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Why HSBC £40m fine over mis-selling to older customers gives marketing a bad name

Chris Barraclough, writing in Marketing magazine, is right. While the marketing community obsesses about Marks & Spencer lingerie ads, Size Zero models, Twitter trending and the monetisation of Facebook, it is almost entirely oblivious to some criminality of Dickensian proportions besmirching its name.

Criminality? We’re talking big banks here, and yet another ‘mis-selling’ scandal, although in truth the scandal involves everything from new product development through to sales, marketing and marcoms.

Villain of the piece is HSBC, Britain’s biggest bank, which has just been fined £10.5m by financial services regulator the FSA and ordered to pay back £29.5m to old age pensioners it had systematically swindled out of their savings over a period of five years.

It’s a complex story with many, unflattering, angles. Here are a few of them, to give the flavour. The mis-selling involved an investment bond with a capital protection element. The snag was, you had to put the money away for about five years or incur a huge financial penalty.

Many of the 2,485 victims were very old; one was 94 – the average age was 83. Obviously, a large number had a life expectancy shorter than the term of the bond. Yet, they were easy prey, not necessarily on account of mental infirmity but because they were 1) capital rich (compared to most of the rest of the population) and 2) very fearful of the eventual cost of living in a halfway decent care home. Quite a few sold their houses to fund what they were told was the answer to their financial prayers; on average, they handed over £115,000 each.

The average loss was £11,790 per customer, spookily adjacent to the £11,500 commission over five years received by advisors who had helped to sell the product. The FSA judged that 87 per cent of sales were “inappropriate”.

HSBC is not solely culpable. It bought the rogue organisation responsible, Nursing Home Fees Agency, long after it had been set up in 1991 – presumably on the basis that NHFA was a nice little earner (as indeed it was). Then, too, it came highly recommended. Help the Aged was paid commission for passing on names to the NHFA, while the Royal British Legion listed the company as a place to seek advice on how to pay for care fees. NHFA salesmen were also aided by a listing in the government’s financial advice website at Direct.gov.uk.

For all I know, malpractice may date back two decades. But that hardly exonerates HSBC, which took four years to wake up to something being rotten and then to report it. NHFA was only closed down in July of this year.

Horrendous though this mugging of pensioners may be, it would be nice to think of it as an isolated incident. No such luck. In January 2011 Barclays was fined £7.7m and ordered to pay £60m compensation to thousands of elderly victims of a similar mis-selling scandal.

In April, the banks finally lost a case in the high court, after years of procrastination over the payment protection insurance scandal, that has made them liable for billions of pounds of compensation. In May, the Bank of Scotland, a subsidiary of Lloyds Banking Group, was fined £3.5m and forced to pay £17m compensation to elderly customers after – guess what? – selling them risky investments.

How do they get away with it? Well, because they can. These fines may seem astronomical by my standards or yours, but they are a spit in the ocean compared with the Big Fours’ bottom lines. HSBC, for example, made interim profits of about £7bn this year. Banks also benefit from a culture of impunity. This is usually taken to mean stratospheric and wholly unjustified annual bonuses, or irresponsible, arcane, casino investments that eventually bring the house down. It is equally apparent they have a licence to plunder the needy and vulnerable with little fear of meaningful retribution.

For that state of affairs we too, as Barraclough implies in his blog post, are partly responsible. And marketers, obsessed with youth and cutting edge technology, especially so. Finance, particularly retail finance such as pensions, investment bonds and mutual funds, is nit-pickingly complex and unsexy. It’s also, as often as not, about an unsexy sector – the over 50s – who happen to own most of the nation’s wealth. So we defer to the so-called experts. These experts don’t mind being boring, in fact they positively revel in it. And you can well see why.

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About Stuart Smith

Stuart Smith is one of the most incisive and knowledgeable commentators on global marketing. He was a long-time editor of Marketing Week during the period when it was the UK's leading marketing, media and advertising specialist publication. Visit Stuart Smith Blog.
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