From Bad To Worse
The endowment policy crisis could be far worse than experts expect.
That is the view of Clive Cowdery, chief executive of Resolution Life. He predicts that the amount of assets held in close funds funds will double to £400BN, in the next five years, as more insurers shut off their funds to new money.
Closed funds do not take in contributions, their only purpose is to pay existing liabilities; in other words they are winding down, as such their returns are lower than open ones.
Cowdery believes that closed funds will account for 15 million policies by 2011.
That will be when the "fun really starts"; as people realise that their funds don't work, and wake up to the fact that they have a debt that they cannot afford to settle.
I would hope that, despite the fact that the life assurance companies are doing their best to sweep the biggest financial scandal of the 20th century under the carpet, people wake up to this disaster a little earlier than that.
Time for the politicians to wake up as well!
Monday, August 01, 2005
Thursday, July 28, 2005
Mortgage Advisory Centre In Liquidation
Mortgage Advisory Centre In Liquidation
Mortgage Advisory Centre, based in Edinburgh, run by Robert McGrail, a businessman and shareholder in Hearts football club, has reportedly gone into liquidation.
The Financial Services Authority is expected to issue a statement about the firm, within the next few days. It is unclear how many customers have complained about endowment mortgages sold by the company.
Mr McGrail is reported to control the independent broker First Mortgage Direct.
Mortgage Advisory Centre, based in Edinburgh, run by Robert McGrail, a businessman and shareholder in Hearts football club, has reportedly gone into liquidation.
The Financial Services Authority is expected to issue a statement about the firm, within the next few days. It is unclear how many customers have complained about endowment mortgages sold by the company.
Mr McGrail is reported to control the independent broker First Mortgage Direct.
Tuesday, July 26, 2005
Misery For Scottish Widows
Misery For Scottish Widows
Bad news for those of you who hold with-profits policies with Scottish Widows, the maturity values of these policies have fallen again; despite the recovery of equity markets.
The value of an average 25-year with-profits contract has dropped in the past six months, rather worrying given the fact that the stock market has been rising.
Scottish Widows said that payouts were lower because funds were invested over different time periods, yielding different earnings.
It still expects its £18BN with-profits fund to produce a pre-tax investment return of 15% in the 12 months to end-June, compared to 7.3% in the same period the previous year.
However, the company warned that maturity payouts could continue to fall, even in years where positive investment returns were achieved.
The Widows have tried to explain the reason for the fall as being due to the returns on with-profits, which aim to smooth payouts by holding back some of the return in good years to pay out in the bad, as being historically "significantly higher" than those of late.
To my simple view that means that they were paying out too much in earlier years, and not applying the "smoothing principle" properly.
Now there are two possible reasons for this:
1 Poor management of the policy
2 Deliberate over payment to attract new customers and shareholders
A typical 25-year endowment with Scottish Widows, maturing on 1 August, dropped 2.8% on February and 7.4% on the year. A mortgage-linked endowment over the same period fell 2.8% in value since February and 8.1% over the past year.
Bad news for those of you who hold with-profits policies with Scottish Widows, the maturity values of these policies have fallen again; despite the recovery of equity markets.
The value of an average 25-year with-profits contract has dropped in the past six months, rather worrying given the fact that the stock market has been rising.
Scottish Widows said that payouts were lower because funds were invested over different time periods, yielding different earnings.
It still expects its £18BN with-profits fund to produce a pre-tax investment return of 15% in the 12 months to end-June, compared to 7.3% in the same period the previous year.
However, the company warned that maturity payouts could continue to fall, even in years where positive investment returns were achieved.
The Widows have tried to explain the reason for the fall as being due to the returns on with-profits, which aim to smooth payouts by holding back some of the return in good years to pay out in the bad, as being historically "significantly higher" than those of late.
To my simple view that means that they were paying out too much in earlier years, and not applying the "smoothing principle" properly.
Now there are two possible reasons for this:
1 Poor management of the policy
2 Deliberate over payment to attract new customers and shareholders
A typical 25-year endowment with Scottish Widows, maturing on 1 August, dropped 2.8% on February and 7.4% on the year. A mortgage-linked endowment over the same period fell 2.8% in value since February and 8.1% over the past year.
Thursday, July 21, 2005
Endowment Complaints Rise In Scotland
Endowment Complaints Rise In Scotland
The number of complaints to Scotland's legal watchdog rose by more than a quarter last year, from 395 to 505, arising from the mis-selling of endowment policies.
See The Herald.
The number of complaints to Scotland's legal watchdog rose by more than a quarter last year, from 395 to 505, arising from the mis-selling of endowment policies.
See The Herald.
Monday, July 18, 2005
Complain Now
Complain Now
Research carried out by the Financial Services Authority (FSA) shows that over a million households feel they have a case for making a complaint for mis-selling, in relation to their useless and underperforming endowment policy.
However, they haven't yet done so.
Come on people, get off your backsides and take action!
Make the life assurance companies pay for their mismanagement of your money.
Research carried out by the Financial Services Authority (FSA) shows that over a million households feel they have a case for making a complaint for mis-selling, in relation to their useless and underperforming endowment policy.
However, they haven't yet done so.
Come on people, get off your backsides and take action!
Make the life assurance companies pay for their mismanagement of your money.
Monday, July 11, 2005
The Can of Worms
The Can of Worms
It seems that the "dear old" life assurance companies, who manage the underperforming and useless endowment polices that are held by over 8 million people, are not content with the damage that these products have done to their reputations.
As if to further dig the knife deeper into this self inflicted wound, some of them are not spelling out clearly enough the time bar deadline on their "red warning letters".
That is at least the view of solicitors Beresfords, from Doncaster, who say that many "red letters" are failing to give adequate warning to policy holders about the time deadline for complaining.
Beresfords is preparing a report on the time limit issue to send to the Financial Ombudsman Service (FOS), and the insurers which sold endowments. They state that up to half of the red warning letters do not identify the deadline.
Martin Ryan, the firm's compliance and regulation officer, is quoted as saying:
"In 50 per cent of cases there don't appear to be valid time bars..There seem to have been a lot of incorrect red letters going out - specifically not drawing the attention of the client to take action or setting no date by which action had to be taken."
Some insurers, ever mindful of their obligations to themselves, are using time bars as a blanket reason not to examine complaints sent to them.
The FSA will hold a meeting of industry bodies, this Friday, to discuss proposals on endowment compensation. It is expected to present research on how claims have been handled, which is believed to cast financial advisers and insurers in a poor light.
It is very clear that the life assurance industry is "closing ranks" on this issue, and will do everything it can to avoid facing the unpalatable truth that it has sold a product that was not fit for purpose.
Endowment polices, that are meant to pay off mortgages, do not work.
It is as simple as that.
As such the life assurance companies should underwrite them.
The life assurance companies whilst trying to bury their heads, and the heads of their policy holders, in the sand over this disgrace will face rather rude shock.
Raymond Donn, senior partner of law firm Donns in Manchester, is quoted as saying:
"We intend to challenge the time bars when the insurance companies start invoking them next year. A lot of people who have mortgages don't know if there is going to be a shortfall."
Martin Ryan, of Beresfords, believes that the industry will try to avoid precedents being set in court.
"At the moment we are talking of industry-imposed time bars..But if a judge got into it, a can of worms could open up for the industry. It would be the first time a judge ran the rule over it. And the industry could find that, in some areas, they might not be able to use time bars at all."
The life assurance industry is learning, whether it likes it or not, that reputations are hard to earn, but easy to squander.
It seems that the "dear old" life assurance companies, who manage the underperforming and useless endowment polices that are held by over 8 million people, are not content with the damage that these products have done to their reputations.
As if to further dig the knife deeper into this self inflicted wound, some of them are not spelling out clearly enough the time bar deadline on their "red warning letters".
That is at least the view of solicitors Beresfords, from Doncaster, who say that many "red letters" are failing to give adequate warning to policy holders about the time deadline for complaining.
Beresfords is preparing a report on the time limit issue to send to the Financial Ombudsman Service (FOS), and the insurers which sold endowments. They state that up to half of the red warning letters do not identify the deadline.
Martin Ryan, the firm's compliance and regulation officer, is quoted as saying:
"In 50 per cent of cases there don't appear to be valid time bars..There seem to have been a lot of incorrect red letters going out - specifically not drawing the attention of the client to take action or setting no date by which action had to be taken."
Some insurers, ever mindful of their obligations to themselves, are using time bars as a blanket reason not to examine complaints sent to them.
The FSA will hold a meeting of industry bodies, this Friday, to discuss proposals on endowment compensation. It is expected to present research on how claims have been handled, which is believed to cast financial advisers and insurers in a poor light.
It is very clear that the life assurance industry is "closing ranks" on this issue, and will do everything it can to avoid facing the unpalatable truth that it has sold a product that was not fit for purpose.
Endowment polices, that are meant to pay off mortgages, do not work.
It is as simple as that.
As such the life assurance companies should underwrite them.
The life assurance companies whilst trying to bury their heads, and the heads of their policy holders, in the sand over this disgrace will face rather rude shock.
Raymond Donn, senior partner of law firm Donns in Manchester, is quoted as saying:
"We intend to challenge the time bars when the insurance companies start invoking them next year. A lot of people who have mortgages don't know if there is going to be a shortfall."
Martin Ryan, of Beresfords, believes that the industry will try to avoid precedents being set in court.
"At the moment we are talking of industry-imposed time bars..But if a judge got into it, a can of worms could open up for the industry. It would be the first time a judge ran the rule over it. And the industry could find that, in some areas, they might not be able to use time bars at all."
The life assurance industry is learning, whether it likes it or not, that reputations are hard to earn, but easy to squander.
Monday, July 04, 2005
Time To Sue
Time To Sue
It seems that the life assurance industry is guilty of a "being economical with the truth" in trying to persuade their hapless policy holders that once the time bar is down, they have no further rights to claim compensation.
The Observer reports that endowment policy holders still have the right to sue the life assurance companies in the courts.
Not surprisingly the life assurance industry, the same people who sold and mis-managed these useless products, is reluctant to remind people of their rights to sue.
Lawyer Adam Samuel, formerly the Personal Investment Authority Ombudsman, is quoted as saying:
"If anyone took one of these cases to court, the consumer would very probably win. The industry is terrified of this."
The life assurance industry is loath to allow a legal precedent to be set, that could cost billions.
As I have repeated many times on this site, what is actually needed is for there to be a class action taken by the 8 million holders of these useless, underperforming, products.
That will be the most efficient, and effective, method of ensuring that the life assurance industry addresses the failure and mismanagement of these products.
It seems that the life assurance industry is guilty of a "being economical with the truth" in trying to persuade their hapless policy holders that once the time bar is down, they have no further rights to claim compensation.
The Observer reports that endowment policy holders still have the right to sue the life assurance companies in the courts.
Not surprisingly the life assurance industry, the same people who sold and mis-managed these useless products, is reluctant to remind people of their rights to sue.
Lawyer Adam Samuel, formerly the Personal Investment Authority Ombudsman, is quoted as saying:
"If anyone took one of these cases to court, the consumer would very probably win. The industry is terrified of this."
The life assurance industry is loath to allow a legal precedent to be set, that could cost billions.
As I have repeated many times on this site, what is actually needed is for there to be a class action taken by the 8 million holders of these useless, underperforming, products.
That will be the most efficient, and effective, method of ensuring that the life assurance industry addresses the failure and mismanagement of these products.
Thursday, June 30, 2005
Endowment Complaints Quadruple
Endowment Complaints Quadruple
The number of claims being made by people who hold useless and underperforming endowment policies, has risen dramatically.
The Financial Ombudsman Service (FOS) has said that it received 70,000 new complaints about endowment mortgages last year.
That is four times as many as it received three years ago.
The FOS expect that the level of complaints will increase; as people received re-projection letters, which will warn them that their policies are going to fail.
Walter Merricks, chief ombudsman, is quoted as saying:
"The number [of disputes] we can expect to receive in the current year will largely be determined by how financial services firms meet the new regulatory requirements on so-called re-projection letters."
The FOS noted that the Financial Services Authority (FSA) had found evidence of serious shortcomings, by some firms, in the handling of endowment complaints.
As noted before, people should be going to jail for this.
The number of claims being made by people who hold useless and underperforming endowment policies, has risen dramatically.
The Financial Ombudsman Service (FOS) has said that it received 70,000 new complaints about endowment mortgages last year.
That is four times as many as it received three years ago.
The FOS expect that the level of complaints will increase; as people received re-projection letters, which will warn them that their policies are going to fail.
Walter Merricks, chief ombudsman, is quoted as saying:
"The number [of disputes] we can expect to receive in the current year will largely be determined by how financial services firms meet the new regulatory requirements on so-called re-projection letters."
The FOS noted that the Financial Services Authority (FSA) had found evidence of serious shortcomings, by some firms, in the handling of endowment complaints.
As noted before, people should be going to jail for this.
Wednesday, June 29, 2005
Norwich Union Raises Bonuses
Norwich Union Raises Bonuses
In a rare piece of good news, for some of those holding endowment policies, Norwich Union has announced that it will be raising bonuses on some of its with profits endowment policies.
This will be the first increase since 1991, that fact alone shows just how badly endowment policies have been performing.
As noted many times before; why were these polices, when they were obviously failing, still sold by the life assurance companies?
Norwich Union said that it had decided to raise the rates paid on certain with profits policies in the CGNU (which includes General Accident) and CULAC (Commercial Union) funds, on those with profits policies taken out before October 1998.
The bonus rates will be increased from 1% to 2% in the CGNU fund, and people in the CULAC fund will be paid 1.5% compared with 0.5% previously.
Norwich said all other bonus rates would remain unchanged, and that there would be no changes to the value of maturity payouts or the current levels of "market value reduction".
In a rare piece of good news, for some of those holding endowment policies, Norwich Union has announced that it will be raising bonuses on some of its with profits endowment policies.
This will be the first increase since 1991, that fact alone shows just how badly endowment policies have been performing.
As noted many times before; why were these polices, when they were obviously failing, still sold by the life assurance companies?
Norwich Union said that it had decided to raise the rates paid on certain with profits policies in the CGNU (which includes General Accident) and CULAC (Commercial Union) funds, on those with profits policies taken out before October 1998.
The bonus rates will be increased from 1% to 2% in the CGNU fund, and people in the CULAC fund will be paid 1.5% compared with 0.5% previously.
Norwich said all other bonus rates would remain unchanged, and that there would be no changes to the value of maturity payouts or the current levels of "market value reduction".
Monday, June 27, 2005
Scottish Test Case
Scottish Test Case
The Herald reports that a Glasgow financial advisory firm is planning a legal test case, on behalf of nearly 100 clients allegedly mis-sold endowment policies by Scottish solicitors.
Macarthur Denton Asset Management accused lawyers of a "disgraceful" failure to fulfill their professional responsibilities, alleging that they have "collectively shrugged their shoulders" when pressed for compensation.
I personally believe that the best way forward, for the 8 million of us who hold these useless and underperforming policies, is for there to be a class action.
The Herald reports that a Glasgow financial advisory firm is planning a legal test case, on behalf of nearly 100 clients allegedly mis-sold endowment policies by Scottish solicitors.
Macarthur Denton Asset Management accused lawyers of a "disgraceful" failure to fulfill their professional responsibilities, alleging that they have "collectively shrugged their shoulders" when pressed for compensation.
I personally believe that the best way forward, for the 8 million of us who hold these useless and underperforming policies, is for there to be a class action.
Monday, June 20, 2005
Closed Funds
Closed Funds
Many endowment policy owners hold policies in closed funds, around £160BN is tied up in these funds.
Closed funds are funds that are closed to new business.
These funds, because they are closed, do not have the same incentive to try to show a good return on their funds and thus attract new investors.
Policy holders are faced with the dilemma of choosing between staying with the fund or exiting, and thus incurring exit penalties.
The Telegraph discussed these issues in a recent article. You can read it via this link Closed Funds.
Many endowment policy owners hold policies in closed funds, around £160BN is tied up in these funds.
Closed funds are funds that are closed to new business.
These funds, because they are closed, do not have the same incentive to try to show a good return on their funds and thus attract new investors.
Policy holders are faced with the dilemma of choosing between staying with the fund or exiting, and thus incurring exit penalties.
The Telegraph discussed these issues in a recent article. You can read it via this link Closed Funds.
Thursday, June 16, 2005
Tuesday, June 14, 2005
Standard Life "Merely Following Orders"
Standard Life "Merely Following Orders"
It seems that Standard Life is getting rather a rough press these days, over its endowment policies.
Standard Life is now facing calls to compensate up to 100,000 mortgage endowment holders, for failing to disclose the full extent of charges levied on their endowment policies.
The hapless holders of their Homeplan policies are now facing 12% shortfall on their policies, because of a charging discrepancy.
Which? is leading the calls to compensate victims of this debacle; other companies (Norwich Union, L&G, Scottish Widows and Axa) which sold policies, with similar charging structures, have topped up their own clients' investments.
Standard Life used "standard charge projections", specified by the regulator, to calculate its premiums. However, the actual charges were up to 10% higher.
Standard Life claim that they have done nothing wrong.
A spokesman said that they were merely following industry guidelines at the time.
Doesn't that, "merely following orders", have a familiar ring to it?
It seems that Standard Life is getting rather a rough press these days, over its endowment policies.
Standard Life is now facing calls to compensate up to 100,000 mortgage endowment holders, for failing to disclose the full extent of charges levied on their endowment policies.
The hapless holders of their Homeplan policies are now facing 12% shortfall on their policies, because of a charging discrepancy.
Which? is leading the calls to compensate victims of this debacle; other companies (Norwich Union, L&G, Scottish Widows and Axa) which sold policies, with similar charging structures, have topped up their own clients' investments.
Standard Life used "standard charge projections", specified by the regulator, to calculate its premiums. However, the actual charges were up to 10% higher.
Standard Life claim that they have done nothing wrong.
A spokesman said that they were merely following industry guidelines at the time.
Doesn't that, "merely following orders", have a familiar ring to it?
Friday, June 10, 2005
FT Article
FT Article
My thanks to Ben for forwarding me this article, that appeared in the FT on the 7th of May.
"The most successful blogs appear to be first and foremost exercises in 'personal branding'. One such blogger is self-styled 'living brand' Ken Frost, who has a huge personal blog and an equally lengthy one (some 205 pages) detailing every twist and turn of the mis-sold endowments debacle and his claim for compensation."
My thanks to Ben for forwarding me this article, that appeared in the FT on the 7th of May.
"The most successful blogs appear to be first and foremost exercises in 'personal branding'. One such blogger is self-styled 'living brand' Ken Frost, who has a huge personal blog and an equally lengthy one (some 205 pages) detailing every twist and turn of the mis-sold endowments debacle and his claim for compensation."
Monday, June 06, 2005
Standards Life's Endowment Debacle
Standard Life's Endowment Debacle
Further to my earlier article about Standard Life's failing Homeplan endowment policy, it seems that the shortfalls on this useless product will be more than previously thought.
It seems that the value of many of the company's Homeplan policies, sold in the early 1990s, could be as much as 12% lower than the amount originally estimated.
It is estimated that the losses could exceed £250M.
The reason?
Standard Life set its premiums at an artificially low level in order to attract new business.
Standard Life are continuing to reject demands that the company compensate those who face shortfalls.
Well they would, wouldn't they?
A Standard Life are quoted as saying:
"At the time it was launched, Homeplan was an innovative and popular product. The innovative flexibility offered by Homeplan meant it was an immediate success and helped tens of thousands of people onto the property ladder."
Not much comfort to those facing a shortfall now though is it?
As I have repeated, time and time again, what is the point of an endowment policy if it is not going to pay off the mortgage?
People would not have taken these useless policies out if they didn't think that they would work.
In other words, it is the duty of the life assurance companies to underwrite these policies.
Standard Life are keen to blame the independent financial advisers (IFAS) for their mess. They are reportedly saying that the way the product was designed meant that IFAS, who were responsible for selling Homeplan policies at the time, could themselves decide the level of premiums that their clients should pay.
Janet Walford, editor of Money Management, politely says that this is of course bollocks:
"This just does not seem logical to me. Life offices price their policies on complex actuarial assumptions, including underwriting risk, assumed performance and charges. How would an IFA know what to charge? It's madness."
Other life insurers, have realised the error of their ways and have quietly paid compensation to their policyholders in a similar position.
The list of recalcitrants includes; Scottish Widows, Axa, Clerical Medical, Legal & General, Norwich Union and Canada Life.
Further to my earlier article about Standard Life's failing Homeplan endowment policy, it seems that the shortfalls on this useless product will be more than previously thought.
It seems that the value of many of the company's Homeplan policies, sold in the early 1990s, could be as much as 12% lower than the amount originally estimated.
It is estimated that the losses could exceed £250M.
The reason?
Standard Life set its premiums at an artificially low level in order to attract new business.
Standard Life are continuing to reject demands that the company compensate those who face shortfalls.
Well they would, wouldn't they?
A Standard Life are quoted as saying:
"At the time it was launched, Homeplan was an innovative and popular product. The innovative flexibility offered by Homeplan meant it was an immediate success and helped tens of thousands of people onto the property ladder."
Not much comfort to those facing a shortfall now though is it?
As I have repeated, time and time again, what is the point of an endowment policy if it is not going to pay off the mortgage?
People would not have taken these useless policies out if they didn't think that they would work.
In other words, it is the duty of the life assurance companies to underwrite these policies.
Standard Life are keen to blame the independent financial advisers (IFAS) for their mess. They are reportedly saying that the way the product was designed meant that IFAS, who were responsible for selling Homeplan policies at the time, could themselves decide the level of premiums that their clients should pay.
Janet Walford, editor of Money Management, politely says that this is of course bollocks:
"This just does not seem logical to me. Life offices price their policies on complex actuarial assumptions, including underwriting risk, assumed performance and charges. How would an IFA know what to charge? It's madness."
Other life insurers, have realised the error of their ways and have quietly paid compensation to their policyholders in a similar position.
The list of recalcitrants includes; Scottish Widows, Axa, Clerical Medical, Legal & General, Norwich Union and Canada Life.
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