Consumer rights: The adviser and the bond that was sold to a dying man
A £144,000 investment, which has since fallen in value, was recommended to an elderly man with cancer and 'failing mental health'. Is this a case of mis-selling?
Sunday 11 January 2009
Q. In late summer 2007, in his 79th year, in the early stages of terminal cancer and with rapidly decreasing mental capacity, my father-in-law was persuaded, by an HSBC financial adviser, to move £144,000 into a Standard Life capital investment bond. The adviser received £10,000 commission for this advice.
At the time of my father-in-law's death in July last year, the fund stood at £122,000. From the total initial investment, this represented a huge fall in 10 months.
Surely, for a man in failing physical and mental health to be persuaded to invest in such a high-risk policy at his advanced age was a case of mis-selling. Unsurprisingly, HSBC does not agree.
A.On the face of it, this looks like a horrible case of mis-selling and highlights many of the problems with old-style commission-based financial advice. However, in the wake of the pensions mis-selling scandal, advisers are very careful to do things by the book, and HSBC has kept detailed records about its meetings with your father-in-law that suggest a slightly different version of events.
According to these records, your father-in-law instigated the meeting, rather than HSBC. He was asked whether he wanted a family member present and refused. He filled out a detailed assessment, saying he was a low-risk investor aiming for income with some capital growth, but that he wanted a better return than was available through a cash deposit account. Crucially, he also said he was in good health.
The capital investment bond recommended by the adviser was 50 per cent invested in a distribution fund and 50 per cent in a property fund. It was a poor investment, which HSBC admits.
Investment bonds tend to pay chunky commissions, and individual savings accounts and unit trusts are often a better and simpler bet. However, the bond was technically "suitable" for his needs. From what you say, it has fallen 17 per cent. This is a poor return, but it has been an exceptionally bad year and even "low risk" investments have been hit hard.
Also, although you clearly believe your father-in-law was not in a fit mental state to make decisions, Danny Cox at independent financial adviser Hargreaves Lansdown says that unless there is clear medical evidence at the time of signing the documents that states he was not capable of making a decision, it will be difficult to prove. "Proof" would be a doctor's report or perhaps an enduring power of attorney.
But you may yet have a case. Mr Cox says that most banks have a specific "sales to the elderly" process that restricts what can be sold to those over 75. He adds: "I believe life expectancy is an important issue. The minimum investment term that should be recommended for a bond is five years. HSBC should be able to show that a minimum five-year term was realistic. In the absence of this evidence, there is a strong case for mis-selling."
Your best bet now is to ask for the case to be reviewed by the Financial Ombudsman: www.financial-ombudsman.org.uk; 0845 080 1800.
Q.Administrators have been called in to a local mutual, the Presbyterian Mutual Society, in which I have considerable savings. The group said too many people were trying to get to their savings and it had called in administrators to resolve the liquidity issues.
What happens to investors when a mutual society goes into administration? I realise that I might be covered under the Financial Services Compensation Scheme, but the amount I hold with the society is far greater than the level of cover.
I hate to be the bearer of bad news but you don't have cover under the Financial Services Compensation Scheme. This was the main reason for the rush of withdrawals.
Arthur Boyd of Arthur Boyd & Co was appointed as administrator to the Presbyterian Mutual Society (PMS) on 17 November. His job is to see if the society can be rescued, or, if that is not possible, to ensure it is wound down in an orderly manner to maximise the return of money to its members.
Alan Watson, a spokesman for the administrator, says that you should have received a letter about what happens next. If you have not got this, you should contact the PMS office on 028 9031 1232 to ensure your records are up to date. Frequently asked questions regarding the process are also on the PMS website at www.presbyterianireland.org/mutual
The administrator is aiming to make an initial report to members towards the end of this month. The case is largely unprecedented, so it is difficult to predict the outcome based on other examples.
Smaller societies, such as credit unions, have folded when they haven't been able to balance their books, but a mutual has not been handed to an administrator in recent history.
All you can do is stay in regular contact with the society and hope for the best.
I have holdings in New Star funds within my self- invested personal pensions. I'm now wondering whether they have gone the way of certain banking deposits and my money is lost. What is the current situation and what should I do about it?
A.The investment funds industry has emerged looking rather cleaner than the savings industry from the financial crisis that has gripped the world over the past 18 months. As Julie Patterson, director of authorised funds and tax at the Investment Management Association, says: "The assets of a fund are distinct from the balance sheet of the management company that runs the fund. All UK funds are required to have a trustee or depositary, which is independent of the company. If a management firm goes into liquidation or administration, the trustee/ depositary appoints a new management company to run the fund."
There is also no risk from the trustee or depositary going bust, as assets held under custody arrangements are ring-fenced from the custodian bank's own assets. In other words, you can't lose your shirt and your money is safe.
However, there are other factors to consider. Disruption at the corporate level in a fund management company can be unsettling: managers can leave, they might not perform as well, or, more worryingly, there may be a crisis of confidence in the fund. Marcus Brookes from investment bank Cazenove explains that if managers are forced to sell stocks to pay unit-holders who want to leave the fund, they have to sell whatever people want to buy. In the current climate, where there are few buyers, this may well be their best stocks. Over time, this will hit returns to existing investors. If the worst comes to the worst, the fund management group may suspend redemptions and investors won't be able to gain access to their money in the short term.
A qualified financial adviser can suggest whether it is worth switching your holdings into an alternative fund management group. A list of advisers in your area can be found at www.financial-planning.org.uk
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