Trouble Ahead

It is reported that the Financial Ombudsman Service (FOS) has warned that it won't be unable to cope with the mortgage endowment complaints, next year; as there is expected to be steep rise in these complaints.

The rise in endowment complaints is expected, because the large life assurance companies will be sending out letters in the New Year to their policyholders; these will warn them about the 3 year time-bar rule.

Policyholders have 3 years from receipt of the first warning letter to complain.

The FOS is now getting fed up with endowment providers, who are disregarding complaint handling guidelines.

"..Some firms are systematically rejecting swathes of complaints with little or no investigation..."

It is reported that Halifax and Abbey National are among the names passed on to the FSA, by the FOS, in respect of shortcomings on complaint handling.

The FOS wants steps taken to force providers to settle cases themselves.

The Costs Begin to Mount

The costs of compensating people for being mis-sold underperforming, and useless, endowment polices is beginning to bite into life assurance companies profits.

Lloyds TSB yesterday announced that it has had to set aside a further £110M to compensate customers, who were mis-sold endowment mortgages.

This brings their total provision for mis-selling endowments to £360M.

Endowment Claims Cost HBOS £40M

HBOS bank has earmarked approximately £40M, in compensation for customers who may have been mis-sold underperforming performing endowment mortgages.

HBOS has reportedly admitted to an increase in the number of endowment cases being compensated, and said the precise figure will emerge in an exceptional provision in the 2004 results.

A Slight Untruth

My dear friends at my life assurance company wrote to me today, in connection with my ongoing enquiries into how much commission they are charging on my two endowment policies.

Here is an extract of the letter, signed by their Customer Service Agent:

"Thank you for your telephone call on 30 November 2004. I apologise for the delay in my reply.

Unfortunately, due to systems limitations I am unable to advise you of the commission charges that have been paid on your policy...

I am sorry I can be of no further assistance..."

I would make a simple observation here.

The company is one of Britain's largest, and best known, life assurance company. They handle billions of pounds of investments, and have very sophisticated management information systems monitoring returns, payments, income etc.

Do they seriously expect me to believe that they do not keep records of commission payments?

Formal Complaint

I have made a formal complaint to the Financial Ombudsman Service, about the obstructive and unhelpful attitude of my life assurance company; in respect of my enquiry about commission payments made on my endowment policies.

I have also copied all correspondence on this matter to the Treasury Select Committee.

I rang my life assurance company today, asking them for the address of the part of their organisation where I should send my queries concerning commission payments made on my endowment policy.

You will recall that, despite the fact that I have already raised these queries with their central "help" centre, their "help" centre was unable to answer them.

One reason being that another branch deals with these queries.

Oddly enough the "help" centre did not forward my queries; nor indeed did it provide me with an address, of this branch, in their letter.

I asked why they did not forward the queries, my "help" centre operative did not know; and said it would have been more "helpful".

I asked why they couldn't just forward my queries, now that I have raised the matter again; he answered that he couldn't, as my original letter was "in another department".

Notwithstanding their obstructive attitude, I have now acquired the "correct" address; and have resent my original letter of the 12th November to this address.

We shall see what happens!

Obstructive Unhelpful Delaying Tactics

You will recall that, on the 12th of November, I sent my life assurance company a letter asking about commission payments made from my two endowment policies.

Here is the letter that I sent:

"Dear Sir/Madam,

Endowment Policies (numbers **** and ****)

I have a number of queries concerning my two endowment policies (numbers **** and ***), which you manage on my behalf.

Please can you answer the following queries in respect of the above policies:

1. Please can you advise me as to how much commission has been paid to any third party, or connected party, at the time the policies were taken out?

2. Please can you advise me of the names of the companies to which commission payments have been made, in respect of these policies?

3. Please can you advise me if commission payments have been made, at dates other than at the commencement of the policies?

4. If so please can you quantify the amounts, the frequency and the organisations to which these additional commission payments have been/are being made?

5. Please can you advise me if the commission payments referred to in questions 1- 4 above were deducted directly from my policy payments, or have been charged indirectly?

6. If commission payments are still being made on my policies, please can you advise me as to why?

7. Do I have the right to stop these ongoing commission payments?

8. If I have the right to stop these ongoing commission payments, please can you explain as to why you have not drawn this to my attention before?

9. Please can you provide me with an estimate as to negative impact, on the final expected maturity value of my policies, which these payments have had?

Please feel free to contact me if you need clarification of the above.

Thank you in advance for your prompt co-operation.


Yours faithfully..."

Today I received their response; which, not to put too fine a point on it, I regard as obstructive and unhelpful.

Here is their response:

"Thanks you for your letter of 11 November, asking how much commission is being paid monthly to the adviser.

The policy *** was sold by **, direct sales office, South London branch. If you have any queries concerning the sale of these policies please contact us at the above address (note they do not supply the address in the letter, they are the same company why not just pass my letter on?).

You took out plan (**) before 1 January 1995, when the current commission disclosure rules came into force. I cannot give you details of the commission paid to the selling agent without the agent's permission in writing. In order to obtain the commission information therefore, we suggest that you contact your adviser direct (it is my money, yet they will not tell me how much they are taking!).

...."

I will follow this up.

I do not consider that their response has been at all helpful; it leaves me to wonder precisely what they are hiding.

Ambulance Chasers?

It seems that some of the companies that handle endowment complaints, have incurred the ire of the life assurance companies.

Norwich Union is reportedly asking for endowment complaint handlers to be regulated by the FSA, to protect consumers.

It seems that some complaints firms target people living on estates built in the late 1980s and early 1990s. This was the time when many endowment policies were sold.

Norwich Union believes that these companies should operate under the same rules, and regulations, as the life assurance companies; thus levelling the playing field.

One particular reason that the life assurance companies are irked by complaint handlers, is the fact that nearly one fifth of the complaints that they (the life assurance companies) have to deal with emanate from professional complaint handlers.

The cost to the consumer of using these firms can be 25%, or more, of any compensation won. The cost of using the Financial Ombudsman is zero.

Too Lazy To Claim

It seems that, according to Mori, millions of people that may have been mis-sold an endowment mortgage have not lodged a claim for compensation; and have no intention of doing so.

When it comes to matters of finance, it seems that the British people are "asleep at the wheel".

Wake Up!!

Digging for Dirt

I have finally drafted a letter, to my endowment policy company, which outlines my queries in respect of commission payments that may have been deducted from my two endowment policies.

I will post their response, as and when I receive one.

Here is an extract:

"..Dear Sir/Madam,

Endowment Policies (numbers **** and ****)

I have a number of queries concerning my two endowment policies (numbers **** and ***), which you manage on my behalf.

Please can you answer the following queries in respect of the above policies:

1. Please can you advise me as to how much commission has been paid to any third party, or connected party, at the time the policies were taken out?

2. Please can you advise me of the names of the companies to which commission payments have been made, in respect of these policies?

3. Please can you advise me if commission payments have been made, at dates other than at the commencement of the policies?

4. If so please can you quantify the amounts, the frequency and the organisations to which these additional commission payments have been/are being made?

5. Please can you advise me if the commission payments referred to in questions 1- 4 above were deducted directly from my policy payments, or have been charged indirectly?

6. If commission payments are still being made on my policies, please can you advise me as to why?

7. Do I have the right to stop these ongoing commission payments?

8. If I have the right to stop these ongoing commission payments, please can you explain as to why you have not drawn this to my attention before?

9. Please can you provide me with an estimate as to negative impact, on the final expected maturity value of my policies, which these payments have had?

Please feel free to contact me if you need clarification of the above.

Thank you in advance for your prompt co-operation.


Yours faithfully..."

Renewal Commissions

I received an interesting email from the Consumers' Association, in respect of my earlier post on "Secret Commission Payments".

It seems that these payments, also called renewal commissions, are quite common. The Consumers' Association believe that they should be stopped.

Indeed the Treasury Select Committee are also of the same mind.

Their cross examination of some of the representatives of the endowment industry, in January 2004, makes amusing reading; as they make the endowment people squirm, as they try to justify these payments.

You can read the minutes here.

The New FSA Regime

The Financial Services Authority (FSA) now regulates the mortgage market.

The theory being that the scandals of the past, ie the endowment mis-selling scandal, will be avoided in the future.

However, regulation comes at a price; especially when the FSA is involved.

It is reported that there have been quite a few teething troubles with the new regime.

It seems that many mortgage brokers have not received their firm's mortgage authorisation number, which is provided by the FSA.

Some lenders have experienced problems with their IT systems, and consequently have not produced documents on line.

Others have refused to provide certain documents, as they believe that this will breach the Data Protection Act.

It is estimated that the cost of the new regime, £100 per application, will be placed fairly and squarely on the shoulders of the consumer.

That's you and me folks!

The Devious Tricks of Life Assurance Companies and Banks

It seems that the life assurance companies and banks that sold us our useless and underperforming endowment policies, are doing their very best to avoid paying compensation.

That is at least the view of the Financial Ombudsman Service (FOS).

It seems that our "professional friends" in the life assurance companies and banks are ignoring guidelines, set down 3 years ago, as to how to handle endowment complaints.

The FOS will receive 70000 complaints this year, relating to endowment policies; in 2003 the FOS received 50000, and in 2002 they received 15000.

Needless to say, as I warned on this site over a year ago, the sheer volume of the complaints means that the FOS is having trouble processing them.

Delays of over a year are now standard, and indeed the FOS is having to "farm out" the processing to third parties.

One of the little "tricks" employed by the banks and life assurance companies, according to the FOS, is to make the complainant wait for 8 weeks before responding.

Apparently, the "professionals" believe that if they ignore the problem it will simply go away, like a bad dream.

My message to the banks and life assurance companies is simple:

-The problem won't go away

-The problem will get worse

-People are becoming angry

-Grow up, stop avoiding the issue and address the problem.

Secret Commission Payments II

In view of the issues raised in the article "Secret Commission Payments", posted on the 19th of October, I have decided to write to my endowment company; asking them for details of all commission payments made on my two endowment policies.

I will update this site, with their response.

Judgement Day

A survey, recently undertaken by Abbey, has revealed the true extent of the mortgage crisis that will engulf the UK.

It seems that over 1 million homeowners with interest only mortgages, many of whom who have endowment polices, have not put together any plan for paying off their mortgages.

The housing market, and consequently the economy, will take a hard knock if these issues are not addressed.

From Bad to Worse

"The insurance industry needs to take a long, hard look at itself ... there is simply no responsible argument for a system that rigs bids, stifles competition and cheats customers."

Not my words, but those of Eliot Spitzer, New York's attorney general; talking about the probity of the United States insurance industry.

He has launched a law suit, which will have ramifications for our own well loved insurance industry. He accuses the US insurance industry of corruption, and anti competitive practices.

The FSA is monitoring Spitzer's progress.

The crux of Spitzer's case rests on contingent commissions, that is commissions paid on top of normal commissions for selling insurance policies. The UK insurance industry is fretting, because it knows that there are contingent commissions paid in the UK as well.

It is a pity that the FSA needs to wait for the US to take the lead, in exposing corruption and dishonesty.

The fallout from this lawsuit adds to the worries surrounding the insurance industry; which were heightened this week, by the announcement from the Prudential that they needed £1BN to shore up their finances.

Standard Life Celebrates in Style

Standard Life celebrated breaking their £10BN target for mortgage sales, by giving their staff 1000 bottles of champagne (total costs £15K).

You will recall that Standard Life recently reneged on it promise to underwrite its endowment policies; it is expected that over 500K of its customers face endowment misery, as their policies fail to meet their targets.

I doubt that they will be cracking open bottles of champagne.

Nice bit of PR guys!

FOS Gets Tough

It seems that the Financial Ombudsman Service (FOS) is now thoroughly fed up with the tactics used by the life assurance companies, in trying to evade paying for their lousy underperforming endowment polices that 8 million UK households are saddled with.

The FOS has warned the life assurers that they will face large fines if they don't clean up their act.

The FOS is reportedly to be of the opinion that some endowment providers routinely rejected complaints, that they knew would be upheld if they were referred to the FOS.

I understand that at the end of March 2004, life assurance companies had handled 452,201 endowment complaints while the FOS had dealt with around 125,000.

Large fines are all very well and good, but the life assurance companies are wealthy enough to weather those; and indeed will probably just pass the costs on to the hapless policy holders.

What is needed is for the life assurance companies to underwrite these underperforming, poorly designed, polices.

Secret Commission Payments

I received this email today, from someone who has made a very interesting discovery about the commission payments being made "secretly" from his endowment policy.

It seems that, despite the fact the policy was sold to him back in the 80's, commissions of 2.5% are still being deducted annually from his policy; and paid to the IFA that sold him the policy.

Even more startling, is the fact that he could have cancelled these payments at anytime; had the life assurance company that runs his endowment policy bothered to tell him of their existence.

However, as his life assurance company puts it:

"..The representative said that whilst he conceded that
it would be in the interest of policy holders it would not be in the
interest of ** (edited) since the company required the firms of advisors,
brokers etc to provide it with a continual stream of new business.."

The 2.5% could well make a very significant difference to the maturity value of the policy.

In my view this is a very serious issue. The action of the life assurance company; in not telling him of these commission payments, and his right to cancel them, is scandalous to say the least.

I would be interested to hear from anyone else who has encountered this issue.

The text of the email is reproduced in full below, the name of the life assurance company has been withheld for the time being.

"..I have an endowment policy with ** (edited) that I acquired in March
1988. I recently had cause to telephone that organisation to ask why I
had not received any annual bonus statements for a couple of years. The
representative that fielded my call told me that statements had been
issued. I inquired as to where they had been sent and was given an address
that was a complete mystery to me, having never resided anywhere remotely
close to that location.

The representative explained that this must be the address of a firm who
were acting as my financial advisor. I said that I didn't have a financial
advisor and what on earth was he talking about? He explained to me that
normally a copy of the annual bonus statement is sent to the policy
holder's financial advisor at the same time as the original is sent to the
policy holder. He added that in my case, for some strange reason, my
address details had been overwritten with those of my "financial advisor"
and that consequently the original had been sent to them whilst I had
received nothing.

I repeated my statement that I did not have a financial advisor and asked
who exactly were this firm. After a little searching through my file the
representative explained that this was a firm that had taken over another
firm who were at the time also acting as my "advisor". That second firm's
name I did recall, just about. It was the company that had originally sold
me my endowment policy all those years ago.

I told the representative that at no time during the last 16 years had I
any contact with either of those firms, except during the time of the
policy sale back in March 1988. I then asked what possible reason could
there be for sending copies of my bonus statements to parties with whom I
had no ongoing relationship. I was told that whilst I may not have any
direct relationship, ** (edited) was paying out a commission each month
to the firm currently acting as my "advisor". I asked how much was the
commission and was told 2.5%. I was then told not to worry as this was not
coming out of my monthly premium. I then explained to the representative
that I was ultimately bearing the cost as the effect of the commission was
to reduce the available funds from which ** (edited) could declare a
bonus to policy holders. The representative agreed.

I said that I was aware that when an endowment policy is sold the firm
brokering the deal receives a lump sum commission payment. However, I said
that I was not aware that an ongoing commission is payable on each and
every premium until maturity. Nor was I aware that the entitlement to that
commission could be purchased by another firm. I asked whether the firms
were contractually entitled to this ongoing commission and was told that
they were not! I then asked what needed to happen for the commission not
to be paid. I was informed that all that needed to happen was for me to
tell ** (edited), in writing, that I wanted the payments to stop. I said
I would be writing immediately.

I then said to the representative that I was willing to wager that a
sizeable majority of policy holders were similarly unaware that such
ongoing commission charges were being paid. I also commented that the sum
total of these charges would amount to a significant sum ....a sum that
could surely have a material impact on the size of the bonus declared. I
put it to the representative that it would surely be in the best interests
of all policy holders for ** (edited) to immediately stop all ongoing
commission payments. The representative said that whilst he conceded that
it would be in the interest of policy holders it would not be in the
interest of ** (edited) since the company required the firms of advisors,
brokers etc to provide it with a continual stream of new business.

I shall be writing to ** (edited) instructing that all ongoing commission
payments in respect of my policy cease immediately. I shall further be
stating that:

1. I was unaware that such payments were being made;

2. ** (edited) had not made me aware that I had the right to terminate
such payments;

3. The corollary of the fact that only I can terminate these payments is
that only I should be able to authorise the payments in the first place.
Needless to say, I did not give my consent to the payments;

4. Notwithstanding 3. above, if ongoing commission was not a contractual
entitlement then it should not have been paid out in the first place.

As a consequence of 1 to 4 above, I shall be demanding that the value of
the commission paid (plus compound growth thereon) be added to the
cumulative total of my reversionary bonuses.

I should be very interested to learn whether other policy holders are
similarly unaware of the existence of the ongoing commission payments and
that they have the right to terminate them...."

I wrote to the Treasury Select Committee a while ago, alerting them to the existence of this site.

I received a reply on Friday.

Here is an extract of the reply, received from the Senior Clerk to the Treasury Select Committee:

"....I have made your comments, together with the address of your endowment diary, available to all members of the Committee..."

Could be interesting.

Diversionary Tactics

It is reported that Legal and General (L&G) brought in a "memory expert" yesterday, to support their case against the £1M fine imposed on them by the Financial Services Authority (FSA).

The expert noted that customers' memories were likely to be distorted over the passage of time.

L&G are trying to undermine the customer survey, that was used by the FSA in their case against L&G for endowment mis-selling.

L&G allege that the survey of 152 customers was not large enough, and that the recollections of those questioned must be called into question.

Let us not get sidetracked by these courtroom games.

The real issue here is that people bought these useless polices, in the expectation that they would pay off the mortgage.

These policies are not going to pay off the mortgages. As a result of a combination of:

-Mis-selling

-Passing the entire risk of holding the policy onto the customer, whilst taking a fat commission

-Excessive commission payments

-Diabolical mismanagement of the funds in which the policies are invested

endowment policies are going to dramatically undershoot their targets.

In other words, they are not fit for purpose.

The FSA and the life assurance companies should stop messing around with these diversionary tactics. The issue is simply this, the policies were not fit for purpose; as such the life assurance industry, which has made some very large profits out of creating, selling and "managing" these useless products, must agree to underwrite them.

A "Shabby Habit"?

It seems that Abbey National are allegedly not playing fair with endowment complaints, relating to policies sold before 1988.

According to reports, the Abbey National are automatically rejecting out of hand any complaints made about policies sold pre 1988.

This despite the fact that the Financial Ombudsman Service (FOS) has warned them that they must investigate each case.

According to mortgage complaint handlers, such as Endowment Justice and CPH Financial Advisory Services, 100% of complaints are being rejected by a pro forma letter; which claims that Abbey do not have to establish attitudes to risk, or keep records of what was discussed pre 1988.

Over a year ago the FOS warned banks and building societies that mis-selling still can have occurred pre 1988. Our chums in the life assurance industry, despite attempts to obfuscate over this issue, still owe us the hapless owners of these useless policies a duty of care.

Our chums may now find themselves in hot water over this, as the FOS has reported their names to the FSA.

Abbey denies the allegations.

Will anyone who was sold a policy by the Abbey, pre 1988, and who has managed to gain compensation from them please drop me a note.

I am more than happy to back up Abbey's claim!

The bottom line here is, that if you receive a rejection letter from the company that sold you a worthless policy; don't accept it.

Fight back!

Expert Conned

It seems that even those at the very top of the finance industry, were conned into believing that endowment policies would work.

It is reported that Simon Chapman, a senior partner with PricewaterhouseCoopers (PWC) and an expert on financial services compliance, bought a Legal & General (L&G) endowment policy.

He was assured that the L&G policy was "a sure fire way" to pay off his mortgage, and produce a cash surplus.

Familiar words?

This revelation came out during the court battle between the Financial Services Authority (FSA) and L&G, last week.

Happily for Mr Chapman, after complaining about the policy being mis-sold, he received compensation of premiums plus interest.

Let us hope that we all receive such treatment from our life assurance companies!

Ironically he was then hired, jointly by the FSA and L&G, to investigate a sample of L&G endowment customers; as part of an FSA investigation into alleged mis-selling.

One Million Barred

It seems that one million people may have already missed out on being able to claim compensation for their underperforming, useless, endowment policies.

The reason?

The time bar is beginning to bite.

If you haven't yet claimed, I suggest you pull your fingers out.

Lies, Damned Lies

Embattled endowment policy holders, that's you and me folks, suffered another kick in the "cahoonas" yesterday; as Standard Life reneged on its promise to cover endowment shortfalls.

The reason that they reneged on this promise, was in effect to make the company look more attractive to investors when it floats in 2006.

The promise, known as the "Standard Life Mortgage Endowment Promise", was made four years ago. Standard Life had pledged to provide financial support to customers with endowments that failed to meet their target value.

Seemingly that promise was bullshit.

The cover will now only apply to those polices maturing before the end of 2005.

This move is expected to adversely affect 600000 policy holders with underperforming endowments.

This is bad news for policy holders in Norwich Union, which had also given a similar undertaking to attract customers. It is likely that Norwich Union will feel free to renege on their promise, now that they have no pressure to keep it. They have stated that they intend to honour it.

Standard Life has also set May 2006 as the deadline for complaining about endowment shortfalls.

As if this was not bad enough, Standard Life also announced that they will be cutting top ups on other policies by 40%-60%. This will exacerbate the size of policyholders' shortfalls.

Maybe disgruntled policy holders should buy a stake in the company, when it floats, then sack the directors?

The problem being, that most policy holders are now fretting as to where they will find the money to cover the shortfall on their underperforming useless endowment policies.

What is The Point of The FSA?

A few days ago, as noted on this site, I sent the FSA an email; asking for their reaction to the fact that my life assurance company suggested that I "top up" my underperforming, failing, endowment policy.

They replied today.

Their note contained links to parts of their site, with general information about endowments. However, they noted that they could not give opinions or rule interpretations; indeed they could offer no specific advice on the validity of any complaint that I may have.

May I ask, precisely what is the point of the FSA if it is not there to assist members of the public such as myself; when we are faced with a blatant attempt, by the life assurance companies, to con more money out of us?

More Mis-selling

My "friendly" life assurance company has written to me again, this time they have sent me a warning letter about my other endowment policy.

This policy, taken out in 1987, was meant to cover a mortgage of £35K.

The projected shortfall is, roll on the drums......£10600.

In other words 30% of my mortgage.

Put that together with the other shortfall of £14500 projected by my life assurance company (see earlier post), and I am going to have to find £25K when my two endowments expire in 2012.

Do I think that I have been ripped off?

I do.

To add insult to injury, the life assurance company then goes on to suggest that I could top up my underperforming policy.

I think that it is high time that these companies were brought "to book" over this £40BN scandal that is bordering on the criminal.

Think It's Bad in England?

Those of you who think that you are having a tough time in England, trying to claim redress for an underperforming endowment policy; should spare a thought for those living in Scotland.

It seems that the only channel Scottish endowment holders can take, when claiming compensation, is to use a solicitor to make a case against the original solicitor who mis-sold the policy.

In Scotland it is solicitors who handle property sales.

The Financial Ombudsman Service (FOS) cannot help, as solicitors advising on investments only came under the Financial Services Authority in December 2001.

The Law Society of Scotland can only order a solicitor to pay compensation up to a mere £1000, so they are not much use.

I hold the view that it is not so much the IFA that should be blamed, but the life assurance company that created this underperforming worthless product.

In my view tha the Sale of Goods Act should be invoked, after all these endowments were sold like TV's and cars, noting that the product is "not fit for purpose".

What is The Worst Criminal Act? Car Theft, or Mis-selling an Endowment Policy?

An interesting report is due to be published later this month by the Crime and Society Foundation, a new criminal justice think-tank.

The report claims that official crime statistics are not a reliable indicator of the true level of offences.

One section of the report refers to the damage done to society as a whole, by the mis-selling of endowment mortgages. Quote:

"A prolific car thief might blight the lives of tens of hundreds of people. The mis-selling of endowment policies has blighted the lives of many thousands...".

As many of us have long suspected, despite what the FSA and life assurance companies pretend, the mis-selling of endowment policies was bordering on the criminal.

Are we likely to see any arrests?

I sent the FSA an email today about the suggestion, in yesterday's letter from my life assurance company, that I could "top up" my underperforming endowment policy.

I regard that suggestion as criminal.

I asked the FSA what they thought about it.

Red Alert High Risk of Shortfall

That is the opening line of the letter that I received today, from the life assurance company that "manages" my two endowment policies.

This "red alert" is in respect of my second endowment policy taken out in 1991, and due to expire in 2012.

The policy was originally meant to cover a mortgage of £39700.

Today's "prediction" shows that it is likely to produce a shortfall of up to £14500, that is about 36% of the target amount.

How these people can call themselves professionals is beyond me.

The letter then helpfully suggests that I may need to take action, other than just suing the idiots who designed this worthless product.

To add insult to injury, one of their suggestions is that I may like to top up my endowment plan.

Who are they trying to kid?

Having been castigated by the press, the FSA and the Treasury Select Committee for mis-selling worthless products; our ever resourceful "professionals" now seek to make another quick buck, by trying to persuade people to put more money into these underperforming white elephants.

This strikes me as being another blatant example of mis-selling.

Endowment Crisis Spreads

It seems that it is not only the hapless home owners in the UK, who are suffering from being mis-sold non performing endowment polices.

The cancer of this financial scandal has spread to the Republic of Ireland.

It is reported by RTE that the Irish Financial Services Regulatory Authority, has strongly urged anyone who believes that they were mis-sold an endowment mortgage to complain to the companies who sold them these white elephants.

It seems that out of the 90000 polices sold in Ireland, most endowment mortgage holders have been told that their policies will have shortfalls.

Well, I wish them luck.

Doubtless they will encounter the same instrasigence, and evasion, that the UK holders have encountered as they try to claim redress.

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!"

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.

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.

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.

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?????

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.

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.

Site Update

By the way, if you find it a bore to have to go to this site via my main site www.kenfrost.com, 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 www.endowmentdiary.com to access this site.

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.

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!

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".

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?

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.

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?

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.

The Death of a Thousand Cuts

Yet more cuts in bonus rates have been foisted on endowment policy holders.

This time, it is Friends Provident who give policy holders a kick in the guts; they have reduced their payouts on maturing policies by 3%. This reduction is expected to affect around 1 million endowment policy holders, and is their fourth cut in 18 months.

Reports indicate that, for example, the payout on a £50 per month 25 year endowment will fall from £51K to £48K (in 2003 the same policy was worth £62K).

To my humble view, using a technical term here, these people are simply "taking the piss" out of endowment policy holders.

Friends Provident claim that the reductions will ensure: "that there will be a closer alignment of policy payouts with their underlying investment values."

In other words, the policies are worth "F**k All"; and they, Friends Provident and other life assurance companies, are simply softening up the hapless holders for this bombshell by the death of a thousand cuts.

If you haven't signed my petition yet, then don't you think it is time that you did?

It is reported that Norwich Union will be introducing a one year time limit, for customers who complain about mis-sold endowment mortgages.

People with a complaint will have 1 year to lodge the complaint, once they receive their third "red letter".

Norwich Union is writing to its 1 million plus policy holders about their "initiative".

The last round of red letters from Norwich Union, is reported to have only given comfort to 13% of policy holders that their polices would reach their target.

To date it is reported that Norwich Union has received 34000 complaints for mis-selling, 17000 of these have been upheld.

Chesnara, which recently demerged from the Countrywide Assured, recently reported that its interim results had been adversely affected by increased provisions of £16.6M for mortgage endowment mis-selling redress.

It seems that it is not just the hapless endowment mortgage owner who is being hit by underperforming endowment products.

It is reported that Policy Portfolio and Beale Dobie, two specialist firms which buy up people's unwanted policies and sell them on to other investors, will no longer be buying endowment policies; and would sell off their current stock.

Policy Portfolio and Beale Dobie are owned by Investec.

What Goes Up, Goes Up Again

Interest rates went up again yesterday, they now stand at 4.75%. This rise will inevitably negatively impact mortgage rates.

City "experts" predict that the full 0.25% will be passed on to borrowers; with more rate rises likely, mortgage holders face an uncertain future.

This is of course exacerbated by the fact that the shortfalls on the non performing endowment policies are predicted to worsen.

All in all, it is not a very rosy picture.

Another "Little Problem" With Endowment Policies

Those of you who are fed up with holding on to your endowment policies, and are thinking of cashing them in, need to be aware of the latest problem coming to light in the savings industry.

It seems that providers of with profits savings products have thought up another ruse, by which they prevent the poor saps who bought these underperforming policies from collecting what is rightfully theirs.

They make use of Market Value Adjusters (MVA's), which are penalties applied to people who cash in their with profits savings plan early. It seems that the owners of these policies are only just becoming aware of the existence of these penalties; as the companies that operate these polices, and the IFA's that recommended them, failed to tell people of their existence when they bought them.

In the event that you are not happy with being charged a penalty to withdraw from an underperforming and useless endowment policy, then you are at liberty to complain to the Financial Ombudsman.

Good Luck!

Petition Launched

The Treasury Select Committee have reported that Britain's financial services industry is failing the consumer; ie that it is "crap".

Those of us holding underperforming endowment policies didn't need the Committee to tell us that, we knew that already!

I have today launched an electronic petition; pointing out that endowments were sold like TV's and cars, not investments. In view of this, it is my belief that issues regarding the mis-selling and underperformance of these policies should come under the remit of consumer legislation not the FSA.

If you would like to view, and sign the petition, please visit Compensation for Endowment Mis-selling.

Spread the word!

Thanks.

It seems that the Nationwide Building Society has a had a change of heart; regarding its treatment of people who have complained about mis-sold endowment polices, after the three year deadline.

The Treasury Select Committee, investigating the mis-selling of endowment policies, made it clear a month ago that the time bar rule should be discarded.

However, until recently the Nationwide had been disbarring late claimants. Now, following the Treasury Committee ruling and FSA rule changes in respect of warning letters, the Nationwide are reported to be writing to everyone they have time barred offering to investigate their complaints.

In the unlikely event that the Tories win the next election, Oliver Letwin has said that they will seriously consider shutting down the FSA.

How will this help those of us seeking redress for the mis-selling of endowment policies?

Please feel free to use the "Fax Your MP" box on this site to ask him that question.

It is reported that Jeremy Goford, the outgoing president of the Institute of Actuaries, has noted that the present system of commission payments to independent financial advisers (IFA's) must be changed.

He feels that the current system encourages IFA's to sell products that are detrimental to the interests of the consumer.

One fine example of this, as we know, was the sale of endowment policies in the 1980's.

Goford is reported to have said, that it is the role of the actuarial profession to speak out when they see a flaw.

Now let me see, the "flaw" was in place some 20 years go. It has taken him 20 years to speak out.

How much confidence in the actuarial profession, and the financial services sector as a whole, does that give the poor consumer?

Ever Decreasing Circles

The increased number of complaints about failing endowment policies is causing headaches for the FSA.

Not only has its workload increased massively, but the funds sets aside to compensate people claiming under the financial services compensation scheme seem to be running out.

The scheme is used to compensate people who have lost money from firms that have gone bust.

The FSA is asking for a further £15M, on top of the £33M it acquired a few months ago.

The catch is, and there always is a catch, that the money will be derived from higher subscriptions charged to financial services firms; they, no doubt, will pass these charges on to the long suffering holders of endowment policies.

The Sunday Times had a good article yesterday, about how some life assurance companies may use questionnaires to invalidate claims by endowment policy holders for mis-selling.

If this is true, then it further undermines what little confidence people may have in the savings industry as a whole; and specifically the life assurance companies handling of endowment complaints.

Maybe the FSA should investigate this issue?

To read the article visit Sunday Times.

I wonder quite how low some organisations are prepared to sink, in order to avoid compensating the hapless holders of endowment policies for the mis-selling scandal of the 1980's?

The latest statistics from the Financial Ombudsman, in respect of complaints about mis-sold endowment polices, make unpleasant reading.

It seems that the number of complaints that the Financial Ombudsman Service (FOS) has received has risen dramatically, from 13570 in 2002/03 to 57917 in 2003/04.

That is more than 1000 complaints per week!

In fact, the number of complaints relating to endowment policies is now so great; that the FOS finds that over half of its workload is now devoted to this single issue.

I recall warning well over a year ago, that the system could well be deluged with complaints; as more people realised that their endowment policies were not going to pay off their mortgages.

It is, of course, expected that the number of complaints will continue to rise.

You can view the full Financial Ombudsman Service report by visiting FOS Report.

Beware The Compensation Offer

It seems that holders of mis-sold endowment polices have yet another issue to worry about.

Having successfully got through the complaints procedure, and been offered compensation by a "reputable" life assurance company, one would have thought that the policy holder could rest easy.

Unfortunately this does not seem to be the case.

It is reported that some well known life assurance companies are doing everything they can to minimise their compensation payments. They are reportedly making "mistakes" in the awards that they offer successful claimants.

One trick that has been used, is to calculate the compensation up to the date that they sent the first warning letter. Allowing for the lengthy time it takes for the complaint to be made and compensation to be agreed, coupled with compound interest rates, this can make a significant difference to the award amount.

However, the FSA take a different view on this; their rules state that the compensation must be calculated up to the point when the policy holder actually took action to deal with the problem.

In my view, the actions of those life assurance companies who seek to "bend" the FSA rules in this manner are reprehensible to say the least. They are undermining what little credibility the life assurance industry has left, and are leaving people with the impression that life assurance firms are little better than sleazy and underhand con artists.

The lesson here is, as with any financial decision, always take independent financial advice from a properly qualified and reputable adviser before making any financial decision (eg accepting a compensation payment).

Do not assume that the life assurance company have got their sums right!

There is a particularly good article on "This is Money", about the endowment policy mis-selling scandal.

It covers the activities of the Prudential during the 80's and 90's. It seems that in 1993, internal investigations carried out by Prudential uncovered "evidence of widespread activity intended to deceive customers".

To my view it makes damming reading; not just in terms of the activities of the Prudential, but also in terms of highlighting the aggressive selling policy adopted by the life assurance industry at that time.

The article can be read in full at "This is Money".

There's a Storm Coming

Those of you holding endowment mortgages, who think that things are bad now, are going to have to steel yourselves for matters to get worse.

It is reported that about 50% of all endowments maturing this year will fail to pay off mortgage debts; this appears to be the straw in the wind of a very unpleasant storm coming our way.

It seems that, according to experts, matters will get worse.

The current estimate is that there will be a shortfall on mis-sold endowment policies of around £40BN.

However, it is reported that Ned Cazalet an insurance analyst at Cazalet Consulting, is predicting that nearly all all mortgage endowment policies that mature after 2008 will miss their targets.

Here are some stats (source Life Insurance Association):

• Norwich Union expects 45% of its 38000 policies maturing this year will not meet target.



• Standard Life expects 47% of its 57000 policies not to meet target this year.



• Scottish Amicable expects 22% of its 18000 policies maturing this year not to meet target.



• Legal and General expects that 25% of its 25000 policies maturing this year not to meet target.



• Scottish Widows expects 67% of its 9000 policies maturing this year not to meet target.



• Abbey Life expects 98% of its 1500 policies maturing this year not to meet target.

Is it any wonder that people have lost confidence in the financial system in this country?

It is reported that the Royal & Sun Alliance has imposed a time limit, preventing customers who may have been mis-sold a mortgage endowment policy from complaining.

They claim that they are reconsidering their approach.

I understand that the other main endowment companies claim that they do not apply time limits.

However, the Financial Ombudsman Service (FOS) believes that the majority of companies do apply time limits.

There seems to be a "confusion of facts" here!

It is reported that the Select Treasury committee will investigate this, when it sits in the next fortnight.

I would say that the reputation of the Financial Services industry must be pretty well in tatters now. There is a report circulating that people are not saving enough for their retirement.

Given the endowment policy mis-selling scandal, why on earth would anyone trust these guys again with their pensions?

Would you?

Missed The Boat

It seems that about 700000 people, out of the total of 8.5M who hold endowment policies, may have missed the deadline to lodge a complaint for mis-selling.

These figures come from the Treasury, so they are probably reasonably accurate.

The chairman of the Select Committee, John MacFall, is reported to have described the fact that so many people didn't know of the time bar as "inexcusable".

The Financial Services Authority (FSA) is understood to be trying to persuade companies operating a time bar to reconsider their approach. Some of the endowment companies have agreed to waive the time bar.

The committee has also raised the issue of people sold endowment mortgages before 1988. As we all know, the ombudsman cannot consider these complaints because there was no voluntary code or scheme covering their activities before 1988.

The Select Committee is worried that this lack of action wrt pre 1988 policies will harm the reputation of the financial services industry.

I would suggest that the 8 million people facing shortfalls on their endowment policies already think that the financial services industry is pretty poor, whether the FSA deals with the complaints or not.

It seems that there are no stats available on the number of people turned away by the Ombudsman for trying to complain about pre 1988 endowments. The estimate is 1.2M, that's a lot of unhappy people!

Let's give them some stats!

Write to the Select Committee, if you were turned away because your policy was sold pre 1988.

There is a small crumb of comfort, the FSA and government are exploring options for voluntary help for people with pre 1988 policies.

However, don't hold your breath folks, that is a "cop out" in my view.

Alright For Some

The complaints company, which is handling the claim for compensation on one of my mis-sold endowment polices, wrote to me today.

The letter proudly informed me that they are expanding, and moving to larger premises.

Although I am pleased to see that they are doing well, it does seem that the misery of 8 million endowment policy holders is being used to supply the revenue stream for others.

New Rules, Same Problem

New rules came into force yesterday with regard to the information that life assurers must supply endowment policy holders with, concerning their underperforming endowment mortgages.

The rules require that policy providers must warn consumers of approaching deadlines for complaints about failing endowment policies. The policy provider must remind the holder when they have six months left to complain.

This of course does not address the actual problem, namely attaining compensation for the policy shortfall.

FSA Gets Tough

It seems that the FSA is getting tough with the rather "laid back" life assurance companies.

They have requested that the life assurance companies provide holders of underperforming endowment policies with more information about how to make a complaint.

Additionally, from June 1st, all insurers who apply the 3 year time limit on complaints have to write to policy holders 6 months before the end of the complaint window; to remind them to complain.

The question is, will they accept yopur complaint once you have made it?

What a mess!

Tardy Payments

Not content with using all the excuses under the sun to avoid paying compensation, to those of us lumbered with an underperforming endowment policy, it seems that one major life assurer also delays paying compensation; even when it has agreed to pay the compensation.

The life assurer promises to pay within 28 days of compensation being agreed. Yet it appears that it breaches its own promises on a regular basis; keeping people waiting for over 10 weeks.

I understand that the FSA has put a warning shot across their bows, telling them to speed up; or face another fine.

The company claims that the delays are due to the sheer number of complaints.

Well, if it is bad now, wait and see how bad it will get over the coming year; as the penny finally drops that around 6 million people will face a shortfall and the claims flood in.

Reuters report that Legal & General will contest the £1M fine from the FSA.

L&G accuse the FSA of having to seek extra evidence, because its original case was not strong enough.

The FSA had accused L&G, in November, of selling risky savings products to risk-averse customers; and mis-selling endowment policies between 1997 and 1999.

Those of you anxiously waiting to hear the outcome of the case, will have to hold your collective breaths; the tribunal will not begin until September.

The Scandal That Won't Go Away

Despite hoping that the endowment mis-selling scandal will go away, life assurers are now having to face the same financial misery that the 6 million of us who bought these non performing white elephants have been enduring for the last few years.

Evidence of this emerged yesterday, as Nationwide has announced that it has tripled its provisions for compensating endowment mortgage customers; as complaints of mis-selling continue to escalate.

Fortunately for Nationwide, they do have a 21% increase in profits to cushion the effect.

Nationwide has raised its provision from £11M to £34M.

They admit that it is "possible that the value of some investment policies will not be sufficient to fully repay mortgages on maturity".

Quite!

Don't fear for Nationwide's future, its pre tax profits for year end April 2004 were £426M.

I dropped Milberg Weiss a note today, to confirm that they have received my original enquiry about class actions sent a few weeks ago.

I have just had a look at a wonderfully acerbic site, that takes a punch at the "Which" campaign for compensation for mis-sold endowment mortgages.

The site www.notwhich.co.uk, quite rightly, points out the risk of making fraudulent claims.

It then goes on to have a "pop" at Which, for allegedly recommending endowments in the 70's and 80's. They even have a complaint letter generator which you can send to Which.

I understand that the site is the brainchild of certain Independent Financial Advisers, who are sick of people complaining.

It is a splendidly entertaining site. However, the comment in the lurid green box at the bottom of the page; asking for regulation of "The Dammed Press", is something that I do not agree with at all.

Freedom of speech is essential, to suppress the media just because a vested interest does not like what they say would be a step towards dictatorship.

I see that the rules relating to compensation payments for mis-selling, may be adjusted by the end of this year.

The new rules will cover consumers who have lost money, because they have been mis-sold a product such as an endowment policy, or have been given poor financial advice.

The scheme will replace the voluntary arrangement currently practiced by brokers et al, and will come into force from October 2004.

Shutting The Stable Door

It seems that the government has finally woken up to implications of the endowment policy mis-selling scandal.

However, before we all crack open the champagne; in the expectation that some form of compensation will be winging its way to us, I must dampen your spirits.

The government, realising the mess that the mis-selling of endowments has caused, is making sure that the same thing will not happen again for home reversion schemes.

These schemes are whereby older people may release the equity from their homes, and live off that until they die.

Needless to say these schemes have every chance of being as massively mis-sold, as the endowment polices were in the 1980's.

Therefore the government will regulate them.

Announcing the decision, financial secretary Ruth Kelly said that buying such a policy represented a huge decision.

She added: "It can have significant implications for tax, benefits, inheritance and long-term financial planning."

No kidding!

Happy Monday!

It seems that a staggering 84% of endowment policies are unlikely to reach their target. This figure is likely to grow, as life assurance firms cut their projections.

The projections are likely to fall as the Financial Services Authority has asked all life assurance companies to use lower rates, if they hold less than 70 per cent of their with profits funds in equities and property.

It seems that only Legal & General and Prudential hold almost 70% in equities and property (69% and 65% respectively); the rest fall short.

It is estimated that every 1% reduction in the projection rate will reduce the payout on a £100K 25 year policy, with 12 years to run, by £7K.

A nice way to start the week!

Drip Drip Drip

Yesterday the Bank of England raised interest rates by 0.75%, for the third time.

This move did not come as a surprise, the markets did not take flight; and it is unlikely that the booming housing market will collapse as a result of this one rise.

However, couple this rise with the two others and the prospect of more to come; then add in the total failure of the FSA, and the insurance companies, to address the endowment mortgage mis-selling scandal.

You now have a recipe for undermining the confidence and trust in the housing market, something which underpins the entire British economy, and causing a collapse in both the housing market and the economy as a whole.

We live in dangerous times.

More Doom and Gloom

It seems that shortfalls on endowment mortgages are likely to be worse than currently projected by life assurance companies.

The problem lies with the asset mix. Most of the major insurers have switched the majority of their holdings from equities and property, into assets with a lower rate of return.

Life insurers are now forced to publish far more detailed information about their investment strategy, and charges levied on their with profits funds.

However, these disclosures (called entitled Principles and Practices of Financial Management) do not require companies to disclose in full the asset mix of their funds. As usual, something that is "too little, too late".

In addition to disclosing their asset mix, life insurance companies are now disclosing that they are introducing additional charges to back up their guarantees.

Norwich Union will charge customers in the Norwich Union Life and Pensions with profits fund an additional 0.75%, and CIS will charge an extra 0.5%.

Ever felt like you were being screwed both ways?

Taking the above into account, it is unlikely that the so called "projection letters" dropping onto your mats over the coming months are accurate.

We, the holders of these failed endowment schemes, are just meant to sit and watch these companies try to bury their heads in the sand; and avoid telling us the truth about how bad things really are.

Pathetic!

The Association of British Insurers has announced that it is revising its industry code of practice on endowment mortgages.

It will provide more, and better information, for consumers to help them take prompt and appropriate action if they are faced with a potential shortfall on their endowment mortgage.

All very well, but time is running out.

Bad news for the 1.5M people holding endowment mortgage policies with the Norwich Union.

Reports indicate that the Norwich Union will be cutting their returns by 0.75%.

This cut is ensure that the guarantees made by Norwich Union, which promise that the policy will be worth a minimum amount on maturity, will be honoured.

Norwich Union expects returns of between 4.5%-6% a year after tax.

Doubtless other life insurers will be delivering bad news as well.

I understand that some of the UK's actuaries have taken a dislike to the Treasury Select Committee's investigation into the endowment policy mis-selling scandal.

They have branded it a "circus" after a heated and aggressive hearing. What is aggressive to some, is critical analysis to others.

My message to the Select Committee is simple; "keep up the good work!".

It seems that endowment letters, currently being sent to the hapless owners of the failing endowment mortgage policies, may not reflect reality.

The ConsumersÂ’ Association is worried that the calculations that may not reflect the true financial position.

The letters that will be dropping on peoples' floors shortly, will show that the expected shortfalls have increased. However, because unrealistic returns of 6% are being used in the calculations, these figures are more than likely too optimistic.

The current asset mix held by life assurers is more heavily weighted towards bonds,whichh have a 4% yield.

Hardly good news for the hapless home owner with an endowment mortgage.

Don't despair the FSA says that it is keeping its eye on things.

Well that's alright then, isn't it?

According to today's FT, more than 75% of endowment polices will not meet their target.

See full article here.

What a bloody mess!

Marginally off topic, but related to my earlier post about Abbey, there is a rumour doing the rounds of the City that Abbey National may be subject to a takeover bid by Spain's Santander bank.

This morning Abbey's shares rose 5%.

Maybe here is a possible solution to those of us facing shortfalls on our endowment mortgage policies.

Hedge the expected loss, by buying shares in banks and insurance companies (the same organisations that mis-sold the endowment policies) that may be subject to takeover bids.

Note, I am speaking with my tongue "firmly in my cheek". This would be a high risk strategy, which would quite likely lose even more money than the shortfalls predicted on the endowment policies.

Remember, when making an money related decision, always take the advice of a suitably qualified independent financial expert and lawyer.

I understand that Abbey is trying to avoid responsibility for mis-selling endowment policies pre April 1988.

Their rationale being that before the Financial Services Act took effect in April 1988, there were no rules covering endowments.

However, there is a voluntary agreement whereby banks are supposed to take responsibility for investment products they sold before April 1988.

Abbey happily argues the point that it was under no obligation to inform borrowers about any risks, it was in their view the role of the endowment company to explain the risks.

How very helpful of them!

Needless to say, if it wins this argument, it will not have to pay compensation for endowment policies mis-sold before April 1988.

It certainly needs all the financial help it can get, as over the last two years it has lost over £1.5BN.

It may be that the Financial Ombudsman Service takes a different view.

In my view, do not "lay down and die" just because your IFA has fobbed you off with the "Abbey excuse"; take it to the Ombudsman.

I understand that the Financial Services Authority is under pressure to reduce the mid range projection rate of 6% per year, which it has been using for the last 5 years.

Leading insurers are worried that the rate is unrealistic, and have themselves reduced their projection rates to around 5.5%.

The FSA is reviewing the rates and how they are calculated, a reduction in the rate will give rise to a whole new flurry of red letters warning of shortfalls.

This of course is an entirley academic exercise, the only sure measure is the day the endowment policy ends; and the difference between the endowment fund and mortgage debt is calculated.

I understand that Allied Dunbar has upheld a misselling complaint against an IFA, despite overwhelming evidence that the risks inherent in the policy were made clear at the time of sale.

The client alleged that he understood his Maximum Investment Plan (MIP) to be a savings product, and was unaware of the possibility of any shortfall. He claimed that he was not told that the policy was linked to the stock market.

However, the personal illustration issued at the outset, warned that an annual growth rate of 5% would cause the policy to fall short of its required maturity value by £5K.

Despite this, the life office upheld the complaint and refunded the investor’s contributions.

Zurich, which owns Allied Dunbar, noted that that the complaint was upheld on a technicality.

Allied Dunbar was fined £725K by the FSA for not dealing with misselling claims quickly enough.

This decision should, in my view, have repercussions for those of us seeking compensation for endowment mis-selling.

Reuters report that complaints about endowment policies will hit 2004 profits at Countrywide Assured's life assurance unit. This unit will be demerged, and will start trading as Chesnara on the 25th of May.

The firm is expected to take a £4.8M provision to cover against complaints for endowment policy mis-selling.

Countrywide Assured note that "..the increased level of endowment complaints experienced during January and February 2004 has persisted...".

Welcome to the Wild West

I received an interesting letter today, from the complaints company handling my claim for compensation the mis-selling of my pre 1988 endowment mortgage.

It seems that in the last few days another company has been writing to some of their clients. This “interloper” claims that the complaint cases have been transferred to them.

In other words, the “interloper” is trying to poach the business of the company that is meant to be handling the endowment complaint.

My complaints company points out that it has not transferred any cases to another company, and has not agreed that this company may contact its clients.

Their letter then goes on to ask me if I have been contacted, and to forward any details that I may have, I have not.

I rang to ask them how it was that this “interloper” had managed to get hold of their clients’ details. I was told that they do not yet know, they are conducting an investigation to find out.

This rather sad, and disturbing, tale shows how unpleasant and poorly regulated the whole endowment industry has become. In my view it is more akin to the Wild West, rather than a well regulated financial system in the 21st century.

Not only are 6 million endowment policy holders facing an expected £40BN shortfall on their mis-sold policies, they are now subject to dirty tricks by unscrupulous sharks seeking to bleed them dry of even more of their hard pressed funds.

In my view, the FSA and insurance companies need to get their act together and sort this disgraceful situation out once and for all.

Citizens' Advice are warning that the UK faces a debt crisis, which threatens to ruin the lives of many.

Their research shows personal debt problems threaten to overwhelm large numbers of people; this was the message at a debt conference organised by the Conservatives.

Citizens Advice has seen a 44% increase in debt problems in the past six years, and its 2,800 offices deal with over one million new debt enquiries a year.

The expected £40BN shortfall on mis-sold endowment polices will hardly help this situation.

Citywire report that house prices are continuing to rise. The gap between north and south is narrowing.

The Halifax notes that house price inflation in London has fallen from 19% in the first quarter of 2003 to 9% for the same period this year, and from 26% to 7% in the South East on the same basis.

House prices continue to rise most rapidly in northern England and Wales. The biggest price increases over the last year have been in the north (36%), Wales(36%), the North West (30%) and Yorkshire and the Humber (28%).

Rightmove, the property website, expects house price inflation to hit 20% this year.

Rightmove note that the price of an average home was £184,582 in early April, £13,674 more than in January; and 50% more than at the start of 2002. Prices rose 2.8% in March, taking annual price inflation to 14.4% from 11.9% in February.

They are hopeful that there will not be a crash, some good news for endowment policy holders then!

Reuters report today that the Council of Mortgage Lenders have stated that bankruptcies pose a growing threat to the housing boom.

Bankruptices are at their highest level for 11 years.

It is likely that interest rates will rise this year, causing people who have borrowed heavily increased hardship wrt paying their debts.

This in turn will threaten the housing market, which is already under threat from the estimated £40BN shortfall on endowment mortages.

I received a message on The Forum today from Ian, who was asking for advice about writing a letter of complaint.

Here is my response, which is pertinent to all seeking to complain:

"...Thanks for your message, I am sorry to hear of your potential loss.

You are not alone, there are 6 million of us facing a £40BN shortfall.

If you need a good quality proforma complaint letter then go to the part of the Consumers' Association website, which is helping consumers draft complaint letters, it can be found at endowment action.

I would note that the time for making complaints is running out, and that those of you who have not yet done so ought to do so very soon.

Remember that when making any financial decision, take the advice of a suitably qualifed independent financial adviser and lawyer..."

Reuters report today that mortgage equity withdrawal has hit a new record of £16BN in Q4 2003, the total for 2003 being £53BN.

This being approximately 8% of household disposable income.

The withdrawn equity is being used to finance consumer spending. It is expected to top £60BN in 2004.

I would caution against this practice; borrowing long to spend short is very unwise, and is unlikely to be sustainable.

As and when the endowment mis-selling "chickens come home to roost", there is going to be a shortfall of at least £40BN which someone is going to have to finance.

Those that have overloaded their finances with extra long term debt, in order to satisfy short term whims, may find the future very bleak indeed.

I sent the following email to Milberg Weiss (the American legal firm), dipping a toe in the water to see if they can help wrt a class action.

"....I wish to ask about the possibility of taking a class action, in respect of mis-sold endowment policies in the UK during the eigthies and nineties.

During this period these products were created by life assurance companies, to be used as repayment vehicles for 25 year mortgages.

80% of mortgages in the UK used these policies at this time.

They were "hard sold" offering not just full repayment fo the mortgage, but also a tax free profit at the end of the term.

The reality is different, they are underperforming; it is expected that 6 million people will be hit by a shortfall, which is expected to total £40 billion over the next 10 years.

The life assurance companies are doing everything possible to avoid liability. They state that they were investments, and as such there was always a risk that they would fall.

The reality was that they were sold as products, like TV's or cars. There was little or no mention of risks, and the inference was that there would be no loss.

When you buy a TV or car that is not "fit for purpose" you are entitled to compensation. The same should apply here.

I have been trying to claim compensation since Sept 2002, and have kept an on line diary of my efforts "The Endowment Diary" on my website.

Are you able to help, or do you know any firm that can help?

Thanks.

Kind regards.."

Reuters report that John Cunliffe (MD of Macroeconomic Policy and International Finance in the Treasury) told a Treasury Committee this week that house prices face only a small risk of a crash.

Additionally, the ongoing rise in house prices is expected to slow as a result of the rise in interest rates.

This may be some comfort to those of us facing shortfalls on our endomwent policies.

Reuters report today that Aviva, the UK's largest insurer, has increased its provisions for potential mis-selling claims on endowment mortgages from £50M to £80M.

In its annual report, published today, Aviva said it did not believe there would be any material effect on its shareholders from costs arising from the investment linked mortgages.

Approximately 6 million people in the UK face a £40BN shortfall on these underperforming policies.

Companies have paid out more than £670M to compensate policyholders.

The FSA has fined five companies, including Royal & Sun Alliance and Lloyds TSB, over £5M for misadvising clients.

Sales of endowment mortgages peaked in 1988, when they made up 83% of the market, but have since fallen to about 5%.