Lautro 19 To Remain "Secret"

Lautro 19 To Remain "Secret"

Any hope of naming and shaming the Lautro 19 is now "dead and buried", according to former IFA Defence Union chief Evan Owen.

The Information Commissioner's office has stated that the High Court has ruled that the information falls under absolute exemption rules under the Freedom of Information Act, and therefore does not have to be disclosed.

The Information Commission ruled in August 2007 that the FSA had to name the mortgage endowment providers which misused Lautro projections in setting premiums, which lead to clients being given unrealistically high maturity figures (cynics might say that they were conned).

The hapless FSA, ever keen to protect the financial services industry from the consumer, appealed against the decision. In October 2008 the Information Tribunal rejected the FSA's appeal.

The FSA then took the appeal to the High Court, which upheld the appeal.

If only the FSA were as zealous when protecting the consumer!

Greed

Greed

Mortgage advisers have blamed policyholder greed for the endowment policy disgrace.

Fairinvestment.co.uk conducted a study that showed that 87% of people believed that they were mis-sold policies by brokers, who failed to explain in sufficient detail the possible shortfalls.

However, some advisers have taken umbrage at this slur and claim that a combination of personal greed and changing market conditions have contributed to the failure of these policies.

Alan Townley, of Dave Alan Financial Services, is quoted:

"Let's make no mistake, people are greedy and although you can spell out that past performance does not equate to future performance it tends to fall on deaf ears when they can only see pound signs in front of them."

I believe that a more fundamental problem is to blame, quite simply many of the policies are not fit for purpose. They were designed to pay off the mortgage, yet are manifestly failing to do so.

When a newly purchased TV or car fails to function, the owner can claim redress; so it should be for the policy holders of these poorly designed and badly managed products.

Blaming market conditions and greed is an easy excuse, the real blame lies with a lousy design and excess management charges (for precious little quality management).

The costs for this scandal should be met by the companies that run these underperforming products.

Norwich Union Windfall

Norwich Union Windfall

Some good news for over a million Norwich Union endowment policyholders. They have been promised a share of a £2.1BN arising from Norwich's "orphan assets" or "inherited estate" surplus.

Norwich Union has agreed to hand back almost half the £5.4BN surplus in its two main with-profits funds.

Individual payouts will vary, depending on the size of investment and how long it has been in force. However, projections indicate that policyholders should see the value of their assets increase by 10% by 2010.

It is also estimated that approximately 50,000 holders of Norwich Union mortgage endowment policies, currently projected to shortfall, will be reassigned a "green light" over the next three years.

Policyholders will receive 90% per cent of the £2.3 billion being distributed. The remaining 10% will go to shareholders.

Norwich Union have tabled a separate offer of a cash payment to policyholders in exchange for renouncing their claims on the rest of the estate (£3.1BN).

Clare Spottiswoode, the policyholder advocate responsible for securing the best deal for Norwich Union customers, is not entirely happy with the arrangement. She is quoted in the Times as saying:

"The money is available now, so how on earth can it be fair to deny it to policyholders now?"

She also called on Norwich Union to backdate payouts to cover customers who have cashed out of policies since November, when Norwich first said that it would press ahead with a distribution.

IFA's who have paid out compensation, because of Norwich Union's mis-selling of endowment policies, are also not that happy. They are asking why, if the policies now look like thy are going to revert to surplus, should they have been penalised.

Repayments

Repayments

There appears to be something of a sting in the tail for some long suffering endowment holders who make a successful mis-selling claim through the Financial Ombudsman Service (FOS), and then find that in fact their endowment policy recovers to leave no shortfall.

In the event that happens, the policy holder may have to repay money to their adviser.

A county court in Wales has ordered the claimant to pay back the sum of £1689, if their endowment manages to hit its original target of £13,000 in May 2010.

In September the FOS ordered retired independent financial adviser Eifion Hughes to pay the compensation to his client. However, Hughes refused to pay stating that the ombudsman had come to the wrong decision.

In an unpleasant irony, Hughes was then taken to court by the client who was being advised by an IFA acting as a claim-chaser.

The judge has upheld the complaint, but stipulated that the money would have to be paid back to the adviser on the policy's maturity if it reached above its expected value.

Hughes is quoted in The Herald as saying:

"At last this appears to be a victory for common sense. If the client loses out and it is the adviser's fault, he should pay out, but if there is no loss and perhaps even an extra gain, why should the adviser have to offer them money? Natural justice has won the day."

Evan Owen, chairman of the IFA Defence Union, said:

"It is refreshing to see the people who administer the law of the land reaching such conclusions. Let us hope that Lord Hunt takes this view on board as part of his review."

Quite right too!

As to whether many endowment polices will actually meet their targets, is open to conjecture. I can personally state that the two polices I hold with legal & General look very unlikely to get anywhere near their target.

It is also reported that almost 90% of Standard Life mortgage endowments are still highly unlikely to meet their targets.

However, I would also note that to some extent the IFA's (unless they were proven to be negligent) should not be the target of policy holders' wrath.

These lousy products were sold in the same manner as cars, TV's and other consumer products. Their sole purpose being to pay off the mortgage.

As a result of hidden/excess charges, lousy management and misrepresentation of the prospects by the funds themselves, they are massively underperfomring.

They are not fit for purpose.

It should not be the IFA's that are targeted, but the fund managers. The only solution to this shameful scandal is for the fund mangers to underwrite their useless, badly managed, products.

The Lautro 12

The Lautro 12

The recently published shameful case of the so called "Lautro 12", appears to be causing more than a few ripples in the financial services industry.

It seems that the knock on effect of the "Lautro 12" is that many Independent Financial Advisers (IFAs) may have paid out too much compensation for mortgage endowment complaints.

Needless to say, if this were to be the case, they may themselves be entitled to financial compensation from the endowment providers.

The Lautro 12 were found to have mispriced Lautro premiums, which lead them to give their hapless customers unrealistically high maturity figures between 1988 and 1994.

Other providers have also mispriced projections but, unlike the 12, have not necessarily paid any consumer redress.

OAC Actuaries and Consultants chief executive, Roger Grenville-Jones, said:

"Where compensation for misselling has been paid, the amount of compensation is automatically increased to adjust for the policy being too small, at the expense of the firm paying the compensation, but only up to the present time."

Whilst the extra sums that advisers have had to pay out due to mispricing by providers is difficult to estimate, it is estimated that approximately £83M has been paid out in compensation for endowment misselling.

Compliance expert Adam Samuel said:

"Under-pricing will have reduced surrender values which are deducted from the amount required to repay the loan and other extra costs to produce the compensation amount.

If the insurers had set the premiums correctly, the surrender value would be higher and this would have brought down the compensation."

Shakespeare Putsman LLP partner Gareth Fatchett said:

"We have had a positive opinion from specialist counsel about taking action on behalf of advisers. It is arguable that redress by IFAs could be reclaimed against providers who are shown to have used incorrect charging assumptions. Potentially, this creates a whole raft of claims from IFA firms who have paid redress needlessly."

IFA Defence Union chairman Evan Owen sums this disgraceful farce very neatly:

"IFAs should not have had to waste time defending complaints, paying case fees triggered by false shortfalls and forking out compensation that others were responsible for. The providers must be held to account."

As this site has noted many times, the failure of these useless policies is down to their bad design; ie they were not fit for purpose. On that basis alone, it is most assuredly the endowment providers' responsibility to clear this mess up.

As I have noted many times before, were they to agree to underwrite these failed products that they foisted on an unsuspecting generation of house buyers, much of the distress being endured by their hapless customers and IFAs (unfairly caught in the middle) could have been avoided.

Anyone care to take any bets as to whether the endowment providers will "step up to the plate" and admit their responsibility?

The Decline of The IFA

The Decline of The IFA

This is Money reports that 10 years ago there were about 350,000 financial advisers. However, increased regulation and the impact of the endowment misselling scandal has severely reduced their numbers down to 55,000.

It seems that it is not just the hapless policyholders who are paying the price for these underperforming and useless products.

Standards Life's Endowment Debacle

Standard Life's Endowment Debacle

Further to my earlier article about Standard Life's failing Homeplan endowment policy, it seems that the shortfalls on this useless product will be more than previously thought.

It seems that the value of many of the company's Homeplan policies, sold in the early 1990s, could be as much as 12% lower than the amount originally estimated.

It is estimated that the losses could exceed £250M.

The reason?

Standard Life set its premiums at an artificially low level in order to attract new business.

Standard Life are continuing to reject demands that the company compensate those who face shortfalls.

Well they would, wouldn't they?

A Standard Life are quoted as saying:

"At the time it was launched, Homeplan was an innovative and popular product. The innovative flexibility offered by Homeplan meant it was an immediate success and helped tens of thousands of people onto the property ladder."

Not much comfort to those facing a shortfall now though is it?

As I have repeated, time and time again, what is the point of an endowment policy if it is not going to pay off the mortgage?

People would not have taken these useless policies out if they didn't think that they would work.

In other words, it is the duty of the life assurance companies to underwrite these policies.

Standard Life are keen to blame the independent financial advisers (IFAS) for their mess. They are reportedly saying that the way the product was designed meant that IFAS, who were responsible for selling Homeplan policies at the time, could themselves decide the level of premiums that their clients should pay.

Janet Walford, editor of Money Management, politely says that this is of course bollocks:

"This just does not seem logical to me. Life offices price their policies on complex actuarial assumptions, including underwriting risk, assumed performance and charges. How would an IFA know what to charge? It's madness."

Other life insurers, have realised the error of their ways and have quietly paid compensation to their policyholders in a similar position.

The list of recalcitrants includes; Scottish Widows, Axa, Clerical Medical, Legal & General, Norwich Union and Canada Life.

The Gestation Period of An elephant

The Gestation Period of An Elephant

Taking, what I can only describe as, the gestation period of an elephant; my "professional" claims handling firm has finally come back to me on the complaint that I raised around a year ago, in relation to the mis-selling of my first endowment policy.

They state that they have received notification from my policy provider that it was sold to me by an IFA, they knew this already, and "due to the current rate of success in this type of complaint (it was sold pre 1988) we do not feel that we can help you".

This response, in a nut shell, shows you why complaint handling firms are in general a waste of space.

In effect the service that they are really only prepared to offer is that of filling in paperwork, that you could well do yourself, and raise the matter with the life assurance provider and the FOS.

They are then happy to take 30% of any compensation that you receive, for their "endevours" on your behalf.

The bottom line is that you can save yourself this 30% fee, by doing precisely the same work for yourself.

The only way that they can conceivably add value is where you have already taken these actions yourself, and got nowhere, just as I did.

Unfortunately, as we can see, they are not prepared to help.

I am of course more than happy to hear from any complaint handling company that would actually like to do some real work to earn its fee.

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...."

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".

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!

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 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.

I received an email today; not untypical of the many I have received over the past 18 months, since I started writing "The Endowment Diary".

It seems that the firms that sold and provided these endowment policies wish to wash their hands of the whole affair. This despite the fact that these policies have been proven to be not "fit for purpose" in paying off the mortgage debt they were allegedly designed to cover.

Here is an edited extract of the note I received, and my reply:

"...Hi , just reading your diary. I am in the same position as you, but my shortfall is £23600 ish it was sold by an ifa to me.

The ifa no longer exists, **** tell me it's not their problem I have to take legal action against the ifa.

The fsa won't look at anything sold before August 1988. Like the nursery rhyme " round and round in circles ".

I am continuing my fight for compensation....."


My reply:

"...Sorry to hear of your shortfall, but there are a lot of us about in a similar position!

Seems that despite the Treasury Select Committee et al, the firms that sold us these products will not admit to their "sharp practice".

Please feel free to revisit the site to see how I am getting along; by all means pass on the details to your friends and colleagues...."