Irony

IFAonline reports that John Spence, the newly-appointed non-executive director of the Money Advice Service (MAS), was in charge of managing risk at Lloyds TSB during the height of its endowment mis-selling scandal. 

This is somewhat ironic, as per the MAS site:

"A wealth of information and advice If you’re looking for free, clear, unbiased money advice, you’re in the right place.

The Money Advice Service is here to help everyone manage their money better. We do this by giving clear, unbiased money advice to help people make informed choices. 

We believe that the right money advice can make a difference to people’s lives. And when people take steps to manage their money better, they can live better too.

The Money Advice Service is a free, independent service. We were set up by government and are funded by a levy on the financial services industry.

Because we’re not selling anything ourselves, or for anyone else, you can trust our advice."

Spence was head of risk at Lloyds when it was fined £300M for mis-selling endowment policies and precipice bonds in 2003.

Lloyds was found to have sold the products inappropriately over the ten years preceding 2003.

Delaying Tactics?

My thanks to the loyal reader who dropped me a note (see below) about possible delaying tactics used by some endowment companies.

Has anyone experienced delays in receiving payments from endowment companies for policies that have matured?

I have redacted the names of the companies to which he has referred.

"I took out a £30K endowment with **** in 1987 and after 25 years it matured on August the 1st just under £32k not the promised - hinted at- confident 40-50k but at least its over 30k. 

My issue is getting them to pay me - are you aware of a delaying tactic or policy on holding off on paying people? 

They claim its the *** (another company) but I feel like I am just getting the run around?"

A Crock of Shite

How "nice", Legal & General (L&G) wrote to me yesterday advising me that one of my "with profits" (a misnomer if ever there was one) endowment polices that I have with them will experience a shortfall.

The policy, which was taken out in 1991, will mature next year.

Its target was £39,700.

The expected shortfall, depending on whether the investment return is between 4%-8% (fat chance in today's markets!), is expected to be between £13K and £14K.

That's a shortfall of between 32%-35%!

Given that the whole point of these rip off policies was to pay off a mortgage debt, I am less than "impressed" with the performance of this product.

The good news is that L&G make a nice little earner from management charges for "manging" this crock of shite.

They even suggest, as one possible solution for making up the shortfall, that I extend the term or top it up!!!!!!!!!!!!!

Let us not forget that the purpose of these shite products was to pay off mortgage debts, they have failed.

Therefore the products are faulty.

I am amazed that no one has yet brought a class action against the companies who "manage" these failed products.

If there are any law companies out there who want to try a class action, feel free to contact me.

The £300BN With Profits Scandal

The Telegraph reports that there is over £330BN sitting in the now discredited with profits (a misnomer if ever there was one) investment funds.

Investors were duped into putting money into these funds on the false promise of high returns that would pay pensions, cover mortgages and provide a nest egg.

Money Management claim that these useless funds have grown by an average of 1.7% per annum over the last 10 years. Higher returns would have been achievable simply by putting the money into a savings account.

Those with money in these useless and underperforming funds are, in effect, trapped as the exit fees are extortionate.

Off Air

Apologies for being off air for a couple of weeks. However, there were technical problems at Blogger which caused the temporary closure of this site.

Shortfalls For Royal London and Scottish Life

This Is Money reports that with-profits (a misleading description if ever there was one) mortgage endowments with Royal London Mutual and Scottish Life will face a shortfall when their policies mature.

Hapless holders of 25 year £50 per month with-profits policies from Royal London Mutual will face a fall on policies maturing this year of 3.3%, compared with the previous year.

Scottish Life, which is part of Royal London Mutual, offers a worse return (4% down).

95% of all mortgage endowment policyholders at Scottish Life will face a shortfall, 53% of those with Royal London.

Lousy results from a lousy product.

Legal and General Increase Dividend

The FT reports that L&G are rewarding its shareholders:

"Legal and General has increased its full-year dividend by almost a quarter in spite of the life and pensions group missing profit estimates.

The UK’s fourth-biggest insurer by market value blamed the 9.6 per cent decline in IFRS operating profit to £1bn – worse than the 5 per cent fall expected by the City – on December’s cold weather, poor trading in the Netherlands and rising annuity reserves.

But Tim Breedon, chief executive, said the figures released on Thursday “demonstrate that we’ve been able to grow the business in 2010 and at the same time generate more cash with which to pay increasing dividends”.

He added: “All L&G’s businesses – risk, savings, LGIM and international – have contributed to today’s strong numbers by writing more new business at lower cost, growing assets under management and expanding distribution.”

L&G increased its dividend by 24 per cent to 4.75p a share, beating analyst estimates of 4.5p, and following the example set by Prudential last week when it boosted its pay-out by 20 per cent."

That's nice for the shareholders, let us trust that L&G's largess is also reflected in its with profits bonuses this year on its endowment policies.

L&G Endowments Above Target?

Legal & General recently announced that mortgage endowment policies maturing this year will pay out more than was originally predicted when the policies were taken out 25 years ago.

Seemingly, if L&G's projections are correct, someone who paid £50 a month into one of the policies for 25 years will receive £34,750 (£372 above the target amount).

This optimistic announcement contrasts somewhat sharply with the September client mailing carried out by L&G, in which 81% of its mortgage endowment customers received red letters.

Don't crack open the champagne, until you receive your payout.

FSA Finally Acts - Maybe

The Financial Services Authority (FSA) has finally published its review into rules on with-profits investments, and announced its intention to toughen up its rules.

The FSA has finally admitted that with-profits policyholders "are not always getting the fair treatment they deserve".

Really?!

The FSA has warned insurers that they "will continue to supervise the sector in an intensive way".

The new proposals, which will now be consulted on, cover:

MVRs: Firms will be restricted in their ability to impose "market value reductions"
(MVRs) - the exit penalties you face when you cash in your policy early or move your money to a different company. Companies will not be able to arbitrarily impose penalties because they want to stop policyholders leaving, and will only be allowed to impose penalties to ensure policyholders receive a fair reflection of the value of their policy.

New business: The company will need to demonstrate that writing new business into the fund does not have an adverse effect on existing policyholders. This will tighten up the rules so firms will not be able to offer 'loss leaders' which erode the amount in the with-profits fund for existing policyholders.

Charges: Firms will not be allowed to use servicing companies to extract extra money in charges from with-profits policyholders by including a profit margin on top of the actual cost.

Excess surplus: Firms will be required to have a plan to distribute any excess surplus cash fairly to policyholders, particularly if a company suffers a big fall in the amount of new business it is doing.

With-profits Committees: Firms must provide a clear distinction between the recommendations of the with-profits committee and what action the firm intends to take in response, and will be required to notify the regulator when it overrules the advice of the with-profits committee.

All very nice, but too little too late for those hapless house owners ripped off by the endowment mortgage scandal of the 80's and 90's.

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A Surplus!

A Surplus!

Ian Cowie, of the Telegraph, writes about his Legal and General endowment policy:

"..my 25-year with-profits endowment matured last month and paid out 33pc more than the target value.

Since you ask, the maturity forecast was £45,000 but the actual payout was a bit above £60,000..."

How nice for him!

My L&G policies both mature next year, and are forecast to make large losses.

How can there be such a difference between his L&G policy and mine, given that the maturity date is less than two years apart?

ABI Displays Empathy

ABI Displays Empathy

In a rare display of public empathy, the Association of British Insurers (ABI) says that life companies must do more to design products with consumer needs in mind.

ABI head of distribution policy, Peter Jolly, said that life companies have failed to properly engage with consumers.

"I guess the evidence of that is we need to sell them. If we had products that people really wanted they would come and buy them and most of the products in our industry are designed to be sold, rather than bought.

And the industry's failure to develop a new regular premium savings product is probably evidence of that. As the endowment market tailed off we don't really have a replacement."

LOL!

The endowment market "tailed off" because it was a lousy product, not fit for purpose and badly managed.

Class Actions

Class Actions

This week's Queen's Speech has raised the possibility of hapless endowment policy holders being able to mount class actions against the life assurance industry.

The government proposes to give consumers the right, for the first time, to take "class action" suits through the courts in cases of large-scale wrongdoing such as endowment mis-selling or personal pensions.

This is something that I have been calling for over many years. Not only has the financial services industry mis-sold these flawed and badly designed products, but they have mismanagement them (despite awarding themselves very generous "management" fees and commissions).

The consumer will not only has grounds for suing wrt mis-selling, but also has grounds based on the fact that the products are not fit for purpose (ie they did not pay off the mortgage, which is what they were meant to do).

Why buy the product if it wasn't going to work?

Unfortunately, there is little chance of this becoming law this side of the election.

Fit For Purpose?

Fit For Purpose?

Legal and General informed me today that the shortfall on my "with profits" endowment mortgage of £39K will range between £13K - £16K.

So much for the concept of "smoothing", allegedly one of the main components of a "with profits" policy.

Maybe they could also explain to me why they sold and "managed" a product that clearly was not fit for purpose?

Aviva Policyholders Lose

Aviva Policyholders Lose

The Times reports:

"800,000 policyholders of with-profits funds run by Aviva, Britain’s largest insurer, will share less than half of the billion-pound windfall promised just over 18 months ago.

The investors had been pledged £1 billion in February last year when the funds were valued at £4.2 billion, but were told this March that the payout would be £500 million because falling gilt, bond and property prices had reduced the funds to £1.2 billion.

The High Court yesterday upheld Aviva’s decision to pay the £500 million because the fund had shrunk in value. Aviva will keep £700 million for its own use.

Eligible policyholders — those with Commercial Union Life, CGNU Life and Norwich Union Life with-profits funds — will receive between £200 and £1,150. Aviva said it would put the scheme into effect on October 1, with the majority of payments being made before the end of the year."

Why has the FSA sat on its hands and allowed Aviva to take (Which? uses the word "plunder") £700M of policyholders' money?

Some also argue that Aviva have deliberately dragged this out; so as to not to have to pay out so much money, as the markets continued to fall.

Policyholders, yet again, have been ill served by a life assurance company.