Named and Shamed

Named and Shamed

As we all know, endowment policies have proven to be the worst, most costly financial scandal perpetrated on millions of home owners in living memory.

Money Management have produced a list of the worst performers.

Endowments managed by Resolution and Pearl, which bought up several closed-life funds, dominates the list.

Money Management shows that their endowment policyholders have earned less than in a deposit account over 25 years.

Resolution owns Life Association of Scotland, this was the worst performing endowment in the survey. It gave a 3.9% return over 25 years..yes you did read that correctly...3.9% over 25 years.

What exactly have they been doing with people's money?

Crusader and Britannia, also owned by Resolution, were the third and fourth-worst performers at 4.3% and 4.9% respectively.

National Provident was second with a return of 4.2%.

Clive Cowdery, Resolution's founder, has made millions from his dealing with these funds. However, his policyholders haven't.

Ironically some of Resolution's funds have done very well. Phoenix Assurance, owned by Resolution since September 2004, has paid out £317,800 on typical 25-year maturing endowment policies, reflecting an annual growth rate of 20%, or 1,168% more than the Life Association of Scotland policy.

Phoenix has paid out so much because it has been winding down its estate, and distributing the proceeds to 1,500 policyholders.

Resolution owned National Employers Life, with an annual growth rate of 11%, and Swiss Life, at 9.4%, also topped Money Management's list of 25-year policies.

Money Management reveals that some 10 year endowments have in fact lost money over 10 years, even though the FTSE All Share is up 43.3% during the last 10 years.

The worst 10-year policy, Pearl-owned London Life, fell by 1.6% a year while Resolution's Sun Alliance & London Assurance dropped 1.2%, Royal Life fell 0.6% and Scottish Mutual declined 0.4%.

The holders of these useless products are going to receive a nasty shock when these shortfalls crystallise.

The List of Shame

The List of Shame

Congratulations to Money Management magazine for naming and shaming the insurance companies and endowment providers, who tired to hoodwink their customers, that the Financial Services Authority (FSA) tried to cover up.

When these shamed companies sold their products to their unsuspecting customers they used industry standard charges laid down by Lautro, the industry regulator at the time, to show the returns etc that would be expected on the policies..

However, their actual charges levied by these shamed companies were often much higher sometimes double the Lautro rate. Needless to say, they chose not to tell their customers this. This shoddy practice took place between 1988 and 1995.

It is estimated that around 200,000 policyholders, with low-cost mortgage endowments, could be owed up to £200m by these companies as a result of this practice.

The list of shame includes:

-Standard Life
-Pearl
-Axa
-Scottish Widows
-Prudential, owned Scottish Amicable
-Scottish Mutual
-Scottish Provident, now owned by Resolution.

Companies were taking up to 0.75% a year in charges from the fund. However, their customers were given the impression that the charge was only 0.3% (ie less than half).

Some companies, including Axa, Legal & General and Clerical Medical, have set aside money to make good these shortfalls. Others, such as Standard Life, have so far refused.

Shoddy practice by a very shoddy industry, and a disgraceful attempted cover up by a toothless partisan FSA.

It is hardly surprising that the British consumer has lost all faith in the financial services industry.

Good News From The Pru

Good News From The Pru

Those of you with endowment policies, managed by the Prudential, have something to celebrate.

They have announced a 20% return on their with-profits fund, after increasing the equity backing of the £83BN fund from 64% to 74%.

The rise of 17%, after tax, has been passed on to their customers.

Endowment policies rose by over 16%, and maturing policy pay-outs were higher than a year ago.

Ned Cazalet, an industry commentator, said that the performance was "head and shoulders above everybody else a 45% cumulative return over the last six years compared to an average of 20% for the rest".

During 2005, whilst the Pru was adding to its equity backing (equities plus property), Standard Life (for example) was reducing the equity backing of its fund from 50% to 45%.

Standard Life then went on to whine and bleat earlier this month that the reason for their dismal performance was because the FTSE-100 had fallen from 6930 six years ago. Had they been more flexible and better organised they could have taken advantage of the rising market, just as the Pru did.

Almost all of the Prudential's maturing endowments paid off their mortgages last year, and the number of "red" policies off track has dropped from 65% to 16%.

How many other endowments can claim that?

This good performance by the Pru raises some very uncomfortable issues for many of the other life assurance companies, that have been performing dismally:

• Why have many of the others performed so badly?



• Why do they continue to blame the markets, when it is clear that it is the management of these funds that is to blame?



• Why do they continue to pay their senior staff bonuses, when their policies are failing their customers?



• Why do they make "management" charges on these failing and useless endowment policies, when they are clearly not capable of running them effectively?

These issues should be taken up by the millions of us who are being poorly served by many of the life assurance companies. A class action for mismanagement would definitely bring the issues onto the table, and force a resolution to this growing crisis.

From Bad To Worse

From Bad To Worse

The endowment policy crisis could be far worse than experts expect.

That is the view of Clive Cowdery, chief executive of Resolution Life. He predicts that the amount of assets held in close funds funds will double to £400BN, in the next five years, as more insurers shut off their funds to new money.

Closed funds do not take in contributions, their only purpose is to pay existing liabilities; in other words they are winding down, as such their returns are lower than open ones.

Cowdery believes that closed funds will account for 15 million policies by 2011.

That will be when the "fun really starts"; as people realise that their funds don't work, and wake up to the fact that they have a debt that they cannot afford to settle.

I would hope that, despite the fact that the life assurance companies are doing their best to sweep the biggest financial scandal of the 20th century under the carpet, people wake up to this disaster a little earlier than that.

Time for the politicians to wake up as well!

I am getting rather "pissed off" with the delay in hearing from company A about my mis-selling complaint relating to my second endowment.

So I fired this off to them today:

"..
Customer Relations Admin Manager

Dear Mr ,

I refer to your letter dated 21 February 2003 (ref ...), in which you state that you are doing everything to resolve my complaint about mis-selling as soon as possible.

I have heard nothing since then, and am very dissatisfied with your handling of this matter; I would appreciate clarification on the following:

 My complaint was lodged with you on 10 October 2002. What is causing this excessive delay?

 I was promised a resolution to my complaint by 31 January 2003; this deadline has been ignored, why?

 When will you resolve my complaint?

I would appreciate a prompt, and non equivocal, response to the above points. Depending on the nature of your response I will consider referring:

 my complaint against you for mis-selling, and

 an additional complaint against you for the excessive delay and poor handling of my mis-selling complaint

to the FSA.

As with all other correspondence, this will be posted to my public blog “The Endowment Diary” on www.kenfrost.com.

Thank you in advance.

Yours sincerely.."