher had an accident 16 years ago and has physical limitations. Since being with her current planner, Janne Ashton at Plan Protect, an authorised representative of AXA Financial Planning in Sydney's Frenchs Forest, she says she now knows what service is all about.

''I feel she respected my situation and no longer felt it was pointless coming to see someone for advice,'' Garvey says. ''I had assets but I did not have enough income.''

Garvey (pictured) wanted to be able to stay in her house for a little longer. ''I will downsize but I have young grandchildren and they come here,'' she says. ''I want to keep my house for a while until they are older and Janne has rearranged things so that I have cash flow.

''Within 48 hours of seeing Janne I had a complete plan - where I was going, what I had to do and what she was going to do. I now feel secure and my life is on track and I have more joy in my life as a result.''

Case study 2: Invaluable help

Rikki Bewley, 64, has just returned from swimming in the River Thames in England. She swam 14 kilometres in two days. She's a marathon runner and does tai chi. ''I love adventures. And if you are going to do all of that stuff you need a good financial planner,'' she says.

She first saw Joe Sacco, a financial planner with ANZ in Melbourne, 10 years ago. She did not have much money back then and after she received an inheritance, with the help of Sacco, has been able to support charities.

After training as an occupational therapist, Bewley spent 34 years working with chronically and terminally ill children, supporting their psychological and emotional well-being, before retiring in 1998.

She supports Animals Asia Foundation, a Hong Kong-based charity, which helps with animal welfare in Asia. She also supports Anti-Slavery International, a London-based charity that works to stop child labour.

She meets with Sacco several times a year and he also calls her on the phone. She says he explains everything to her and makes sure she understands.

Sacco remembers everything that is going on in her life and his people skills are terrific, she says.

Source: The Age

http://www.brisbanetimes.com.au/money/how-good-is-your-financial-adviser-20100810-11xff.html

The Right Direction Starts With the Right Decisions

The Right Direction Starts With the Right Decisions

By Michelle Singletary
Sunday, June 28, 2009



Over the years, I've found that people end up in financial trouble not only because they don't have enough money. It's also because of poor decision-making.

The following is an edited transcript of an online chat with people who needed to be pointed in the right financial direction.


QI am separated, with two young sons, and my husband lost his job about five months ago. I am solely supporting myself and my children and am finding it difficult to cover all of our expenses. I have stopped dining out, I bring my lunch, don't have cable, etc., but my income just doesn't cover the monthly bills. I think I have to cut back my Thrift Savings Plan contribution to 5 percent or possibly less. I currently contribute 10 percent. There really isn't anything more I can do to cut expenses. Do you agree about reducing my retirement contribution?

AI do agree. I would cut out your contributions completely for now.

Although I'm a huge advocate for saving for retirement, you need the money right now so you don't go down financially. Even when there is an employer match, I would urge you to cut back on investing for retirement until you can figure out how to make your income match your expenses. For example, can you move to cut housing costs? Can you get a roommate? I know people don't like to do that with kids, but at least explore the option, perhaps with a close friend or relative.

Also, have you explored everything to keep your marriage together? Even without a job, having your husband help at this point could allow one or both of you to get a part-time job. And he wouldn't be paying for the cost of his separate living expenses. Just asking.

We're in a position to refinance our home at a lower interest rate, and we need a new roof. You usually advise against treating your equity like an ATM, but what about needed repairs? It's very unlikely we can set aside $7,000 to $10,000 in cash without wiping out our emergency funds. My husband and I are journalists, so our jobs are on the line these days with the awful economy. Any suggestions?


Here's how I would approach this decision. Find out how much it costs to fix the roof and whether not fixing it would create major damage to your home. In other words, is this something that can wait or be fixed more cheaply for now? If you are unsure about your job situation, I wouldn't deplete your savings. So in this case, if you absolutely need the roof done, pulling that money -- and that money alone -- out of the house equity during the refinance is acceptable. Try your best, though, to find another way to pay cash to fix the roof.

I have a friend who lives in the District who really wants to buy a house in Maryland to move her children to a better school district. She has a good job making decent money, at least $45,000 to $50,000 a year. She has credit scores between 500 and 700. She does not have money for a down payment. She has some credit card and student loan debt. I have suggested that my friend rent in Maryland until she is ready to buy. What advice would you give her?


You are a good, good friend giving great advice. Your friend is not ready to buy a home and would probably have trouble doing so anyway with the tougher lending standards. At any rate, let's look at her financial profile:


-- She has credit scores in the 500 to 700 range. That's a huge range. In the case of a mortgage, the lender will take your middle credit score. Still, having a score in the 500 range is not good.


-- She has credit card debt. Not good.


-- She has student loan debt. Not good.


-- Her income is decent, but it will be hard finding a home in Maryland in a decent neighborhood with that income.

So you are right. She should rent and build up her emergency savings, pay off the credit card and student loan debt and get her low credit scores up.

Why did you say student loans are not good? As long as you're paying them back, what's the deal?


The deal is, it's debt.

Debt = bondage.


* * *

I added that last question from the chat to illustrate one of the reasons people make bad decisions. Too many people blindly follow conventional wisdom -- that a student loan is good debt -- when that wisdom is and has always been wrong.

As I pointed out in the chat, lose a job, get sick, etc., and no loan looks good at that point.

-- By mail: Readers can write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.