Don't join the 'banana skin and grave brigade'
16 Sep 2012
In the fifth and final article of financial tips for authors, David Craig, author of PILLAGED How they’re looting £413 million a day from our savings and pensions shows how financial advisers can take advantage of the elderly.
The people that banks and financial advisers seem to find most attractive are what some in the financial services industry call the ‘banana skin and grave brigade’ – elderly people who have one foot on a financial banana skin as they don’t know much about finance, savings and investments and the other in the grave as they’ll presumably soon be going on to a better place where they won’t be needing their money any more, so there’s no real harm done relieving them of their cash before they depart. As many of the banana skin and grave brigade will have worked all their lives and saved by buying homes, pensions, life insurance, unit trusts and other assets, they tend to control a large proportion of national wealth.
The two things the elderly usually fear most are outliving their savings and becoming so unwell that they have to sell their homes to pay for nursing-home care. This makes them easy targets for advisers with both products like annuities promising guaranteed income and thus peace of mind and with all sorts of more complex investments advertising (but not guaranteeing) high returns. Some sellers use what they call ‘FAG selling’ (‘Fear and Greed) – they exploit older people’s fear of lasting longer than their money and their greed when offered opportunities to increase their savings.
Many financial advisers specialise in the lucrative market of selling to retirees and those planning their retirement. They can have titles like ‘senior wealth advisers’, ‘retirement planning advisers’, ‘elder planning specialists’ or even the rather scientific-sounding ‘financial gerontologist’. One set of dubious products typically sold and mis-sold to the banana-skin-and-gravers were longer-term (five or more years) stock-market investments with punitive penalties for early withdrawal. These were recommended to both men and women in their late seventies and mid eighties when the average life expectancy for men and women was around eighty six. Naturally, quite a few customers with the longer-term stock-market products died before their investments matured and their heirs found that, after deduction of early-withdrawal penalties, the investment companies returned considerably less than had been invested.
If the elderly don’t have much ready cash available, that hasn’t deterred eager financial sellers. Although some over-65s may have limited pensions and savings, many own their own homes making them what’s called ‘asset-rich but cash-poor’. Seeing the potential of the asset-rich cash-poor market, financial firms have devised various schemes, often called ‘equity release’, which promise to free up some or all of the value in their customers’ homes allowing them to live more comfortably till they die in return for the firms taking part or whole ownership of their customers’ properties.
Interest rates on these loans tend to be significantly higher than on a mortgage, so thanks to the wonders of compound interest, even sums that appear quite modest when originally borrowed can turn into massive debts. For example, someone aged sixty five borrowing the average equity release loan of £50,000 against a home worth £200,000 would find their debt had shot up to about £100,000 after ten years and £200,000 – the total value of their home – by the time they hit eighty five.
In Britain we feel uncomfortable talking about money with our parents and elderly relatives. We feel it might look like we’re on a fishing expedition trying to find our how much money we might get. But if you want to prevent those you know becoming part of the ‘banana skin and grave brigade’ we need to overcome our reticence, ask our elderly friends and relatives about their money, find out who is chasing them to get hold of their cash and warn them about the dangers of handing over their savings.