Elderly Beware

By Eamon Timmins, Irish Independent

June 17, 2008

Ireland

Something is seriously wrong with our financial institutions and our financial regulatory system when it comes to protecting older customers from those who will sell them unsuitable products.

On the one hand, the financial institutions have sales process protocols aimed specifically at "vulnerable customers" -- an unfortunate phrase which includes older customers.

On top of that there is the Consumer Protection Code which they have to adhere to and which the Financial Regulator monitors.

The code requires the financial institutions to act in your best interest, try to find out as much about you as they need to know to provide a product or service that is right for you, and make sure the product or service recommended is suitable.

So, with all those measures in place, why does the Financial Services Ombudsman Joe Meade continue to receive complaints about the selling of unsuitable financial products to older people.

In fact, why do such cases account for 10pc of his workload since his office opened in May, 2005?

In his 2007 annual report Mr Meade noted that the matter of selling inappropriate investment products to older people "continues to arise and is of concern". Some of the case studies he has published illustrate the scale of the problem.

Last October he published the case of an 86-year-old bachelor farmer who sold his farm for €1.4m. He went to his local bank where he was advised to invest €850,000 in two six-year, fixed-term insurance bonds.

The problem only came to light after his death, which occurred just seven months later. This left his estate facing a €50,000 loss on the original investment. The bank was ordered by Mr Meade to pay €50,000 to the farmer's estate to compensate it.

The ombudsman also noted that a further €150,000 was in a current account and €350,000 was in a demand deposit account. While it was not part of the original complaint, Mr Meade did not believe that leaving such large amounts of cash on deposit was not the norm for these type of investments.

The bachelor died without knowing that he had been sold an unsuitable product and that he had been poorly advised on his investment. But the greater question that anyone interested in consumer protection must be asking is: how did this happen?

Did the bank official who advised the farmer to invest in the insurance bonds get a pat on the back?

Why didn't an alarm bell somewhere within the system ring when an 86-year old man was sold a six-year bond? In short, how did the system fail this man so badly?

This was not a once-off case. Mr Meade recently reported the case of a 94-year-old woman who was sold a six-year, fixed-term bond.

On the recent 'Prime Time' expose, an 82-year-old woman who posed as investor was advised to buy a 10-year bond.

It could be argued that in the cases highlighted by 'Prime Time' the various sales protocols aimed at protecting older customers and the Consumer Protection Code did not kick in until the customer returned to buy the product, although the Financial Regulator insists the sales process begins the moment the customer walks in the door.

Unhappy

However, Joe Meade's investigations were into products which had gone through the entire sales process. And these were only the cases which unhappy customers, or their estates, had brought to the ombudsman's attention.

Nobody knows the full scale of the problem, but it poses a challenge for both the Financial Regulator and for all consumers.

More spot checks and "sting" operations are needed by the regulator's staff to ensure that the institutions are living up to their obligations. Offending institutions should be named and shamed.

The institutions themselves need to review their processes and their internal supervision to ensure that staff do what they are trained to do and that all sales to vulnerable customers are closely monitored.

On the other side of the counter, older people need to take steps to protect themselves and ensure that they make the best investment decision.

For people down-sizing their homes, or selling farms or businesses when they retire, they often face major investment decisions. The quality of the decisions they make could have major implications for the rest of their lives.

Age Action recommends that those faced with major financial decisions should seek independent financial advice from an authorised advisor.

Their advice should not only cover the products you should invest in, but should also your financial needs and lifestyle.

Certainly, the services of an authorised advisor do not come cheaply, but faced with making costly mistakes on major investments, it could prove to be money well spent in the long run. The Financial Regulator's booklet 'Getting Financial Advice' is a good starting point for those seeking an advisor.

The regulator's office can also provide a list of authorised advisors, multi-agency intermediaries (who advise on products for a number of firms) and tied agents (who sell the products of a single firm).

The regulator's 'Savings and Investments Made Easy' is also useful reading for those planning to make an important investment decision.

Both are available from the Financial Regulator, 6-8 College Green, Dublin 2, lo-call 1890 777777 or log on at www.itsyourmoney.ie.

Looking back at some of the incidents of mis-selling involving older people investigated by the Financial Services Ombudsman over the last three years, it is surely a case of forewarned is forearmed.

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