Mis-sold, but surrendered policy???

Gadfium

Hi all,

I had a Scottish Amicable endownment policy, taken out in March 1993. i was advised in january 2003 that there was a asignificant risk that it would not meet the mortgage (policy was for £42.7K, based on projections, there would be £11k shortfall).

Partly on the advice of the IFA (that sold me the policy) I surrendered in August 2003. I was also buying another property at the time, so moved everything onto a repayment mortgage.

I have always felt that i was mis-sold the original policy. Given that the time limit to complain is 3 years from the date of notification that the policy may have a shortfall (therefore the complaint window is Jan 2006), am i still entitled to complain- even though i surrendered the policy????

In addition, if i procedd to lodge a complaint, do i do so with the IFA (who is still trading) or with the endownment company???

crossleydd42

YOu should never have surrendered the policy, which stood a good chance of paying out £42.7k less £11k = £31.7k. You should have left it in place and taken out something licke several mini-cash ISA's over the years, to make up the shortfall. I'd have thought you you may well have a case for mis-selling the policy in the first place, and even a case for advising you, quite wrongly, to cash it in. However, did the letter that advised you of the likely shortfall, actually suggest selling? They do not usually do this, preferring to advise you to take out another endowment policy.

Gadfium

The letter that i receieved from Prudential (which took over Scottish Amicable) didn't advise selling, but the IFA did.

Do you know if i can still put a claim in for mis-selling????

dunstonh

Can I ask crossleydd42 what information he has, which I cannot see, which suggests that the advice to surrender was incorrect?

The Scot Am with profits fund has limited potential. It may have the support of Pru now but the performance is not in line with the main Pru with profits funds and there is no indication that Pru are bringing it in line.

We have no information here to analysis the policy. However, seeing as i have done a number of calculations like this with Scot Am policies, I can only say that surrender matches exactly what I have recommended.

You can start a mis-sale complaint even though you have surrendered it as your are not time barred yet. However, if upheld, the compensation calculation would be upto the point of surrender and nothing after.

EdInvestor

I'd have thought it likely the endowment would have declined in value since August 2003 until now due to reductions in the terminal bonus and thus Gadfium would have lost money if he had held on.In addition when moving to repayment he would have been able to take advantage of the low interest rates then available and deal with the shortfall at no or very little extra cost.

Is that what happened Gadfium?

crossleydd42

Sorry about delay in response. In general, it is not good policy (pun unintended!) to cash in an endowment policy, since it does have a value which will grow, albeit not at the rate which was promised at the time of commencement (hence the mis-selling aspect). The possible exception could be if it was one recently taken out (say 5 years) but most offending policies were taken out many more years earlier than this. If such a policy is sold, it's better to try and trade it in, using companies which specialise in this, rather than the insurance company who issued the policy. However, they are usually only interested in policies over halfway through their lives. One reason for not cashing it in is that you therefore get a paltry sum back compared with the eventual value and there could then be problems with taking out a repayment policy for the remaining term, with associated term-assurance costs for which the premium could be higher because the assured could be much older that when the original policy was taken out and maybe not in such robust health by then.
The mis-selling aspect is a different matter and my understanding is that the 'shortfall letters sent out show a RED, ORANGE and GREEN situation. Only the red ones can be considered for a complaint. However, those with problems might find this link useful:

http://www.fsa.gov.uk/consumer/01_WARNINGS/endowments/mn_endowment.html

Good Luck - I was lucky in that my two policies paid out a small surplus when they matured to pay the mortgage. Just two years made a difference in the payout figure between the two, however. Another two years and they would have barely broken even!

dunstonh

In general, it is not good policy (pun unintended!) to cash in an endowment policy, since it does have a value which will grow, albeit not at the rate which was promised at the time of commencement (hence the mis-selling aspect).

Sorry, that is totally incorrect. The performance of the endowment is dependent on the investment funds. There are a large number of endowments invested in funds which have little chance of paying bonuses ever again. There are also endomwents performing well above what they need.

A proper analysis can be done to compare the endowment options against the alternatives and in some cases, the best option will be to keep, some will be to switch funds, some will be to make paid up and some will be to surrender.

The possible exception could be if it was one recently taken out (say 5 years)

Actually, these probably have the best opportunity to hit target as the odds are that more of these are unit linked rather than with profits and would have missed out on much of the downside of the stockmarket but gained nicely on the recovery.

crossleydd42

I dont want to prolong this debate: suffice to say that the endowment policy above seemed to be doing well enough to have been retained, and many of us out here have had experiences of IFA's smoothly giving out 'beneficial' advice whilst actually lining their pockets (not a dig at you). This is why I always feel that it is better to go to an IFA and pay for the advice rather than have a commission-based 'free' consultation which, on past record, is not necessarily 'independent'.At least, though, there is not the secrecy there once was and abuses are now less likely.
I do have concerns that the policy in question was good enough to keep and just hope that something was put in its place to fill the gap, something which is imperative. As for the second part you quoted, I never mentioned unit-based policies, an entirely different investment vehicle which could do well or badly whenever bought/sold, but usually do well in the longer term. But past performance is not................!!!

dunstonh

I dont want to prolong this debate: suffice to say that the endowment policy above seemed to be doing well enough to have been retained, and many of us out here have had experiences of IFA's smoothly giving out 'beneficial' advice whilst actually lining their pockets (not a dig at you).

There is insufficient information to say whether this endowment was any good or not. Your dig at IFAs as not consistent with complaints statistics which show no such bias.

As for the second part you quoted, I never mentioned unit-based policies, an entirely different investment vehicle which could do well or badly whenever bought/sold, but usually do well in the longer term. But past performance is not................!!!

Correct. You just said endowments. That covers about 15 different types of policy and fund types. You also stated those taken out in the last 5 years. You never mentioned with profits specifically. Some of the information in your post would be incorrect with a number of those endowments which is why you can never say something is 100% without knowing the details of the plan.

On your suggestion, someone with a Pearl endowment, for example, would be better off keeping it until maturity. Despite Pearl paying zero bonus, having low financial strength, being owned by a venture capital company and having an investment strategy that is unlikely to see them pay enough bonuses again for 10-15 years at least. You can replace Pearl with a range of names in that box.

Some endowments are certainly worth keeping. Some are an absolute disaster.

Did you know that an IFA can get into just as much trouble recommending that someone keeps a duff policy, even though they didn't sell it, when its part of a formal recommendation?

crossleydd42

Now the rape of Pearl by AMP, that's another (sad) story!

EdInvestor

crossleydd42 wrote:

Now the rape of Pearl by AMP, that's another (sad) story!

Indeed so, the negligence of the old pre-FSA regulators in protecting policyholders' interests at With-profits funds is quite astonishing. :mad:

Perhaps Equitable Life is the worst case, but Pearl is also dreadful, and there are several others one could name.