Act now on mis-sold endowments: new article

dunstonh

If you did not understand how endowments worked and you were not advised at the time that it may not pay the target amount you were missold this endowment.

I drive a car but I dont know how the engine works. You do not need to be told the inner workings but the recommendation does have to match the risk profile

3) the performance of the plan at the moment is under-performing against target.

Many very good endowments which are on track for surplus get projections showing shortfalls. An endowment set up to achieve 7% average over the term and currently growing at 7% (so on track) would show on the projections as falling short when any rate under 7% is used (typically 4 and 6% there). Many endowments have grown around 16% a year for the last 3 years. It's an average rate of return that is required and a stockmarket crash brings returns down in the short term but is actually beneficial in the long term as you get to buy those units much cheaper. (this applies to unit linked endowments)

5) You are right...if the policy was 10k up, I would probably not be complaining...but that is the whole point...it isn't 10K up it's 5500 down.

Are you sure its down? As said, projections are not good guides to this. It could be on track for a big surplus or it could be even worse.

You have a Scot AM policy so that shortfall projection is not likely to end up like that. Take a read of this: http://www.ifadu.co.uk/downloads/Endowments-AH.pdf

6) Surely I have nothing to lose by complaining... OR DO I???????

Thats the compensation culture for you. You have nothing to lose. In your case, you believe you were mis-sold so you should complain. Its those that werent mis-sold but have nothing to lose that are the problem.

With a "projection" showing a potential shortfall of £5000 and with it being a Scot Am policy, dont expect to get much of a payout if the complaint is upheld.

I really appreciate your answers as it's great to have a devil's advocate before I complete the form...would love to hear your responses....

Im not saying dont complain. If you were mis-sold then you should. Just go into it with your eyes open and understand that not all endowments are bad. We have seen people post on the forums that they havent got a payout because they have been told they are financially better off and they have whinged about that. It is an irony that they were sold a product that has done what they were told it would do and they are financially better off and they are complaining about that.

There are an awful lot of good endowments being surrendered on the assumption that all endowments are bad just as some are holding on to awful endowments on the assumption they will all recover.

Is it not the Company that you had your endowment with that you make your claim against rather than the actual IFA?

Standard Life had nothing to do with the sale of the policy and have no liability. You claim against those giving the advice as they have the liability.

mayb_2

So if you wait and see - you just may get more than you thought and if you haven't you will be time barred from making a claim.

The company we dealt with sent us a letter saying that we were shortfalling by a large amount and told us if we paid them more each month this would be corrected. We spoke to the company and were swayed by their advice and paid in another 20 a month - the following year they sent us a letter telling us our endowment was shortfalling by even more than before!

So how can you tell when you are getting good advice - the companies and IFAs obviously don't want you to claim if they can avoid it. Can anyone afford to take a chance when they will very soon be time barred from making a claim? Why would a company project a shortfall when it is not likely to happen? This is not just talking about the projections they have to include for 4%, 7% etcetera - they must base their assessment on the current performance of the funds or you wouldn't be getting a warning letter surely?

dunstonh

So how can you tell when you are getting good advice - the companies and IFAs obviously don't want you to claim if they can avoid it.

You have mentioned that you have an IFA now and they havent told you not to complain against CIS. I have intiated a number of endomwent complaints on clients behalf as have many IFAs.

Why would a company project a shortfall when it is not likely to happen?

They have no choice but to use the specified projection method. This isnt suitable for a number of plans and others it can either understate or overstate potential or likely performance.

they must base their assessment on the current performance of the funds or you wouldn't be getting a warning letter surely?

No they dont and no they cant. There are funds on endowments that have never failed to perform at less than 10% p.a. They are still required to use 4,6 & 8% on projections. Projection isnt really the right word, they are illustrative values based on example rates of return. You could get back more, you could get back less.

mayb_2

So what you are saying here Dunstonh is that they have to send you a warning letter even if there is nothing wrong with your investment? My question stands then - how do you know when you are getting good advice?

p.s. Dunstonh I have mentioned using an IFA but not on this thread, but on one entitled Endowment misselling not attached to a mortgage. They were not involved in any way with my making a complaint to the CIS regarding the misselling of a savings plan/with profits life assurance/endowment or whatever you wish to call it - this had already been done and had been to the Ombudsman before I saw an IFA. My IFA didn't charge me but the hourly rate would have been too expensive for my budget.

This was not attached to a mortgage and we were complaining that it was missold and we had received no information over a 10 year period as to its performance. No projections or illustrative values, no bonus certificates etc.

I don't mind you quoting me but it is confusing if it is out of context.

dunstonh

So what you are saying here Dunstonh is that they have to send you a warning letter even if there is nothing wrong with your investment?

Correct.

You have to understand that these projections are just examples. They are no indication of how your investment is performing.

Here is an example: A 1997 unit linked endowment invested in a UK stockmarket fund set up to need an average return of 7% p.a. to hit target.

First flaw is that on day 1 that endowment is on for an amber warning as the projections use 4,6 & 8%. 4 and 6% would show a shortfall. 8% would show a small surplus. That remains the case potentially right up until maturity if it was to achieve exactly 7% it would hit target but each and every year would be an amber.

Now, lets look at flaw number 2. We had a stockmarket crash in 2002. So, early performance would be below 7% and that would push the endowment into red. However, that isnt a bad thing. Its a good thing. A stockmarket crash early into the term is exactly what you want. All those units you are buying are cheap after a crash and when the recovery happens they are the ones that make the most money. So, you are now getting red warnings in the period of the crash and just after giving you the impression things are bad but actually they are not. Its exactly what you want in the near the beginning.

Lets look at a real example and pick the Standard Life managed fund and look at the annual performance year by year going backwards from 2006

11.09%
18.75%
10.80%
12.24%
-12.44% (stockmarket crash years)
-13.85%
9.98%
14.94%
-1.01%
15.94%

So, you can see it fluctuates a lot.

Now, we move to flaw number 3, which is linked with flaw 2. If you look at that 1997 example again you will see in year one the value would have dropped 1.01% over the first year (ignoring contributions for the moment). So a projection after one year at 4, 6 & 8% would show all red as it got minus 1.01%. but look at the next two years. Well above what was needed. Now comes the problem. two years of negative returns due to a long stockmarket crash. Not a problem as mentioned in flaw 2. However, because everyone thinks short term the endowment problems start. Virtually all endowments at that point would be below track. But look at the four years that followed. Those that surrendered missed out on the recovery and those bad years where the unit price dropped big time would have allowed them to buy new units much cheaper than before. As the price recovered, those units would have made up for the drop before.

For reference, that Standard Life managed fund has achieved an average of 7.84% p.a. over the last 20 years. An endowment needing 7% p.a. in that period would have paid a surplus. But they would have got amber letters right up until maturity.

Flaw 4 relates to old conventional with profits plans. These products were designed in an era where endowments had never failed and when you invested in with profits, you got 3 to 4 times your money in 10 year periods (hence why some people mention that they were shown figures with 3 to 4 times mentioned). They were before home computers and consumer awareness. These conventional with profits plans were never designed to have a daily value. Many companies have been unable to give them a daily value because the computer software these policies are held on cannot be updated. So, when asked to give projections, the only figure they have to project from is the surrender value. This is often many thousands of pounds lower than the real position. So, projections on these are projecting from a lower point than they should. This has been seen in past even on these forums where people quoted 4, 6 & 8% but the 4% projection figure was lower than the guaranteed minimum maturity value. When this became known in the industry a number of providers made the 4% figure the guaranteed minimum maturity value or 4% whatever was higher.

Flaw 5 is linked to 4 in that with some conventional with profit projections, they do not include the terminal bonus that may be accrued on the plan.

My question stands then - how do you know when you are getting good advice?

Insurance providers mostly no longer have a tied salesforce and are not authorised to give advice. They produce the info but they are not allowed to advise you. That is the job of the IFA.

IFAs vary in skill. Some are highly skilled. Others (and this was reported recently to be quite a significant number) are mortgage advisers who have never given up their full authorisation but transact mostly in mortgages, life assurance and general insurance and the occasional investment case that comes along. The latter would be low skilled in investment business. Just as I admit to not having enough knowledge on mortgages as its not my speciality. I gave up mortgages a number of years back and leave that to the mortgage advisers. Think of it like doctors. You have all sorts of specialities and you have GPs. You wouldnt want a GP doing brain surgery. Equally, you wouldnt want to see a GP IFA in a specialist area.

These projection letters are meant to aid you but when taken out of context, they can do more damage than good.

It isnt just understating performance either. If you have a really duff endowment that is invested say with Pearl or Phoenix, then 4, 6 & 8% is really overstating the projections as they are likely to pay between 0-3% p.a.

So, this data needs to be read by someone who knows how to understand it. All IFAs should be able to but that wont be the case. Only those with a decent investment knowledge will and I'm afraid that is probably only around 60% of the IFAs out there at this time.

mayb_2

Thanks Dunstonh for that comprehensive reply.

Unfortunately it does mean that most of us are left in the poo when it comes to knowing what is the right course to take. As I have said I could not afford to consult an IFA and I am sure there are a lot of other people out there in the same boat. I would suggest, based on this, that on average it is safer to go for the misselling claim than to wait and see what happens - again based on the theory that it is unlikely that any of us would have a clue when looking at Amber or Red letters. Don't act and you will be time barred.

It also shows just how little we as consumers are being protected by either the Ombudsman or the FSA. As long as the companies obey the rules and send out those letters in the format required (and quite often even if they don't - the company stating that a letter was sent is enough proof - consumer saying they didn't get one doesn't count) they will not have a problem with the FSA or the Ombudsman. The time bar issue will see the end of all of this very soon now - you just wont be entitled to redress after that.

In my opinion (humble though it is) the Ombudsman is a sort of dummy for the consumer to suck on. It helps to keep us quiet and to feel that we have received some sort of justice. Whereas, really it is busy along with the FSA protecting the Financial services industry from the effects of its own shorcomings and the fall in the stock market from those heady days when it just couldn't fail.
Call me cynical and I will entirely agree with you.

There are still many people out there who have done nothing about the shortfalls in their endowments because they simply cannot afford to do so. There are others who will have to sell their homes to pay off mortgages and downsize just to break even. Are the FSA and the Ombudsman working to ensure that these problems are addressed - that the consumer really knows the options available to them and wont be affected by circumstances entirely beyond their control?

The problem here is not the performance of the stock market but the lack of honesty and clarity of information passed on to those affected, at an early stage when decisive and effective action could have been taken. In its place we have this parsimonious, convoluted system of getting redress which is enough in itself to prevent a lot of people from taking the right decisions.

The consumer meanwhile wont have a clue as to how his endowment is really performing unless he can pay an IFA to tell him.

How about publishing a list of companies that have immediately and clearly informed their customers of the problems, paid up without an argument to put things right and have not forced their clients through the Ombudsman Service to get their rightful redress. Perhaps we would all prefer to deal with them in the future. That might put real confidence back in the industry rather than this smoke and mirrors approach to everything, which leaves a bad taste in the mouth and most of us thinking we would rather put our money into something we can see and have now - before someone snatches it away.

Well that was a bit of a rant but I feel so much better now!

broomey

ok, I'm new to the endowments part of this website so I really have no idea what I'm talking about. I have tried reading through posts but they make as much sense to me as pingu, so I'll ask instead.
After following advice on this website my mum made a complaint to the woolwich about her mis-sold endowment policy. She spent ages gathering information and trawling through paperwork and finally woolwich got back to her saying she couldnt get anything from them as it wasnt them that sold her the policy. She had advice (if you can call it that) from a bloke at the estate agents when they bought their house. I assume he was an independant financial advisor. Am i right in thinking its the estate agents she needs to be complaining to now? Or maybe thats who she should have written to in the first place? I think she's just generally feeling a bit disheartened by not getting a positive reply and is now in no mood to pursue it further. I may not have the full story here but this is my understanding of it anyhow. Any advice would be greatly appreciated!

dunstonh

Am i right in thinking its the estate agents she needs to be complaining to now?

Not necessarily. The adviser may just have worked out of their office. However, they should know where you should complain to.

mayb_2

Our Endowment Mortgage was sold to us through an Estate Agents, and we contacted them first. They passed us on to the Company we had our policy with. I don't know who employed the chap at the Estate Agents he may well have worked for the Finance Company itself, but we had no problems getting redress from the provider of the Endowment. The Finance Company itself had changed hands twice during the time we had the policy. It can be a bit of a long winded process but I don't think your mum should give up yet.

Crazy_Saver

originally posted by mayb
The problem here is not the performance of the stock market but the lack of honesty and clarity of information passed on to those affected, at an early stage when decisive and effective action could have been taken. In its place we have this parsimonious, convoluted system of getting redress which is enough in itself to prevent a lot of people from taking the right decisions.

The consumer meanwhile wont have a clue as to how his endowment is really performing unless he can pay an IFA to tell him.

How about publishing a list of companies that have immediately and clearly informed their customers of the problems, paid up without an argument to put things right and have not forced their clients through the Ombudsman Service to get their rightful redress. Perhaps we would all prefer to deal with them in the future. That might put real confidence back in the industry rather than this smoke and mirrors approach to everything, which leaves a bad taste in the mouth and most of us thinking we would rather put our money into something we can see and have now - before someone snatches it away.

Hi mayb.

This is a thread that I started a few days ago. You may find it interesting.;)


http://forums.moneysavingexpert.com/showpost.html?p=3505492

Regards Crazy Saver