The Endowment Diary

The Endowment Diary

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

Monday, August 04, 2003

Extract of letter from A dated 29 July 2003 (relating to complaint about mortgage sold by A):

“I refer to my letter dated 13 June 2003. I have now investigated the issues raised in your letter dated 2 June. Please accept my apologies for the delay in replying, however, I was awaiting technical guidance.

I would like to address each issue you have raised one by one.

You state that you believe that your policy was mis-sold as you feel that A procedures should have investigated the incomplete fact find. The fact find is used as a tool to document client details and it was not mandatory for all questions to be completed. Therefore, omission of the section that deals with investment attitude does not constitute evidence of a mis-sale.

You state that it is a contradiction in my assessment of your attitude to risk as being low as I state that there is a risk with your policy. Low risk means that you are prepared to take some risk, this does not mean that you are risk avers (no risk).

It was not a regulatory requirement for insurance companies to state what commission the advisor would receive from the sale of your policy. However, the fees an charges applicable to your policy would have been outlined in the policy literature that was sent with our illustration.

From our records, it appears that you were already in the process of setting up your interest only mortgage directly with ***. From the application form that *** have provided us with, it appears that methods of repayment were already discussed under section 19. As you mortgage had already been set up, you had a deficit in cover that needed to be replaced as ** have confirmed that they required an endowment policy to cover the whole mortgage amount.

You have quoted a A financial quote at the time. You have stated that an endowment policy is designed to repay your mortgage and also provide an additional cash sum. This is what it is designed to do but it is not guaranteed and I can not find any evidence of a guarantee in the quotes provided. The fact that your previous employment was a chartered accountant also leads me to conclude that you had a substantial knowledge of the financial industry and would have understood the literature and the illustration provided at the time of sale.

You have quoted a court case where David Barker cited a 1965 Court of Appeal judgement by Lord Denning, which rules that a verbal statement could be considered a warranty. Verbal and oral evidence can be used as evidence when investigating complaints but we must take into consideration the written evidence on our records. Our file holds an illustration that was sent to you (at your request) which confirms the possibility of a shortfall at maturity and does not give any guarantees. The policy literature that was also sent to you at your request also does not give any guarantees with endowment policies.

You state that you were told in a letter dates 30 April 2003 from my colleague that a consultant would explain the reasons for the delaying completing your case. However, the letter states (your case has now been passed for investigation. A customer relations consultant will be in contact shortly”. This does not state that we would explain the delay but after our investigation into your complaint, we would be contacting you shortly in response to your complaint. I apologise if this letter caused some confusion.

I apologise that your endowment file was not enclosed with my letter dated 15 May 2003. Please find enclosed the application form dated 10 November 1991 etc..

Finally, you have queried why you would have opted for an endowment policy if it were not going to repay your mortgage. I have assessed you as having a low attitude to risk, this means that you are prepared to take a risk with your investment for the possibility of a cash surplus at maturity.…”

Extract of letter from A dated 31 July 2003 (relating to complaint about mortgage sold by B):

“..I apologise on behalf of A for the delay in replying.

I can confirm that at the time of sale there was no relationship between ourselves and B, they were an independent financial broker. The reason they were not acting as an agent for the society was, as stated previously, they ere independent and therefore not acting on behalf of us as a provider.

I note from your letter dated 15 July that you have registered a formal complaint with the Financial Ombudsman.

With regard to your reference to the law of agency, the independent financial broker was acting for the client and not for ourselves….”

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