Monday, February 24, 2020

Endowment Advice Leads to Default

The FT reports that another advice firm has defaulted with the Financial Services Compensation Scheme, after receiving claims against failed endowment policies.

The lifeboat body has already paid a claim for more than £11,000 but the bill against Hector McLean Financial Consultants could potentially grow, with another two claims currently being considered by the compensation scheme.

The company was declared in default on February 17 with claims against it relating to endowment mortgages - the same policies which resulted in one of the most notorious mis-selling scandals of the 21st century.

Mortgage endowments were pushed in huge volumes in the 1970s through to the 1990s alongside interest-only mortgages.

The policy is a mixture of an investment and an insurance policy, providing both life assurance and savings, which is designed to repay a mortgage. The consumer only pays interest on the mortgage each month, and also pays monthly into the mortgage endowment, which is then used to pay off the mortgage.

If initial growth predictions were realised the mortgage should have been paid off by the term end, possibly with an additional lump sum for the individual. But projections were often too ambitious and regulators at the time set very guidelines for different yield assumptions on the mortgages than they did later on.

On its website the FSCS details certain criteria which could lead to a successful claim against a mis-sold mortgage endowment policy, including if an adviser did not fully explain the policy’s link to the stock market.

Because of this link there was a risk at the end of its term the policy could leave the client with a shortfall for paying their mortgage.

Time limits apply to mortgage endowment claims, with consumers expected to make a request for compensation six years after they were sold the policy or three years from the date it became apparent they had cause for complaint.

The main investment adviser at Hector McLean Financial Consultants was also a director at Hector McLean Mortgages Limited, which was de-authorised in 2008.

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