The Endowment Diary

The Endowment Diary

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The Endowment Mis-selling Debacle - one of the UK's worst financial scandals

Wednesday, October 30, 2002

30th October 2002

Today I receive a response from company “B” (dated 28th October) which is “pp’ed” on behalf of the Compliance and Quality Control Director. In summary the letter contains the following key points:

 It says that prior to April 1988, when the Financial Services Act came into force, there were no regulatory bodies controlling the advising or monitoring the selling of investment contracts.

 Economic conditions have changed since I was old my policy, and the changes in projected growth rates will have a big impact on the maturity values of policies.

 The 1980’s were a buoyant time, investment rates have fallen since then. This has affected “the investment performance of your policy” (no kidding!), and is an industry wide phenomena.

 The information that I have received from my assurance company show a “potential” shortfall (so this is a fuss over nothing?).

 In 1995 company “B” de-authorised their consultants, therefore they are neither authorised or registered to carry out a review.

 I have the right to take the matter further (very kind of them!), but as far as the author of the letter is aware the Personal Investment Authority (they kindly have attached an address) only have a remit to investigate alleged mis-selling of policies taken out after April 1988.

 Any documentation relating to the sale of my policy, being more than 6 years ago, has been destroyed.

So there I have it, “hard luck chum” there was no law in place at the time so we are “off the hook”.

My “off the cuff” opinion of the response from “B” can be summarised, but not limited, by the following points:

 Hiding behind the implementation date of the Financial Services Act is a weasel way of avoiding the issue.

 The policy was either sold properly or not, the timing of an Act does not change the fact of the situation.

 Implying that the policy may in fact come back to profit over the next 10 years makes a mockery of the warning letters being sent out by life assurance companies, and indeed of the projected rates advised by the FSA.

 By concentrating on the returns from investments over the last 10 years they try to avoid the key issue namely; whether the policy mis-sold or not.

The ball is now back in my court. I do not intend to be stonewalled in this manner. Over the next few days I will draft a letter to the relevant authority, as recommended by the endowment action website.

Monday, October 28, 2002

26th October 2002

An article in The Times notes that a gentleman who had threatened to take the Halifax (a major UK mortgage provider) to the small claims court received an undisclosed sum in compensation. This despite the fact that both the Halifax and Ombudsman initially rejected his claim.

It is clear that the glare of publicity and the sharing of peoples’ experiences will boost the chances for individuals pursuing claims against those organisations that they deem to have miss-sold the policies. I decide to set up a website to chart my progress, or lack of it.

23rd October 2002

I receive a letter, dated 21st October, from company “B”, confirming receipt of my letter and noting that it has been forwarded to their compliance department. The letter notes that I will be contacted in due course.

No words of thanks or sorrow though!

It will be interesting to compare the two companies approaches and decisions.

22nd October 2002

I receive a polite letter from “A”, dated 21st October, thanking me for my letter and expressing sorrow for my “dissatisfaction”. It notes that my complaint will be investigated by the sales Complaints Consultant, following a process outlined in an enclosed leaflet.

I suspect they have had one or two complaints!

11th October 2002

I visit the site again and complete the proforma letter builder section, which drafts two letters of complaint (relating to the two tranches of my endowment).

The key issue being that the complaint relates to the method of sale of the policy eg; other options for repayment of the mortgage were not discussed, the adviser told me that there would be a lump sum in addition at the end of the term etc.

The letters request that the companies reply to me within 14 days, and that they handle the complaint according to their usual complaint procedures.

I send the letters to companies A and B.

4th October 2002

I pay a brief visit to the endowment action website. It is well laid out and clearly identifies the steps involved in making a complaint. The key point being that it is not good enough to show a shortfall, you have to prove that you were mis-sold the policy.

2nd October 2002

By uncanny coincidence, I receive two separate warning letters (dated 30th September) from the life assurance company (company “A”), with whom I hold my endowment policies, concerning the potential shortfalls on these policies. Assuming a growth rate of 4%, when the polices mature in 2012 they will miss their targets by £11K and £15K respectively.

In other words, if the growth of the fund averages 4% for the remaining 10 years I will have to find an additional £26K to pay off my mortgage debt in 2012. This represents approximately 1/3rd of my total mortgage.

I take little comfort in the fact that company “A” believes the growth should be 6%; this will still leave me with a cumulative shortfall of £18K.

To say the least, I am more than a little “peeved” about the situation.

28th September 2002

I read an interesting article in The Times about how endowment mortgage holders can pursue their case for compensation. Apparently there may be as many as 5 million people in this situation.

The Times refers to the Consumers’ Association website www.endowmentaction.co.uk which lays out the procedures for making a complaint, and even provides a prof forma complaint letter builder.

Background

In the eighties and early nineties in the UK a popular method of funding the repayment of a mortgage involved the use of an endowment policy. Monthly contributions to the policy over a term, usually 25 years, would be invested by professional life assurance companies with the objective of providing a lump sum at the end of the term which was meant to pay off the mortgage and provide a tax free surplus.

The decline of the stock market over the past few years has caused returns on these policies to dwindle with an expectation that a large number of the policies will not provide a sufficient lump sum to pay off the mortgage.

I hold two endowment policies, both with a major life assurance company (for the time being I will call this company “A”). These were designed to pay off my mortgage debt in 2012.

I started the first in 1987 on the advice of the mortgage services arm of a major firm of UK estate agents (company “B”), the second was sold to me directly by company “A” in 1991.

On both occasions I was explicitly told that the amount would be enough to cover the mortgage debt, and that there would be a tax free cash surplus. I have now been advised that they will be unlikely to pay off the mortgage, and that the projected shortfalls on the policies (assuming a 4% growth rate) are £11K and £15K respectively .

I believe that I was mis-sold the policies, and as such am raising the issue with companies A and B in the expectation of receiving financial redress.