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.

Tax Investigation Insurance
 
Having a Solar Protect Tax Investigation Insurance policy at your disposal means that should you be one of the many 1000's of businesses or individuals that are selected by HMRC each year to look into your tax affairs your own accountant (your tax return agent) can get on and defend you robustly.

You have the peace of mind knowing that your accountant's (your tax return agent) fees will be paid by the insurance without any Excess for you to find.

Tax Investigation Insurance is an insurance policy that will fully reimburse your accountants (your tax return agent) fees up to £100,000 if you are subject to enquiry by or dispute with HMRC.

A Solar Protect policy will enable your Accountant (your tax return agent) to:

• Deal with any correspondence from HMRC
• Attend any meeting with HMRC
• Appeal to the First-tier Tribunal or Upper Tribunal
• Having the security of knowing that fees will be met in full will enable your Accountant (your tax return agent) to defend your position robustly
• Premiums are Annual Premiums.
• Premiums are inclusive of 12% IPT. 
• Premiums and IPT are due in full in advance / at commencement of scheme.
• There is a NIL excess on all policies.

Please click here for details.

The £1BN Payout

The £1BN Payout

The Financial Services Compensation Scheme (FSCS) reported that over £1BN of compensation has been paid out to consumers who lost money due to the collapse of financial services firms over the past seven years.

The FSCS was set up in 2001, and has paid out £1.04BN since inception. However, out of the 16,490 new claims, the majority (7,410) still relate to mortgage endowments. The hapless claimants having bought the useless product from a firm that had collapsed before they received their compensation for mis-selling.

The average payout was £1,800 each.

The Endowment Rip Off

The Endowment Rip Off

Underlying funds held by insurance companies have risen by an average of 6% over the last year. This in theory should be good news for the millions of people holding useless, underperforming with-profits endowment policies.

Unfortunately, as with all endowment policy matters, what at first appears to be an opportunity for the hapless policy holder to earn a respectable return turns out to be an opportunity for the life insurance companies to take "a dip".

The biggest and the "best" of Britain's life insurers have in fact reduced their payouts by 3% last year (remember the funds they "manage" on our behalf have actually risen by 6%).

This cut in payouts has cost the endowment policy holders around £8BN, according to The Times.

The Times quote Tom McPhail, at Hargreaves Lansdown:

"Stock markets have risen substantially since the end of the bear market in 2003, but final payouts keep on falling.

It just doesn't add up."

That's putting it politely!

We would be better off having "invested" our money in a "bog standard" savings account over the last 10 years.

• A 10 year endowment policy from Friends Provident has returned a mind numbingly small 0.9% a year, compared with 1.6% from a 90 day deposit account.



• Prudential's fund grew by 7.2% last year. However, a typical maturing £50-a-month, 25 year Prudential endowment policy will now pay out £44,515. This represents a 5% cut on the £46,695 paid out on an equivalent plan that matured in 2007.



• A typical 25 year Commercial Union endowment policy will pay out £40,737. This is 7% down on the £43,697 paid out on an equivalent plan last year.

Why is that the insurers are able to take "a dip", and not pass on the increased returns to their policy holders?

Simple!

Because they can!

Insurers have discretion over how much of the gain they pass on, therefore they choose to keep the money for themselves.

A report for the trade body Actuarial Profession expects payouts to continue to fall by 3% per annum until 2020.

We are being ripped off by the insurance companies, and no one in the regulatory authorities is doing anything about it.

The Cost of The Endowment Scandal

The Cost of The Endowment Scandal

The endowment mortgage scandal continues to ratchet up costs.

The Financial Services Compensation Scheme (FSCS) said that it handled 31,260 claims during the year to the end of March 2007, 21% more than during the previous 12 months.

FSCS said that 90% of the new claims it received related to endowment mortgages, with people unable to claim compensation for being mis-sold one of the mortgages because the firm or intermediary they bought it from had wound up.

Around 50% of those who complained about their endowment received compensation, getting an average of £1,900 each.

Overall the FSCS paid out £149M in compensation, around £66M of which related to claims about general insurance, with the rest going to claims over endowments, personal pensions and other investment issues.

The costs will continue to mount.

Berkeley Independent Advisers Network in Default

Berkeley Independent Advisers Network in Default

The Financial Services Compensation Scheme (FSCS) has declared Berkeley Independent Advisers (BIA) network in default, five months after Tenet acquired it for £700K.

The FSCS said that the decision had been made after receiving 300 claims for compensation from individuals, and after being advised by administrators PricewaterhouseCoopers that it did not have sufficient assets to meet the cost of redress.

Consumers will now be able to receive compensation for alleged poor advice from BIA's advisers in relation to endowment mortgages, investment bonds and personal pensions.

All other regulated financial services firms, including other advisers, will cover the bill for compensating former BIA clients through their annual levy to the FSCS.

Questions are being raised as to the speed with which BIA has been declared in default.

As repeated time and time again on this site, if the life assurance companies just agreed to underwrite their useless underperforming endowment policies much of this pain and extra cost could be avoided.

Failing that people, and the life assurance industry, are going to be saddled with this problem for years to come.

The Financial Services Compensation Scheme Online Claim

The Financial Services Compensation Scheme Online Claim

The Financial Services Compensation Scheme (FSCS) has launched an online service today, to help people who think they may have been mis-sold an endowment policy decide whether they have a claim that FSCS may be able to help with.

FSCS is the UK's statutory fund of last resort for customers of financial services firms.

The FSCS can pay compensation to consumers if a financial services firm is unable, or likely to be unable, to pay claims against it.

The service is free to consumers.

The new online questionnaire is available on the FSCS website, www.fscs.org.uk.

It is designed to help speed up response times for consumers. It will help people determine whether FSCS may be able to help with their endowment complaint, and will automatically generate an application form for those who may have a claim.

Loretta Minghella, FSCS chief executive says:

"FSCS plays a vital role in protecting consumers and maintaining confidence in the industry.

Without our help thousands of consumers would have nowhere to turn. Since we became operational on 1 December 2001, FSCS has paid consumers over £650M in compensation.

Over the past couple of years endowment claims have been received at unprecedented levels, way beyond our expectations.

The processes we are putting in place should ensure a faster response for consumers and help us to deal with their enquiries more quickly."

The majority of new investment claims received by FSCS over the past couple of years relate to mortgage endowment claims.

It is expecting to receive 22,000 new endowment claims in the financial year 2005/06, and a further 26,000 in 2006/07.

This compares to just under 9,000 new endowment claims received in 2004/05.

Whether the FSCS will be able to handle this extra workload remains to be seen.

The solution, as I keep reminding you all, is for the life assurance industry to underwrite these useless underperforming products.

Compensation Shortfall

Compensation Shortfall

The Financial Services Compensation Scheme (FSCS) has said that its budget of 7000 endowment claims for 2005 is massively below reality, the actual level in fact is more likely to be 22000.

This means that it will face a shortfall in 2006.

The compensation scheme is funded through contributions from financial services companies, and is available to those who have endowment policies sold to them by IFA's that have subsequently gone bust.

This is the second year in succession that the scheme has underestimated the number of claims. In 2004 it had to ask the investment industry for an extra £15M, to cover compensation above the original budget of £33M.

It seems that not all the "collapses" of IFA's are as clear cut, as one might expect in an industry that is meant to domonstrate probity and integrity.

Berry Birch & Noble Financial Services ceased trading last year, and its assets were transferred to the almost identically named Berry Birch & Noble Financial Planning.

The firm's liabilities, including any compensation due to investors mis-sold products such as high risk income bonds, have been left with the defunct firm. This means that the FSCS have to pick up the "tab".

Loretta Minghella, FSCS chief executive, said:

"New endowment claims have been received at unprecedented levels, way beyond our expectations. As ever the challenge for FSCS is to strike the right balance between providing an efficient and timely service to consumers with our responsibility to the industry to keep costs under control."

I don't know why they are so surprised at the level of claims, these endowment products simply do not work.

The best solution would be for the life assurance industry to underwrite these worthless, useless, products.

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!"

I had a letter from the Financial Services Compensation Scheme today, in relation to my claim for compensation against B.

The FSCS said that as I bought the mortgage before 28 August 1988, they were unable to help me. However, if B had given me further advice after that date they might be able to help.

Nil desperandum!

I will now explore other options.

Extract of letter sent to the Financial Services Compensation Scheme today, in respect of first endowment:

"Dear Sir/Madam,

I am writing to ask for your assistance in obtaining financial redress for the mis-selling of an endowment policy by B.

The FSA have advised me that this organisation is no longer authorised to provide investment advice. Please be advised that I have written to B; their compliance and quality control director advised me that they were not authorised, or registered, to carry out a review of my complaint.

I understand from the FSA that, under these circumstances, I should present my case to the FSCS.

The details, by way of a brief overview, are as follows:
- Endowment policy number ...
- Mortgage reference number ...

An adviser from B sold me a A endowment policy in August 1987. The target amount was £35000. The policy is not expected to meet this target.

The basis of my complaint is as follows:

 Other options for repaying the mortgage were not discussed fully with me

 The adviser did not explain there was a risk that the endowment would not meet the target amount

 The adviser did not discuss in full the funds my endowment was to be invested in

 The adviser did not properly establish my attitude to risk

 The adviser didn't fully explain the fees and charges on the policy

 The adviser said the policy was guaranteed to pay off the mortgage

 The adviser said there would be a lump sum in addition at the end of the term.

Please feel free to contact me should you require additional information.
Thank you in advance for your assistance...."