The Endowment Diary

The Endowment Diary


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

Wednesday, September 29, 2004

Heads You Lose, Tails You Lose

It seems that those of us who are trying to get compensation for mis-sold endowment policies, are having even more obstacles placed in our way.

The Herald reports the case of one of their readers who managed to obtain a judgement in his favour from the Ombudsman service. However, there was a small problem, the company against which the judgement was made no longer was in business; as it had wound itself up.

The Ombudsman can only enforce orders against companies that are in existence, and the Financial Services Compensation Scheme (FSCS) can only help where the firm has gone out of business; not where the firm has voluntarily ceased trading.

The result being that the hapless policy holder is no nearer gaining compensation.

This is just one of many stories, in the progressively worsening endowment policy scandal, that shows how the system is weighted against the individual who tries to claim redress.

To use a technical term here, it "Sucks, big time!"

Monday, September 27, 2004

What the Life Assurance Firms Don't Want to Tell You

The real reason that the endowment polices have failed, in my view, is that when they were designed by the bright boys in the life assurance industry they had a number of fatal flaws built into them.

Life assurance firms are "experts", so they would have us believe, in risk management. They try to ensure that risks are accounted for, minimised and spread.

What the "bright boys" did when they designed these non performing endowment white elephants, was to spread the risk around the hapless purchasers. They were safe in the knowledge that with 8 million sales, they could spread the risk with little collateral damage to themselves.

They assumed that, in the "unlikely event" that the polices did not perform as well as expected, no one individual would be so out of pocket that they could afford to, or be bothered to complain.

The trouble is, they never bothered telling the hapless endowment policy holder that they were spreading the risk in this manner; nor indeed will they admit to it today.

The other problem is that the polices were very poorly designed; and that the extortionate commission payments extracted from them at the begining, effectively killed the product at birth.

Again, something that they will not admit to.

The final flaw in their great design was the fact that, having spread the risk, with a £40BN shortfall being faced by 8 million people; they know that there is now a massive incentive to complain, yet there is no way that they can ever admit to 8 million people that they were sold "a pup".

Now it is up to the 8 million of us to make them face the consequences.

Friday, September 24, 2004

On The Ropes?

Legal and General (L&G) continue to be kicked around the courtroom, in their appeal against the FSA £1.1M fine for endowment mis-selling.

In the latest spat it is reported that Ian Malcolmson, an L&G customer, told the hearing it was never explained to him that the endowment policy might not pay off the mortgage in full.

Mr Malcolmson felt that, despite being given a booklet outlining some of the risks, he would have expected the sales adviser to give him a verbal explanation of the risk of a shortfall; rather than putting the warning in "small print".

This seems to have been the normal practice with the sales of these underperforming white elephants, the salesmen never could quite bring themselves to speak of the risks involved; or indeed the sizable chunk being taken out of the profits by the commission payments.

Tuesday, September 21, 2004

About Time!

It is reported that the Financial Services Authority (FSA) has been asked to investigate the reward schemes of financial advisers; apparently there are concerns that the commissions and bonuses could affect the advice given, and encourage the mis-selling of financial products.

Now it seems to me that the hapless holders of the splendidly underperforming, and useless, endowment products sold some 10 or more years ago could have told them that.

The Consumers Association has asked the FSA to investigate how products are sold, and the level of commissions paid.

It has also requested that senior directors of financial firms be held accountable for the actions of their employees, and lose their own annual bonus if the firm is fined by the FSA for malpractice.

Now that is a good idea!

In other news, it is reported that a few hundred advisers at Bradford & Bingley are about to quit; as a protest against their new commission policy, which requires them to sell a set number of policies every year.

If they don't hit the target, they don't get a commission.

Bradford & Bingley (B&B) claim that B&B would never encourage staff to give misleading information.

It is certainly long overdue, that the FSA investigates the commission structure of the life assurance companies.

Sunday, September 19, 2004

More Misery

The 350,000 of you who hold endowment policies with Scottish Life, will be feeling even worse about your underperforming policies.

Scottish Life have cut their payouts on their "with profits" polices, for the second time this year.

The polices are now so, I will use an accounting term here, "crappy" that they are not even keeping pace with inflation.

The returns on the Scottish Life polices are a "staggering" 1.1% (inflation is around 2.5%), the FTSE has grown by 6% since January 2004.

Well done lads, are you proud of your product?

Now, Scottish Life (and indeed all the other "professional" life assurance companies) claim that the cuts are to "smooth" the returns on the policies; as a result of the falls in the FTSE between 2000 and 2001.

I would like to ask the following:

Aside from those two years, the FTSE has performed quite well over the past decade (allegedly the longest "bull run" in living memory); where the hell has the money gone?????

Saturday, September 18, 2004

A Nice Legal Spat

The Financial Services Authority (FSA) had a splendid courtroom "bust up" with Legal and General (L&G) yesterday; as the hearing about the £1.1M fine, imposed by the FSA on L&G for mis-selling endwoment policies, continued.

The QC for the FSA, Hodge Malek, noted that the the charge by L&G that the FSA broke the law was "wholly spurious"; he then went on the label the L&G case as "kamikaze defence."

I love a good punch up!

It is clear that, whoever wins this case, the relationship between the FSA and L&G will be irreparably damaged.

Insiders in the FSA are, according to reports, suggesting that the L&G tactic is purely a publicity gimmick.

Friday, September 17, 2004

Legal and General in The Dock

It seems that Legal and General (L&G) may find that their appeal against the £1.1M fine imposed on it by the Financial Services Authority (FSA), for mis-selling endowment mortgages, has brought some of their "dirty laundry" into the public arena.

Yesterday the appeal heard from two homeowners that L&G did not explain the risks of endowment mortgages.

The FSA have now brought in five of L&G's customers to take the stand at the hearing. This hearing is scheduled to last six weeks, so it is not unreasonable to expect to hear from a few more unhappy endowment policy holders.

The essence of the questioning of the hapless borrowers was, how clearly L&G's salesmen warned them that endowment policies could not be guaranteed to pay off mortgages.

The crux of their response was that they were not warned, and had they known of the risk they would not have taken the policy on.

This is precisely what I have been saying for these past two years; why on earth would you take on a something that is not going to pay off the mortgage?

The endowment policies were designed to pay off the mortgages of those who took them out, they have failed to work; therefore the holders are entitled to recompense.

Thursday, September 16, 2004

Site Update

By the way, if you find it a bore to have to go to this site via my main site, you will be pleased to know that I now have a more direct route for you to use.

You can now use the web address to access this site.

Wednesday, September 15, 2004

FSA Broke The Law

The start of the appeal hearing by Legal and General, against the fine imposed on it by the Financial Services Authority, revealed some interesting backstage dealing.

It seems that the Financial Services Authority, by offering to "cut a deal" with Legal and General over the size of the fine imposed on it, may have broken the law.

The FSA offered to reduce its £1.3M fine on L&G, if L&G promised not to proceed with its appeal against the fine.

That's a bit cheeky, isn't it?

The law, it seems, is unequivocal on this point; the FSA cannot use means, such as offering to reduce fines, to deter or obstruct firms from going to an appeals tribunal.

L&G are contesting that the FSA changed their minds about the quality of L&G's processes, in respect of endowment sales, after publicity about mortgage shortfalls in 1999/2000.

The FSA claimed that L&G's systems for processing endowments were deficient, and resulted in L&G mis-selling the products to "financially unsophisticated customers including an unemployed housewife."

The outcome of this hearing will be watched by everyone in the life assurance industry. If the FSA loses, it will embolden other life assurance firms to stand up to the FSA.

Tuesday, September 14, 2004

The Curate's Egg

It is reported that the Financial Ombudsman Service (FOS) is upholding complaints, against banks and building societies, for mis-selling endowment policies pre 1988.

In fact it is now upholding around 90% of complaints, excellent!

However, before people raise a cheer, there is a fly in the ointment; those of us who were sold a policy via an "independent" financial adviser (IFA) pre 1988 have no recourse.

The complaints against banks and building societies are being upheld because they were members of the FOS scheme pre 1988, independent financial advisers were not; the FOS is apparently powerless to investigate, and of course the IFA's are rejecting pre 1988 complaints out of hand.

Life is a bitch!

Saturday, September 11, 2004

The Rotten Core at The Heart of Britain's Financial System

The following is an extract of an article published yesterday on "In Your Face", the article is entitled "The Rotten Core at The Heart of Britain's Financial System".

"The endowment mis-selling scandal, of the late eighties and nineties, readily springs to mind as one of the major failings of our financial system. As has been well documented, the life assurance companies used the bull market to create a totally unsuitable, and useless product, that they aggressively sold in the manner of TV sets and washing machines to over 8 million unsuspecting home owners.

The theory being that the bull market would create high yield returns on this product; that would not just pay off the mortgages of the hapless holders, but would also give rise to a modest surplus. Needless to say, what the life assurance companies did not bother to clearly tell people was that their commission charges would rob the product of much of its initial value, and that their projections for growth were totally unrealistic.

It now turns out that the 8 million holders, of these white elephants, are facing shortfalls of over £40BN. Although, in theory the policyholders can try to claim compensation, the life assurance companies are using every excuse in the book to slow the process down in order to avoid paying compensation. To date a paltry £1BN has been paid to those seeking redress.

The FSA, although they offer some fall back position for those refused compensation by the life assurance companies, do not have any intention of ?rocking the boat? too hard. The FSA refuse to acknowledge the fact that the life assurance companies perpetrated the greatest financial scandal in the UK in living memory

To read the full article visit "In Your Face", and click on the document entitled "The Rotten Core at The Heart of Britain's Financial System".

Wednesday, September 08, 2004

The Gloves Are Off

It seems that the forthcoming appeal by Legal and General (L&G) against the fine handed down from the Financial Services Authority (FSA), for endowment mis-selling, has ruffled the feathers of the FSA.

It is reported that John Tiner, the CEO of the FSA, feels that L&G's attempt to "tough it out" with the FSA should not be taken as an example by other firms of how to stand up to the FSA.

Do I detect a touch of arrogance here?

L&G are breaking new ground, as being the first big life assurance firm not to roll over and "play dead" when the FSA hands down a fine.

It will be interesting to see how they do.

In an amusing twist of fate; it emerged that David Prosser, CEO of L&G, is chairing the Financial Services Skills Council (FSSC).

The FSSC has been set up to train the 1.3 million people working in the financial services industry; and is, by a strange quirk of fate, taking over the FSA's responsibility in this field.

A case of "poacher turned gamekeeper" perhaps?

Monday, September 06, 2004

A Watershed Moment

A watershed in the endowment mortgage mis-selling scandal has been reached, a blast on the trumpets please..............

The £1BN barrier has been breached!

Life assurance companies have now paid over £1BN in compensation, to holders of their white elephant useless underperforming endowment policies.

That, on the face of it, is good news; isn't it?

I am afraid not, it represents a "drop in the ocean".

The current estimate for shortfalls on these policies, is running at £40BN to £100BN plus. The £1BN represents only 2.5% of the lower estimate.

Friday, September 03, 2004

Reuters report that the Financial Services Authority (FSA) has issued a warning to life insurers, that they may be underestimating their liabilities due to poor record keeping.

That's not very encouraging news, is it?

It seems that the FSA's investigation, into the working practices of with profits life assurers, has identified that most firms do not review whether their obligations (ie what they owe you, the policy holder) were being met.

I would ask the question here, what the hell are these companies doing then?

It seems to me that this would be a fundamental procedure; after all, if you don't know as to whether you have met past obligations how the hell do you know if you will be able to meet future ones?

Additionally, it seems that some firms no longer have the key original documents; outlining their obligations, for some products.

Those of us who have been battling to receive compensation, for our hopelessly underperforming and useless endowment policies, can certainly attest to this problem. My earlier claim hit the buffers, partly because key paperwork had long since been disposed of.

Even more alarmingly, it seems that some smaller firms have been drafting contracts for new products without any legal input or review.

Excuse me, but I thought that we lived in a modern Western country with laws and regulations? These companies seem to be operating in a manner more akin to those tin pot operations based in Nigeria who, via unsolicited emails, offer vast sums in exchange for your bank details and a fee (See the Stupid Punts section of my site for examples of these scams).

The good news is that the FSA want life assurers to review their procedures, and report back by 30 November.

That's alright then, isn't it?

Thursday, September 02, 2004

Back To The Future

Which has just issued a report, the findings of which could have been based on the experiences of the owners of endowment policy holders who were sold these underperforming white elephants in the 1980's.

The sad, and rather alarming, feature of the report is that it is based on research carried out by Which, this year.

Which checked out approximately 40 financial advisers, in well known banks and building societies; only three of these "professionals" offered satisfactory advice.

The "revelation" of the report was that advisers concentrated on selling life assurance, rather than on giving advice.

Sound familiar?

Remember when we were told that the smart way to cover a mortgage was with an endowment policy?

Among those "professional" institutions visited were Abbey, Halifax, HSBC, Lloyds TSB, NatWest, Nationwide and Northern Rock.

It seems that the advisers did not make it clear that they were only able to recommend in house mortgages. This is a clear breach of the Mortgage Code.

In other words, despite the endowment policy mis-selling debacle (the biggest financial scandal of the century), it seems that not a single lesson has been learned by our trusted and respected financial institutions.

Based on this, are you confident that the financial institutions will handle your endowment complaint in a professional and unbiased manner?

I suggest you sign my petition, if you are worried.