Spotlight: Long term issue

Long term care advice hit the news last December when the FSA issued its largest ever retail fine to HSBC.

The fine, £10.5m, was for inappropriate investment advice provided to elderly customers by its long term care subsidiary NHFA.

The FSA found that between 2005 and 2010, NHFA had advised 2,485 customers to take out asset backed investment products such as investment bonds to fund long term care fees.

These products are typically recommended for a minimum of five years but in many cases the customer’s life expectancy was below this. Subsequently, following a review by a third party, the advice given in 87% of the cases was found to be unsuitable. Alongside the fine, HSBC will be required to compensate customers affected, with the total estimated to be around £29.3m.

But while the FSA fine is a clear signal that it is taking consumer protection seriously in this part of the advice market, unfortunately it will have some negative repercussions for consumers. “I’m glad that a large fine has been issued but it is very sad that consumer trust in the long term care advice market has been sacrificed. There will be people entering long term care who won’t take advice as a result of this. No amount of fines will put that right,” says Tish Hanifan, founder and joint chairman of the Society of Later Life Advisers (SOLLA).

As well as deterring consumers from taking advice, a muted long term care advice market is also likely to make IFAs less likely to specialise in this area. Again, this will mean fewer people receive the financial advice they need.

Raising the profile

For those involved in the long term care market, what is particularly galling about this set back is the fact that awareness was growing for the importance of advice on funding. In particular, in July 2010 the Government commissioned a review, chaired by Andrew Dilnot, into the funding system for care and support in England.

This reported in July 2011 and stated that the current funding system was ‘confusing, unfair and unsustainable’ and called for urgent reform. To illustrate this it found that, while current UK public spending on long term care is 1.2% of total gross domestic product according to figures from the Office for Budget Responsibility, without reform, this is set to rise to

1.7% by 2020-30, representing an increase of 40%.

A number of recommendations were put forward to address this, including a cap on the amount an individual would pay towards their social care costs during their lifetime and an increase to the means tested threshold.

Importantly for those involved in the long term care market, it also pointed out that the information and advice that was available was poor and recommended a new strategy that would explain how the system works and signpost people to further advice and financial information.