Two former brokerage employees have made the allegations, according to a news report posted on the Forbes.com Web site. Affected were a large chunk of the firm’s 316,000 US and Canada clients during the period.
According to the report, firm documents show that just over half of its 2002 revenue through December 2002 came from annuities. Equities in that time made up just $3.5 million, while mutual funds constituted $9.2 million. For the eight months through August 2003, firm documents also show annuities generated 51% of total sales – $30.7 million of the firm’s $60.3 million total, the Forbes report said.
The report indicated that firm flow charts from April 2003 show a total of 185 full-service financial advisors. HSBC Brokerage also had 1,200 to 1,300 Licensed Sales Professionals (LSPs) who carried much less licensing.
Thomas Ruggiero, a former vice president and sales director at HSBC from 2001 to 2004, told the magazine that during his tenure more than 70% of the US LSPs only held licenses to sell health or life insurance products, such as fixed annuities. Ruggiero oversaw 136 full-service brokers and 800 LSPs. Of those LSPs, 500 held only insurance licenses, while the other 300 had an NASD Series Six license, meaning they could also sell mutual funds and variable annuities.
“[This] meant that when a customer walked in and wanted to talk to someone about an investment, and an LSP offered themselves, they could not sell other products,” Ruggiero told Forbes. “For them to talk about other products would mean that they were talking about them illegally.”
Another former employee says that often when the annuities were sold to customers, they were not made aware of all of the associated risks. This was because the LSPs were dually licensed to the bank and the brokerage, and customers that came in to do traditional bank business at the bank would then be lead towards purchasing annuities. “There was a built-in trust there,” the unidentified former employee told Forbes.
Another failing, the former employee says, is that the LSPs did not always clarify to clients that products like annuities were not official, insured bank products like certificates of deposit. They are required to do so, however, under mandates by the Federal Deposit Insurance Corp., known as Non-Deposit Investment Product, or NDIP, requirements. Both Ruggiero and the second former employee were let go from HSBC in October 2004.
An HSBC spokeswoman told Forbes that HSBC Securities is a highly ethical company and its policies only permit products, including annuities, to be recommended or sold if such products are suitable for each customer, and all features are disclosed. The spokeswoman added that the firm’s audit and compliance departments review all firm policies and practices, and have found no unlawful sales practices.
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