Irony

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

This is somewhat ironic, as per the MAS site:

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

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

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

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

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

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

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

ABI Displays Empathy

ABI Displays Empathy

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

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

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

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

LOL!

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

Unbelievable Betrayal

Unbelievable Betrayal

The hopeless and hapless FSA has now published its final decision on its endowment mis-selling consultation, and has ignored consumer concerns about the proposals.

Which? describe this as "an unbelievable betrayal of consumers".

Which? goes on to note that the FSA had 234 responses to their consultation. Only 10 responses were from firms and industry bodies. Despite this, the FSA only addressed the concerns of firms who felt that the proposals go too far.

Which? quite rightly states that the FSA is allowing the financial services industry to dictate policy once again; get away with ripping off the consumer.

The FSA will not be missed when it is abolished after the next election. It has been worse than worthless in its role as consumer "champion", and serves only the needs of its paymasters in the financial services industry.

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!

Lost The Plot

Lost The Plot

The FT is suitably scathing about the FSA decision to kowtow to the insurance industry wrt compensation payments for mis-selling endowment policies.

"So FSA has bottled it once again. Faced with pressure from the insurance industry, they have backed away from fully enforcing a ban on using policyholders' money to mis-selling bills.

The decision appeared in document CP 09/09: "Proprietary firms will no longer be able to pay compensation and redress payments from their with-profits funds, where they arise out of events that occur after the rule takes effect. The position in relation to events prior to the effective date will be unchanged."

So any compensation or redress from new mis-selling cannot come from the with profits fund, but for all past misdemeanours they can still raid policyholders' cash.

The Financial Services Consumer Panel describes this as a "backward step" and says that "having uncovered unfairness, the FSA should resolve it".

Predictably, the FSA has allowed intense lobbying from the powerful insurance industry to override consumer fairness. Reading through the comments from respondents in this consultation paper illustrates how many insurance companies are still living in the dark ages.

Some argued that policyholders have no interest or rights in any inherited estate that might exist in with profits funds. Others referred to previous consultation papers without appearing to have noticed that these have been overtaken by clarifications and later statements.

So once again the dinosaurs have outwitted the FSA and consumers will be left to pick up the bill as insurers continue to raid their savings to pay mis-selling bills."

FSA Shortchanges Policyholders

FSA Shortchanges Policyholders

The Financial Services Authority has shortchanged endowment policyholders who lodge a complaint for mis-selling against life assurance companies running closed funds.

New rules preventing life companies from using surpluses held in with-profits funds to meet compensation costs will only apply to policies sold after the rules come into force.

Under the FSA's original proposal, the rule change would have applied to all payments made after the regulations came into force, regardless of when the policies were sold or any mis-selling occurred.

L&G Replaces Freshfields

Legal & General (L&G) has completed a review of its external legal advisers, and replaced Freshfields Bruckhaus Deringer with Allen & Overy.

Freshfields advised L&G in 2005, when L&G was investigated by the Financial Services Authority for the alleged mis-selling of endowment mortgages.

Court Case

Court Case

Simon Shaw, the England International Rugby player, is scheduled to appear at the Royal Courts of Justice as a witness in a case between two financial advisers and Zurich.

Other rugby stars (eg Rob Henderson, Phil Greening and Damian Hopley) are also mentioned. It is alleged that some were mis-sold thousands of pounds worth of endowment policies by Zurich. The allegations are being made by the executives Zurich had hired to sell policies to the rugby stars, but who claim they uncovered massive mis-selling instead.

In 1998 Zurich became the official sponsor of the Rugby Premiership, and Allied Dunbar approached Philip Matania and his partner Terence Pullen to sell its products to the rugby community.

Under the deal, Allied Dunbar lent Matania and Pullen £429K to help them build up the business. Nine months later Matania made an appointment to see Simon Shaw.

He had already signed up to an Allied Dunbar endowment policy and its Maximum Investment Plan through Allied Dunbar salesman Mike Skeele.

According to court documents, Matania thought Shaw had been wrongly advised to take out both policies. Matania and Pullen claim that others, eg Wasps players Henderson and Greening, had also been wrongly advised.

Zurich is suing Matania and Pullen for recovery of the loans plus interest, and Matania and Pullen are counter-suing, claiming Zurich sabotaged their business in revenge for them pointing out the mis-selling.

FSA Fights Lautro Ruling

FSA Fights Lautro Ruling

The Financial Services Authority (FSA) has appealed to the High Court over the Information Tribunals' decision to make them name and shame the Lautro 19.

The FSA argues that the information provided to it by the "Lautro 19" was confidential, and that it can't be disclosed.

The "Lautro 19" are endowment mortgage providers who misused Lautro projections to set unrealistically high maturity figures when selling their useless products to the unsuspecting public.

It is estimated that the number of policies affected by this number in the hundreds of thousands.

The FSA, by opposing the naming and shaming of the "Lautro 19", are failing in their duty to maintain an orderly and honest financial system; in other words the FSA is not fit for purpose.

Adviser Claims Foul by Norwich Union

Adviser Claims Foul by Norwich Union

The FT reports that Dolly Pickering, of Heather, Moor & Edgecomb (an IFA), has claimed that Norwich Union's change in projection calculations has led to an endowment misselling claim being brought against it.

Ms Pickering was informed of a £6K drop in the value of a client's policy, caused by an improvement to the accuracy of estimated maturity value (EMV) calculations.

Ms Pickering stated that it was unfair that IFAs were being punished for selling endowment policies, whose initial projected values were inaccurate, and holds the providers responsible.

Public Censure

Public Censure

The Financial Services Authority (FSA) has publicly censured Mandrake Associates Limited (MAL) for serious failings in the way it handled mortgage endowment complaints.

The FSA has also prohibited William John Pirie, the firm's sole director, from carrying out any customer functions in regulated financial services due to his mishandling of endowment mortgage complaints received by MAL.

The FSA claimed that as a result of MAL's failings, there was an enhanced risk that endowment mis-selling complaints were either wrongly rejected or delayed.

MAL was found to have failed to ensure its complaints handling procedures were operating effectively, failed to provide adequate resources for the handling of mortgage endowment complaints and failed to ensure that complaint handling personnel were trained to carry out fair investigations.

In addition it failed to finalise the complaints that were dealt with, within a reasonable time and failed to provide complainants with updates about the progress of investigation in a timely fashion, while it also failed to co-operate fully and promptly with the directions of the Financial Ombudsman Service.

Margaret Cole, director of enforcement at the FSA, said:

"Firms must have in place and operate an effective complaints handling system as a key part of treating customers fairly. MAL's endowment complaints handling failings were systemic, lasting for four years and meant consumers who had been mis-sold endowments were at risk of not receiving compensation at all or only after long delay.

Firms who fail their customers in this way will face enforcement action. MAL would have faced a fine of £400,000 if it had not been for its current financial position."

Standard Life Rejects Fund Call

Standard Life Rejects Fund Call

Standard Life has rejected a call to use £100M a year from its profits to fund a programme to cover the firm's endowment policy "black hole".

The call to build up a fund to cover the shortfalls of with-profits mortgage endowments, came at the company's annual general meeting in Edinburgh last week.

Alastair McClelland, a Standard Life shareholder, used the AGM to demand that the company set aside £100m a year over ten years into the firm's "with-profits fund".

Standard Life chairman Gerry Grimstone argued that the problems with with-profits policies were a legacy of the company's mutual past.

In 2000 Standard Life promised that it would meet any shortfall policyholders faced on their endowment policies. However, when the company got into solvency problems, the promise was changed in 2004 to a guarantee of paying only a proportion of shortfalls.

Time Bar Pays Dividends

Time Bar Pays Dividends

Life assurance group Chesnara, the holding company for Countrywide Assured plc and City of Westminster Assurance Company Limited, has benefited from the time bar on making mortgage endowment complaints for mis-selling.

Its results for 2007 have improved.

Figures show that pre-tax profits rose 11% to £27.7M in 2007 from £25M in 2006. The significant reduction in endowment complaints allowed for a provision release of £2.8M.

Chesnara Chairman, Christopher Sporborg, said:

"Our recent experience of mortgage endowment mis-selling complaints has been generally positive. The number of complaints has reduced significantly and an increasing proportion of those received are time-barred in line with FSA rules, while uphold rates on those complaints which are not time-barred have increased.

Although we do not believe that this issue has fully run its course, we do feel able, however, whilst maintaining an element of conservatism, to reduce our redress provisions, by £2.8 million, based on our revised expectation of future complaint activity."

It's nice to see that someone can make money out this mess.

Pass The Parcel

Pass The Parcel

The endowment scandal has created a legal version of pass the parcel as policyholders claim damages from those who mis-sold these useless products and they, in turn, claim damages from insurance companies etc.

Legal Week recently reported that Reynolds Porter Chamberlain (RPC) is facing a multimillion-pound negligence claim relating to its involvement in a case brought by Standard Life.

Standard Life Assurance recently won a case against AON, and stands to be awarded up to £75M.

Aon has brought its own negligence claim against RPC, as a third party to the proceedings, and a second trial will now take place to decide whether or not the firm was negligent.

Aon's claim against RPC argues that the firm did not recognise that the wording of the policy meant claims could not be grouped together.

Now don't you think that all this trouble, time and expense could be avoided if the life assurance companies simply underwrote these useless, underperforming and badly managed polices?

Sauce For The Goose

Sauce For The Goose

It is refreshing to read for once a story about a life assurance company suing a broker for mis-selling, rather than an endowment policy holder suing a broker or life assurance company.

In this particular case Standard Life sued brokers Aon for advising it to take out the wrong indemnity insurance, to cover claims for mis-selling of mortgage endowments policies.

I would venture to suggest that had they not mis-sold the policies in the first place, they would not have needed to take the cover out!

Standard Life won the case and stands to gain £75M, the final amount will be determined at another hearing.

The judge ruled that Aon had been negligent, as no reasonably competent broker could have concluded that Standard Life's needs were clearly met by the policy.

I can't but help feel a small amount of shadenfreude over this.

Now at least one life insurance company may know what the millions of us, who were sold these useless underperforming endowments, feel like.

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.

Banned For Life

Banned For Life

Jonathan Leigh Hardie, of Primedale Financial Services, has been banned indefinitely from being a senior manager by the FSA, for refusing to investigate nearly 400 cases of alleged endowment mis-selling.

Primedale Financial Services had been the subject of complaints over a five year period, to May 2006. The Financial Services Authority (FSA) had received 389 complaints over this period about potential endowment mis-selling, out of around 3,000 mortgage endowment policies sold between 1988 and 1999.

The FSA state that Hardie had "already decided that Primedale had never knowingly mis-sold an endowment policy", and refused to assess the claims properly.

The company is now in liquidation, and as a result of the FSA ruling Hardie is banned from entering senior management.

FSA Bends In The Wind

FSA Bends in The Wind

The Financial Services Authority (FSA), has given discounts of £4M on fines imposed on banks, building societies, mortgage firms and stockbrokers over the past year.

The firms (eg Nationwide, Capital One and Norwich Union) had been found guilty of serious rule breaches ranging from mis-selling of payment protection insurance (PPI) to failing to adequately safeguard the personal details of customers.

The discounts offered are in the region of 30%, in return for promising to co-operate and not challenging the FSA's findings at tribunal.

Which? is far from impressed, and accuses the FSA of "putting the interests of the industry over those of consumers".

The FSA has decided to bend in the wind as a result of the fight it had with Legal & General in 2005, over its endowments mis-selling case.

L&G successfully appealed against the size of the fine imposed on it.

The FSA is showing excessive weakness, it neglects the fact that were a firm to complain about the size of a fine it would receive an enormous amount of negative publicity during the tribunal.

By offering such large discounts, the FSA has let the insurance and banking industry have its cake and eat it.

Norwich Union's Sleight of Hand

Norwich Union's Sleight of Hand

It seems that Norwich Union is planning an interesting use of £150M of its inherited estate (orphan funds), which in theory are meant to be for the benefit of its policy holders.

Norwich plans to use £150M of £5BN surplus assets to pay for claims made against the company.

Currently Norwich Union is in the process of re attributing the funds to with-profits policyholders and shareholders, which is perfectly reasonable. However, Which? has warned that £150M has been designated to pay for past mis-selling.

It should be noted that the Financial Services Authority (FSA) does allow money in with-profits funds to be used in a number of ways, including settling compensations claims. It is considering a change in its regulations.

However, it seems to be rather "sharp practice" to use policy holders' money to pay for mis-selling perpetrated by the company that claims to be acting in the interest of the policy holders.

Which? is of the same opinion, and has quite rightly threatened to take the matter to court.

Norwich Union is negotiating the re attribution of the £5BN surplus, and also wants to use some of the money to finance business expansion; which also seems to me to be taking a liberty with policy holders' funds.

Dominic Lindley, financial policy adviser to Which?, is also claiming that billions of pounds of with-profits money has already been used by insurance companies to pay for the mis-selling of endowments and pensions.

What are the FSA doing about this?

Why do they sit on their hands and allow companies, such as Norwich Union, to get away with this?

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.