The Endowment Diary

The Endowment Diary


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

Sunday, January 30, 2005

New Rules

New Rules

The Financial Services Authority (FSA), has issued final rules and guidance to help ensure that with profits policyholders are treated fairly.

The rules are intended to increase the transparency, and accountability, of the life assurance industry. The rules cover ao:
  • The costs charged to a with profits fund, by the firm managing the fund

  • Penalties levied on policyholders, who surrender their policies early

  • The need for funds to be managed, to ensure maturity payouts fall within a target range set for the fund

  • The requirement that information be presented to policyholders, or potential policyholders, in a format they can more readily understand

  • Firms must provide information to with profits policyholders within 28 working days of a decision to close a fund to new business

  • A policyholder advocate will be appointed to protect the interests of policyholders
The rules will come into effect on June 30th.

Mick McAteer, principal policy advisor at Which?, believes that these rules represent a retrograde step; he argues that they put even more power, and discretion, into the hands of directors.

He goes on to point out that directors will be able to carry on protecting shareholder interests, by using with profits funds as a slush fund to pay compensation costs.


"With profits policies which are still one of the riskiest products people can invest in. The FSA has done nothing meaningful to ensure that firms spell this out. Neither have they provided the necessary checks and balances to ensure that directing minds in the sector put consumers' interests on the same level as shareholders..".

Friday, January 28, 2005

Form Filling

Form Filling

I finally got "off my backside", and filled the form that I received from the Financial Ombudsman Service the other day.

This form relates to my complaint against my life assurance company, for not providing me with details of commission payments made on my two endowment policies as requested back in November.

The wheels of justice turn slowly!

Thursday, January 27, 2005



The Financial Services Authority (FSA) is reported to be conducting an internal review of its investigations and enforcement operations, after the financial services and markets tribunal overturned its £1.1M fine on Legal & General (L&G) for endowment mis-selling.

The FSA is expected to appoint one of its top officials to lead the review.

Monday, January 24, 2005

The Dead Hand of Bureaucracy

The Dead Hand of Bureaucracy

The Financial Ombudsman Service (FOS) wrote to me today, in respect of my complaint against my life assurance provider not answering my query about commission payments on my two endowment policies.

The FOS will deal with my complaint; however, they need me to fill in a form.

Needless to say, the form requires me to regurgitate details that were already included within my original letter sent to the FOS.

The ways of the bureaucrat are indeed mysterious to behold!

No matter, a small delay of a week, is nothing in comparison to the 2.5 years I have spent on trying to claim redress.

Saturday, January 22, 2005

Tick Tock

Tick Tock

Time is running out for the hapless holders of underperforming, and useless, endowment mortgages to complain over mis-selling.

The life assurance companies will be writing to their policy holders in the coming months, warning them that they have a limited length of time left to complain.

After that, tough luck!

It is reported that Standard Life and Lloyds TSB will shortly be starting their mail shot about this issue.

Norwich Union, will be writing to its 1.1m endowment policy holders in March, reversing its earlier commitment not to impose a time bar.

How nice of them!

Friends Provident and Zurich will also be writing to their policy holders.

Some will allow 6 months to complain, others 12.

The Financial Services Authority (FSA) rules give policyholders three years to complain, after the arrival of an initial letter warning that an endowment has underperformed.

Out of the large firms, only Legal & General and Prudential have not imposed time limits on complaints.

Friday, January 21, 2005

L&G Puts The Boot In

L&G Puts The Boot In

It is reported that David Prosser, CEO of Legal & General (L&G), has demanded changes to the Financial Services Authority's (FSA) disciplinary procedures.

This is in the wake of the partly successful appeal by L&G, against the FSA fine of £1.1M for endowment policy mis-selling by L&G.

Prosser asked for greater independence in the FSA's regulatory decisions committee (RDC), that is the body that considers recommendations made by the regulator's enforcement staff.

Currently the chair of the RDC is an FSA employee.

It is reported that L&G may ask the Financial Services and Markets Tribunal to enforce these changes.

Wednesday, January 19, 2005

Norwich Union Cuts Payouts

Norwich Union Cuts Payouts

Norwich Union gave 1M holders of its with profits endowment policies a kick in the teeth yesterday.

It announced that it would be cutting payouts on maturing, longer term, policies by up to 11%.

The cuts are in spite of an investment return of over 11% before tax in 2004.

Norwich Union did at least try to ease the pain, by announcing that it has put aside £1BN to help its policy holders stuck with an underperforming endowment policy.

Mike Urmston, the chief actuary at Norwich Union Life, is reported to have said:

"The last two years of positive returns have not compensated for the negative returns of the previous three years."

Norwich noted that its maturing 25 year mortgage endowments are producing surpluses, over and above the target amounts. However, its 15 year mortgage endowments are falling short.

The company has reduced its exit penalties, that are charged when people cash in their policies early or move their money to other insurers, to a rather high 18%.

Score Draw

Score Draw

The Financial Services and Markets Tribunal (FSMT) issued its judgement in the Legal & General (L&G) vs Financial Services Authority (FSA) case.

The FSMT yesterday cleared L&G of wide-spread mis-selling of endowments, it noted that only 8 out of the 152 sales reviewed could be proven to be mis-sold.

The Tribunal also noted that the £1.1m fine imposed by the FSA should be reduced, and said a further hearing will be held on this issue.

It noted that ruled that the FSA had been "in error in its approach to the mis-selling case", adding that its conclusions were "not justified by the material before it".

The case has ended up costing L&G more in legal fees, than it will save through a lowering of its fine.

Needless to say both L&G and the FSA are claiming victory.

Whether this ruling helps the 8 million hapless holders of these underperforming, and useless, products remains to be seen.

Tuesday, January 18, 2005

Judgement Day

Judgement Day

Today is judgement day in the battle between the Financial Services Authority (FSA) and Legal and General (L&G).

The Financial Services and Markets Tribunal will rule in the appeal made by L&G, over the FSA's fine of £1.1M for mis-selling endowment mortgages.

Smart money in the City is on the tribunal giving the FSA a "drubbing" over it's role in this case, and in the manner in which it decided on the fine.

A partial victory for L&G would severely damage the FSA, and open the gates for others to appeal their fines.

Monday, January 17, 2005

Backlog Developing

Backlog Developing

It seems that there is quite a backlog of endowment mis-selling cases piling up, at the Financial Ombudsman Service (FOS).

These cases are now likely to take a year or more to resolve. The FOS had budgeted for around 35000 cases, but now believes that it will be dealing with 67000.

The FOS has hired 200 new adjudicators in 2004, but that does not seem to be enough to cope with the increased number of complaints from people holding useless and underperforming endowment policies.

The FOS is pretty "pissed off" with the endowment providers, and believes that they are not co-operating with the FOS adjudicators.

It seems that there are 10 well known trouble making life assurance companies, who simply reject consumer complaints out of hand. These rejected complaints then land on the desk of the FOS.

It seems that these 10 naughty companies don't even bother to investigate the complaints, but are happy to let the poor consumer wait in limbo for 8 weeks (the FSA time limit) before telling them that their complaint is rejected.

Nice trick guys!

I am pleased to note that the names of these 10 companies have been passed on to the FSA, for fines.

It would be even better, if the names were released to the media; thus "naming and shaming" these companies as well.

Waste Not Want Not

Waste Not Want Not

It is not the place of this site to lecture people on what they should do with their endowment compensation, if they are lucky enough to receive some.

However, I must admit to being more than a little concerned to read that some people; instead of using the compensation to reduce their outstanding mortgages, are in fact "blowing it" on holidays and consumer items.

The full story is in the Sunday Herald.

This is, in my humble view, a very stupid thing to be doing.

Wednesday, January 12, 2005

Halifax Tardy

Halifax Tardy

It is reported that Halifax is being somewhat tardy with paying compensation to its endowment policy holders.

Complaints handler, Brunel Franklin, accused Halifax of delaying payments up to 6 months.

Claims director for Brunel Franklin, Ian Allison, is reported to have said:

"We have supplied Halifax with all the information they need to settle these claims quickly, yet they are still refusing to pay out monies that they have admitted is due to clients....This is an outrageous state of affairs and one that people need to know about..."

Halifax say that all cases were handled within the guidelines laid down by the Financial Services Authority.

Halifax spokesman Mark Hemingway is reported to have said:

"We aim to clear compensation cases as quickly as possible, but often we are reliant on calculations coming back from third parties, such as life companies, so this can take time...Among banks and insurers, we are not unusual in the time we take over payment of claims..".

In other words, whoever you are claiming against, you are going to have to wait a long time.

Tuesday, January 11, 2005

Complaint Raised With Ombudsman

Complaint Raised With Ombudsman

Copy of a letter sent to the Financial Ombudsman Service today:

"Dear Sir/Madam,

I wish to make a formal complaint about ***’s handling of my request for information about commission payments, on my two endowment policies.

I originally made the request for information on 11 November 2004 and, despite several letters and a phone call, I have yet to receive an answer.

I regard their handling of this matter to be unhelpful and obstructive.

I have enclosed copies of the correspondence, and a summary of the phone call.

Please feel free to contact me if you require further information.

Thank you in advance for your help

Monday, January 10, 2005

Bonuses Cut

Bonuses Cut

More bad news for the hapless holders of underperforming, and useless, endowment policies.

Axa Equity & Law has announced that it will be halving the annual bonus payments on its with-profits policies from a pathetic 2%, to a derisory 1%.

That is less than inflation, and certainly less than you would get for leaving your money in a savings account.

Legal & General (L&G) has cut interim bonuses on some of its with-profits bonds from 3.5% to 2.75%.

Prudential is maintaining its annual bonus payouts on its Prudence Bond, at 3.25%.

The Actuarial Profession are reported to have said that, despite rising equity markets, bonus payouts "are continuing to fall and are set to do so for a number of years yet".

Sunday, January 09, 2005

Three Cheers for Liverpool Victoria

Three Cheers for Liverpool Victoria

Liverpool Victoria, the UK's largest friendly society, announced this week that all of its currently maturing mortgage endowment policies would receive a surplus on top of the mortgage amount covered.

In other words, those who hold endowment polices with Liverpool Victoria will receive a small profit over and above the mortgage.

Malcolm Berryman, Liverpool Victoria's group chief executive, said:

"The strong performance of our with-profits fund has ensured a surplus for all of our mortgage endowment policies that have matured or are currently maturing..In addition, our unconditional guarantee gives total peace of mind to our members for the future...."

Liverpool Victoria confirmed that none of its 6,000 mortgage endowment policyholders will suffer a shortfall, whatever happens to future investment returns.

It has made a financial provision to cover this guarantee, this will not have any adverse impact on future financial performance.

Now let us compare this excellent piece of news, with the dismal announcements made by the life assurance industry recently.
  • AXA has announced that it will be reducing their payouts

  • Standard Life will reduce its payouts to its 2.4M policy holders

  • The Actuarial Profession, the body which represents those who run with-profits funds, has warned that the majority of customers will face falls in value of their policies for several years to come
Now it is not unreasonable to ask, how is it that one company can actually generate a profit for its policy holders; whilst the others only seem to be able to generate losses for their hapless endowment policy holders?

After all, they have all faced the same declining stock market!

The answer lies in the manner in which the companies manage their funds. Liverpool Victoria were more cautious when it came to paying out vast annual bonuses, in years of high returns.

They understood the concept of "with profits", namely that the profits made in one year should be used to smooth returns in the years of poor performance.

Unfortunately, it seems that many other "big names" in the "profession" chose to go for big bonuses in order to attract customers.

Needless to say, famine follows feast; when the stock markets started to fall, and with it investment returns, these companies that had paid out super inflated bonuses had nothing left in the cupboard to smooth things over with in the lean years.

I would argue that, in addition to persuing these companies for "mis-selling" polices, people, the FSA and the Treasury Select Committee should be going after them for mismanaging the funds.

After all if one company can produce a surplus whilst operating in the exactly the same market, why couldn't the others?

Procter Jumps Ship

Procter Jumps Ship

Andrew Procter, head of enforcement at the Financial Services Authority (FSA), is leaving to join Deutsche Bank; as head of compliance for Britain and Western Europe.

Procter was involved in the investigation into endowment mis-selling at Legal & General (L&G), which is currently appealing the £1.1m fine at the financial services and markets tribunal.

The result of their appeal is expected to be announced this week; and it was assumed, by some, that if L&G won then Procter would have to resign.

Wednesday, January 05, 2005

A Straw in The Wind

A Straw in The Wind

The Financial Services authority (FSA) has decided that it is now time to "get tough" with the life assurance industry, in respect of the underperforming and useless endowment policies that some 8 million people hold in the UK.

The FSA have written to the chief executives of all companies that sell endowment policies; the letter warns them that, in the opinion of the FSA, they (the life assurance companies) are dismissing complaints from customers without proper investigation.

To date, 500,000 people have complained to insurers and banks; and have received compensation for endowment mortgage mis-selling.

The FSA notes that the Financial Ombudsman Service (FOS) is upholding a large proportion of complaints, that were originally dismissed by the companies that sold the policies; this gives rise to the conclusion that the life assurance companies are not handling the complaints properly.

The FOS now employs 1000 people to handle endowment complaints.

Clive Briault, managing director of retail markets at the FSA, says:

"firms may not be handling complaints properly...Firms should not manage their own caseloads by allowing an excessive number of complaints to flow through to the FOS...".

The FSA has also identified "inconsistencies" in the decisions of some life assurance companies, relating to certain types of complaint.

To date the FSA has fined two companies, for their failure to handle complaints about endowment mortgages properly.

-Allied Dunbar Assurance was fined £725K for serious flaws in March 2004

-Friends Provident was fined £675K for failures in its procedures.

The FSA states that it wants firms to review their policies and procedures for the handling of complaints, and confirm that they are appropriate or take any necessary action.

The FSA will continue to monitor progress and outcomes to assure itself and the public that complaints are being handled fairly, and to act in any cases where it finds weaknesses that put consumers' interests at risk.

There is reportedly a straw in the wind, albeit a rather small one, that indicates that the mood at FSA headquarters is shifting in favour of the hapless endowment policy holder. Namely, that the majority of policies were not mis-bought but mis-sold.

Which? goes one better.

Which? wants the FSA to order a wholesale re-investigation of all rejected complaints, to ensure that people have been dealt with fairly.

Louise Hanson, head of campaigns at Which?, said:

"The FSA must continue to take these bad apples to task by immediately naming and shaming them, and then implementing significant fines where rules have been broken.."

This site fully endorses this suggestion.

Tuesday, January 04, 2005

Judgement Day

Judgement Day

The long awaited judgement, in the case of the FSA vs Legal and General (L&G) will be announced around the 10th of January.

The Financial Services and Markets Tribunal said that the delay in announcing their judgement, was due to sickness and holidays.

L&G went to the tribunal in 2004, in the hope of overturning the £1.1M fine imposed on it by the FSA for endowment mis-selling.

The FSA claimed that there were "fundamental deficiencies" in the way that L&G sold mortgage endowments to low-risk customers, between 1997 and 1999; specifically, their sales and compliance procedures were found to be wanting.

It is reported that customers were given unsuitable recommendations by sales people.

An internal memo at L&G admitted, that the policies had "a very real risk of shortfall at maturity". The FSA also detailed how L&G had failed its own mock regulatory inspections.

The 5 week hearing ended in October, the FSA and insurance industry having been holding their breath ever since.

Should L&G win the case, then the credibility of the FSA would take a severe "hammering". It would also act as the green light for other insurance companies to challenge decisions, and fines imposed upon them by the FSA.

However, should the FSA win it would provide a boost for its reputation and provide a firm underpinning of John Tiner's position as CEO. Whereas the CEO of L&G, David Prosser, may well have to resign.

We, the hapless holders of these underperforming and useless endowment policies, wait with baited breath.