FIRSTSTOP Advice, the high-profile "free advice" service for the elderly, has declined to comment on its business model, following the record £10.5 million fine on HSBC for mis- selling to people in or entering long-term care.
FirstStop Advice says it is "an independent, free service offering advice and information for older people, their families and carers about housing and care options in later life, led by the charity Elderly Accommodation Counsel working in partnership with other national and local organisations".
The organisation's best-known spokesman, and also its acting chief executive according to his Linked-In profile, is Philip Speirs.
Mr Speirs was a founder of Nursing Home Fees Agency (NHFA) and a director between 1991 and 2010.
NHFA was bought by HSBC in 2005, and over the next five years engaged in "systemic" mis-selling to the elderly, according to this week's final notice published by the Financial Services Authority (FSA).
NHFA also promoted a free advice service, but funded it with the commissions it received for selling investment products, notably investment bonds which constituted most of its unsuitable sales. The FSA said: "The standard of supervision by management posed a high risk of customer detriment. Management failed to implement adequate procedures for monitoring the quality of sales, which meant that the issues relating to the suitability of advice given to customers were not identified."
Mr Speirs is FirstStop's expert on care funding and regularly contributes advice to the media, including the BBC.
Julie Adams, marketing director of FirstStop Advice, told The Herald yesterday that the organisation was not making any comment.
The latest scandal has put the spotlight back on the mis-selling of investment bonds by "advisers" paid and incentivised by high rates of commission from big insurance companies.
The FSA's notice said that NHFA advisers rarely recommended products such as ISAs but predominantly sold investment bonds, to customers with an average age of 83.
But the bonds come with hefty exit fees – sometimes as high as 12% – if you want to get your money back in the first five years. Money put into investment bonds is normally invested in stock market-linked funds so the value of the bonds can fluctuate and they have to be regarded as a long-term commitment.
Tony Rosenbaum, of IFS Wealth Management in Dunfermline, which specialises in advising families how to pay for long-term care, told The Herald: "An investment bond is totally the wrong product if the money is needed to pay for immediate long-term care fees. In this case, I would recommend a care fees annuity which is designed to start paying out a high and guaranteed income, free of tax, immediately. If someone is in their 80s you don't put their money in a product where you can't get it out without penalty for five years."
Robert Reid, a director of Syndaxi Financial Planning and past president of the Personal Finance Society, said: "Investment bonds are totally unsuitable for most ordinary investors, especially where banks are receiving very high levels of up-front commission which is passed on in charges".
One of the highest rates of commission is offered by Standard Life which pays 8% on its investment bonds, while the Prudential offers 7.5% and Canada Life and other companies pay 7%. The maximum commission paid to advisers for recommending investment ISAs or funds is normally 3%.
Investment bonds these days offer a choice of independently managed funds. However, the same funds can normally be purchased direct or through an ISA which is tax-efficient, cheaper and more flexible for many investors, says Richard Wadsworth, of Glasgow-based wealth advisers Fitzallan. He says: "If your initial investment is larger than your annual ISA allowance, you can invest the balance in funds and transfer the money into ISAs in future years taking advantage of your annual capital gains tax allowance."
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