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>>Banks accused of mis-selling investments to elderly
By Niall Brady, Sunday Tribune, 25 January 2004
Hundreds of pensioners may have lost a significant proportion of their life savings in recent years after being advised by their banks to switch their money out of safe deposit accounts and into risky investment products. While the full scale of the looming mis-selling scandal is still unknown, it is being investigated by the government’s new financial watchdog, the Irish Financial Services Regulatory Authority (IFSRA).
One Sunday Tribune reader has lost more than €20,000 after AIB advised him to switch his savings into a fund that tracks the performance of Europe’s top 50 blue chip companies. Many are former state-owned phone companies and, just like Eircom, they were hammered in the stock market crash of 2001 and 2002. The bank gave the advice even though the 71-year-old pensioner made it clear that he only wanted a low-risk investment and had never previously invested in anything that did not offer cast-iron guarantees.
Eddie Hobbs of the Consumers’ Association of Ireland, who presents the “Show me the Money” programme on RTE television, is currently representing a number of elderly people who suffered serious losses after taking their banks’ advice. They include the family of a woman who, at 90 years of age, was advised by her bank to lock up her savings in a ten-year bond. The woman is now dead and her family cannot access their inheritance without incurring swinging exit penalties. “A lot of elderly people have a huge degree of trust in banks, failing to recognise that banks have changed fundamentally in the last 10-15 years,” Hobbs says. “Banks are now more akin to financial car salesmen and these people are like sheep to the slaughter. They are a soft target and, once the banks had hoovered up investment business from their other customers, they started hitting the elderly depositors. An extra duty of care should have been given to them and senior management has a lot of questions to answer for allowing elderly people’s money to be moved out of deposit in this way.”
A lifetime customer of AIB, the Sunday Tribune reader was persuaded to invest €76,184 (IR£60,000) in August 2001 in index funds managed by the bank’s insurance subsidiary, Ark Life. These tracked the Euro Stoxx 50 index but, unlike previous tracker bonds in which our reader had invested, the index funds only offered limited capital protection. This meant that AIB was only willing to protect him from the first 12% fall in the index. After that, investors were on their own, exposing them to an unlimited downside when the stock markets crashed. This was a fatal flaw for a product that was described during the sales process as “a type of tracker bond” even though it failed to provide the full money-back guarantees normally associated with tracker bonds. When the bond matured in August 2003 its value had plunged to €55,319, giving a loss of €20,865. The news came as a bitter blow because, even though AIB had issued annual statements of benefits throughout the investment, it never provided an up-to-date valuation. “I am now 71 years of age and have lost over €20,000 of my life savings on this investment,” our reader says. “I feel AIB acted completely inappropriately and recklessly in selling this investment bond to me.” He is especially angry because of the “fact find” that AIB undertook before the investment was made clearly states that he had no appetite for risk. “AIB failed in its duty of care to me, as a long-standing customer, by recommending a very high risk and totally inappropriate investment bond, by failing to determine my attitude to risk, and by not taking into account my investment experience, age, retired status and recent bereavement.”
AIB accepts no blame and is refusing to compensate our reader for his losses, adding that “the negative outcome resulted from a decline in stock markets which was outside the bank’s control”. After several months of battling unsuccessfully through AIB’s internal complaints procedures, he has finally taken his case to insurance ombudsman Caroline Gill. “This was marketed as a low-risk investment but it was clearly indicated that there was some risk,” said an AIB spokeswoman. “History shows that it didn’t go the way it should have.” She added that the bank could not comment further while the complaint was being examined by the ombudsman.
Our reader believes that AIB is deliberately dodging its responsibilities. “If we were to take their line of argument it would imply that AIB is selling investment products on a caveat emptor basis, where no account needs to be taken of the client’s stated attitude to investment risk and circumstances and it’s up to each client to decide if the product is suitable for themselves, and if they don’t see the risks involved then that’s their own fault.” The marketing literature did indeed spell out that “your investment in the AIB index fund could fall in value over the chosen period - and you may not get back the full amount you invested”. But the product was clearly labelled as a “low risk” investment and all of the warnings were dwarfed by illustrations of how the Euro Stoxx 50 index had surged ahead during the bull markets of the 1990s. Potential investors would have had to scrutinise the small print to learn that “past performance is not necessarily a guide to future performance” and that “index values can fall as well as rise”. In this case the index lost almost half its value over the two years of the investment.
According to one investment expert, our reader may not have been an isolated victim. He believes that AIB may be guilty of systematic mis-selling because it described its index funds as low risk even though everybody who invested in them in 2001 is certain to have lost a substantial portion of their savings.
A similar scandal erupted in the UK last year, where thousands of pensioners lost heavily after being persuaded to move their savings into precipice bonds, which promised attractive returns but blew up in investors’ faces when stock markets began to nosedive. The scandal has already led to financial watchdogs slapping a £100m (€140m) fine for mis-selling on Lloyds TSB Bank. Similar fines may follow in Ireland if IFSRA chooses to protect consumers using the considerable new powers at its disposal.
Have you or an elderly relative been sold an unsuitable investment product by a bank or its insurance arm? Tell the Tribune on 01 631 4334 or write to us at 15 Lower Baggot Street, Dublin 2.
By Niall Brady, Sunday Tribune, 25 January 2004
Hundreds of pensioners may have lost a significant proportion of their life savings in recent years after being advised by their banks to switch their money out of safe deposit accounts and into risky investment products. While the full scale of the looming mis-selling scandal is still unknown, it is being investigated by the government’s new financial watchdog, the Irish Financial Services Regulatory Authority (IFSRA).
One Sunday Tribune reader has lost more than €20,000 after AIB advised him to switch his savings into a fund that tracks the performance of Europe’s top 50 blue chip companies. Many are former state-owned phone companies and, just like Eircom, they were hammered in the stock market crash of 2001 and 2002. The bank gave the advice even though the 71-year-old pensioner made it clear that he only wanted a low-risk investment and had never previously invested in anything that did not offer cast-iron guarantees.
Eddie Hobbs of the Consumers’ Association of Ireland, who presents the “Show me the Money” programme on RTE television, is currently representing a number of elderly people who suffered serious losses after taking their banks’ advice. They include the family of a woman who, at 90 years of age, was advised by her bank to lock up her savings in a ten-year bond. The woman is now dead and her family cannot access their inheritance without incurring swinging exit penalties. “A lot of elderly people have a huge degree of trust in banks, failing to recognise that banks have changed fundamentally in the last 10-15 years,” Hobbs says. “Banks are now more akin to financial car salesmen and these people are like sheep to the slaughter. They are a soft target and, once the banks had hoovered up investment business from their other customers, they started hitting the elderly depositors. An extra duty of care should have been given to them and senior management has a lot of questions to answer for allowing elderly people’s money to be moved out of deposit in this way.”
A lifetime customer of AIB, the Sunday Tribune reader was persuaded to invest €76,184 (IR£60,000) in August 2001 in index funds managed by the bank’s insurance subsidiary, Ark Life. These tracked the Euro Stoxx 50 index but, unlike previous tracker bonds in which our reader had invested, the index funds only offered limited capital protection. This meant that AIB was only willing to protect him from the first 12% fall in the index. After that, investors were on their own, exposing them to an unlimited downside when the stock markets crashed. This was a fatal flaw for a product that was described during the sales process as “a type of tracker bond” even though it failed to provide the full money-back guarantees normally associated with tracker bonds. When the bond matured in August 2003 its value had plunged to €55,319, giving a loss of €20,865. The news came as a bitter blow because, even though AIB had issued annual statements of benefits throughout the investment, it never provided an up-to-date valuation. “I am now 71 years of age and have lost over €20,000 of my life savings on this investment,” our reader says. “I feel AIB acted completely inappropriately and recklessly in selling this investment bond to me.” He is especially angry because of the “fact find” that AIB undertook before the investment was made clearly states that he had no appetite for risk. “AIB failed in its duty of care to me, as a long-standing customer, by recommending a very high risk and totally inappropriate investment bond, by failing to determine my attitude to risk, and by not taking into account my investment experience, age, retired status and recent bereavement.”
AIB accepts no blame and is refusing to compensate our reader for his losses, adding that “the negative outcome resulted from a decline in stock markets which was outside the bank’s control”. After several months of battling unsuccessfully through AIB’s internal complaints procedures, he has finally taken his case to insurance ombudsman Caroline Gill. “This was marketed as a low-risk investment but it was clearly indicated that there was some risk,” said an AIB spokeswoman. “History shows that it didn’t go the way it should have.” She added that the bank could not comment further while the complaint was being examined by the ombudsman.
Our reader believes that AIB is deliberately dodging its responsibilities. “If we were to take their line of argument it would imply that AIB is selling investment products on a caveat emptor basis, where no account needs to be taken of the client’s stated attitude to investment risk and circumstances and it’s up to each client to decide if the product is suitable for themselves, and if they don’t see the risks involved then that’s their own fault.” The marketing literature did indeed spell out that “your investment in the AIB index fund could fall in value over the chosen period - and you may not get back the full amount you invested”. But the product was clearly labelled as a “low risk” investment and all of the warnings were dwarfed by illustrations of how the Euro Stoxx 50 index had surged ahead during the bull markets of the 1990s. Potential investors would have had to scrutinise the small print to learn that “past performance is not necessarily a guide to future performance” and that “index values can fall as well as rise”. In this case the index lost almost half its value over the two years of the investment.
According to one investment expert, our reader may not have been an isolated victim. He believes that AIB may be guilty of systematic mis-selling because it described its index funds as low risk even though everybody who invested in them in 2001 is certain to have lost a substantial portion of their savings.
A similar scandal erupted in the UK last year, where thousands of pensioners lost heavily after being persuaded to move their savings into precipice bonds, which promised attractive returns but blew up in investors’ faces when stock markets began to nosedive. The scandal has already led to financial watchdogs slapping a £100m (€140m) fine for mis-selling on Lloyds TSB Bank. Similar fines may follow in Ireland if IFSRA chooses to protect consumers using the considerable new powers at its disposal.
Have you or an elderly relative been sold an unsuitable investment product by a bank or its insurance arm? Tell the Tribune on 01 631 4334 or write to us at 15 Lower Baggot Street, Dublin 2.