FOS rewards the mis-selling wrong-doers etc.

dreamylittledream

EdInvestor wrote:

What do you think about the role of complaints handlers dreamy? ( Pity Defender of the Weak isn't here to comment).

If they were to develop a bit and get a bit more volume, thus bringing their prices down, it seems to me they they could be very useful as a brake on bad practices.

There's unlikely to be much more development in the endowment claims handling market Ed - timebar means that the whole miss-selling issue will be largely wrapped up by this time next year.

The prices the firms are charging is largely driven by market forces - the biggest player put up their prices last year not down.

The firms can play a valuable role in checking redress and pressurising the FOS is they are prepared to, this is where value can be added (as we all know that a complaint made using the Which letter will be just as effective (or ineffective) as one made by a complaint handling firm. However the lack of regulation means that the rogues are the ones who will make the headlines. Also there is a real need for volume to make this a viable business model...

dreamylittledream

Garry_Anderson wrote:

Dreamer> This however is not the same as suggesting that the whole sale of endowments was a corrupt and fraudulant affair in its entirity - sorry Garry but your argument goes too far and the popularity of endowments and the subsequent fall out is a far more complex situation then you would like to state as fact.

Duh - popularity was because they had been lucky in the past - no big falls that made them short.

There is nothing really complex about the situation - no matter how much the 'experts' would like to pretend.

They do it several devious ways e.g. confating purpose with enducement.

That rules were changed is only one of many reasons why it could fail - the fact is it could and therefore not fit for purpose.

You are blind to this fact - we can all guess why

Garry - no only you seem to know why which is intruiging as you haven't got a clue what I actually do within the industry. Your portrayal of me as a stooge is actually quite ironic...

As for you previous hyperbolic posts answering my points -

You still miss the point of redress - the shortfall can not be addressed because it is a projection, not a statement of fact (just like the original ones given with any post A day sale). You clearly haven't seen 'red' warning letters that predict a larger shortfall then the already guanateed minimum value (ie wthout further yearly or terminal bonus).

If endowment redress is used correctly - ie by taking the payout and surrendering the policy and using these funds to repay part of the mortgage and converting the balance to repayment the consumer has not lost out. They will be paying the same amount per month as they would have been at this point had they originally had a repayment mortgage and the loan will be repaid at the end of the original term (unless they make a voluntary choice to change it).

Furthermore given most endowment linked mortgages have been cheaper over the course of time -they have saved money up to the point of calcualtion. Yes thats no doubt the same money they spent on holidays etc...

As I said before churning has its own separate formula for redress - go have a look at example 9 on this link.

http://www.financial-ombudsman.org.uk/publications/guidance/mtge_endowment_redress.htm

Constantly stating points as fact that you can't prove weakens your argument. I'm not suprised you didn't get a straight answer from the SFO is you approached them in similar manner to which you post here. As ever it all depends on exactly what question you asked...

There are considerable problems with the way the FOS is operating but sadly the points you are raising are largely a nonsense.

Big picture - missing - you do the math

EdInvestor

If endowment redress is used correctly - ie by taking the payout and surrendering the policy and using these funds to repay part of the mortgage and converting the balance to repayment the consumer has not lost out. They will be paying the same amount per month as they would have been at this point had they originally had a repayment mortgage and the loan will be repaid at the end of the original term (unless they make a voluntary choice to change it).

Not necessarily. People may have to raise their monthly repayments.It depends on the interst rate prevailing.



There is one area where IMHO Garry's view on "not fit for the purpose" can be shown.This is related to the risk of choosing an equity-based product to pay out a fixed cash amount at a given point in time in the future. (The same risk applies to a pension fund designed to pay out an annuity income.)

We all know that equity markets routinely demonstrate short term volatility, so there is always a risk that a major crash can occur just before the payout date.This risk usually hits the policyholder but can sometimes impact the insurance company first. This risk should be explained to policyholders, but it never is ( ask yourself why).

You could argue that With-profit endowments (easily the majority) didn't have this risk, because of the "smoothing" concept, in which returns from good years are held back so they can be paid out in bad years, thus mitigating the effect of any last-minute market drop.

This sounds good, but to make it work properly, management had to run each WP fund in the proper way:

#A pile of "free assets" needed to be kept in reserve at all times to use for smoothing payouts

#Management needed to follow the spirit of the regulations as well as the letter in reserving for future liabilities ( such as the cost of guarantees)

#Management needed to follow a conservative investment policy so that the WP fund did not suffer major losses which smoothing could not cope with

#Market crashes must not go on for too long.


It's extremely apparent that not only did managements NOT follow these principles at many companies, but that regulators - who should have been monitoring managements - didn't take a blind bit of notice.

The worst example of companies allowed to get away with breaking the rules in spades was Equitable ( which crashed BEFORE the market fall, so you can imagine how bad it was!) but many others were also run in an amazingly sloppy, incompetent, risky and negligent way.

So bad was it that anyone who is well informed about what happened would think very carefully indeed about ever committing money to be invested by such useless and irresponsible people ( many of whom are still in their jobs) ever again.

vinno65

Hi All

Just a few points to all. Having seen Gary's website I can see where he's coming from, also my own experience over the last 4 years bears some of what he says out.

I know he doesn't need defending but anyway, What Gary(I believe) is saying is that endowments are not fit for purpose for the repayment of a massive (secured loan). Let's remember here if you don't pay off your mortgage at the agreed time what's to stop the lender repossesing?

You could argue that endowments are fit for purpose as a savings vehicle for people prepared to take a gamble with their money for bigger returns(again so long as the risks are explained bottom line being you might get back less than you put in). I don't think (Dunstonh) that Gary has ever disputed this. He has also never said that investing is bad. He actually admits to investing in stocks himself!

As I said in a previous post, endowments are probably a good thing for property investors due to the quick turn over and repayment of loans and by the fact that these people are what they are "investors" so you would hope they have some savvy.

Dreamylittledream, you keep going on about how people have saved on mothly outgoings by having an endowment but this is a non argument because this was one of their main marketing points. How much exactly do you expect people to put aside each month? how would they know how much they are saving? why should they put it aside each month remembering that the majority of people were told that so long as they kept up the endowment premiums then it would pay the mortgage at maturity!!

Also on the point of claimhandlers. You're right to say that their work will soon dry up. But what my case shows is that the early time barring has no place in law. Having spoken to a few claims firms about my case, I know some are actively going my route (court) so if they win a test case there could soon be a flood of complaints from the hundreds of thousands already unfairly timebarred.

Regards All Vinno

EdInvestor

Having spoken to a few claims firms about my case, I know some are actively going my route (court) so if they win a test case there could soon be a flood of complaints from the hundreds of thousands already unfairly timebarred.

Interesting, I wondered if they might do that. They are also moving onto other products such as WP bonds, I know, and possibly contracted out pensions (for the over 50s) later on.

They could perform quite a useful public service by hand-holding some people through the small claims procedure - it's about time people got used to dealing with the legal system, as it's quite cost effective and doen';t seem to difficult, but more people need to go through the experience until word gets around.

dreamylittledream

Ed - A borrower's payments may rise from what they are currently paying (eg endowment premium and mortgage interest) but it will be the same level as they would have been had they been given correct advice at the point of sale and had a repayment mortgage.

I can't see how this can be argued to be unfair - this is the payment they should ahve been making now had they had a repayment mortgage at the start.


Vinno - I keep making the point about lower costs because Garry keeps stating people will have to pay more money. If redress is correct and applied to the mortgage with the surrender value of the policy, then payments will alter on repayment to the level they would have been had the mortgage been on repayment from the start.

However the borrower has arguably been better off during the period the endowment has been running if the costs have been less. I'm not suggesting this is a benefit to having been misadvised - merely that it can't be argued that it is unfair peoples payments might rise - they will go to the level they would have benn if correct advice had been given originally

You're also a lot more optismistic about a full scale over turn of timebar then I would be. Whilst a court decision may well rule the early letters were insufficent notification of risk, I am less confident that the later (2004 letters onwards) would be ruled so.

At any rate my comments are based on the current situation with timebar very much in place, bearing this is mind I don't see any further major arrivals in the complaints handling sector (which could drive down prices as per Ed's comments)

Garry_Anderson

Dunston - it may seem I am having a go at you - but this is about all those that advocated endowments - whatever their reasons (ignorance, negligence or fraudulant).

Honestly chum

That does not mean I am going to do anything other than give critical appraisal of your arguments.

Soon - hopefully you will have better idea why FOS are criminal supporters and do not provide full redress.

GA> People here can see Dunston - you cannot even admit that endowment would not repay loan if the market drops.

D> Im not talking about endowments. I have already said long ago that the pricing of endowments made them unsuitable for todays markets. I am on about the concept of borrowing to invest.

The whole thread isn't about that - like a spindoctor you are constantly trying to divert away from what this is about.

I got you back on track with, "How exactly could it repay this loan if markets drop?".

GA> You misrepresent somewhat - we wonder why.

D> Every time I have said that borrowing to invest is fine for those willing to do it, you have said no its not.

No - this is borrowing to repay massive loan - with inducements - if you do it the way advisors say.

Only a fool would gamble their home on the stock markets - only a crook would advise them to do so.

GA> Firstly - investment carries RISK - it is a GAMBLE - you could LOSE MONEY - in recent years we have had the warning, "Investments can go down as well as up".

D> In which case, no-one should be buying a house as that is an asset with a variable price. A nice 30% drop in house prices means people have gambled with house prices. How far do you want to take it?

You need a house - you do not need to gamble on stockmarket - as recent events have shown and advisors have always know.

GA> It isn't borrowing to invest - that isn't why people borrowed money - it is borrowing to repay mortgage.

D> People are borrowing money against an investment with a fluctuating value. Whats the difference? (as per above)

You and Campbell went to school together - I can tell

You pretend that they are borrowing money to deliberately gamble on stockmarket for the sake of it, with money that is not too important - they will have it spare if they lose and need to repay it.

You know yourself - they do not say, "How can we play on the stockmarket?" - they say "What is the best way to repay our big bloody mortgage?".

The advisor, using the inducement of extra cash says, "Do it this way - people have been making money for years - you should have enough for a new car at the end. Just look at these charts at how the markets have been growing".

To be fair - this is not just the small agents at the bottom - it is their firms - they are all at it.

I do not blame the agents alone - they made the little money from this con - their firms and fat-cat directors made the big money.

The directors are ultimately responsible.

GA> THEY ADVISED PEOPLE TO GAMBLE ON THE MARKETS TO REPAY LOADS OF MONEY THEY OWE - CLEARLY NOT FIT FOR PURPOSE - COMPREHEND?

D> No. Still disagree. Not seen anything you have say so far that makes the concept of investment backed mortgages be not fit for purpose when used with the appropriate person.

Is this so-called 'appropriate person' a millionaire with tons of spare cash should the market crash?

Sorry - you are wrong - that person would play the markets without large house loan if they wanted to gamble or invest as you put it.

An endowment would still be not be fit for purpose of loan repayment should the markets fall.

D> As I have said a few times before, I agree with you on a number of points you have raised but I cannot agree with you on the above.

Is this because you advised people to take out endowments or because you want people to have confidence in the markets like the FSA

D> Investing is a "gamble" as you put it. I wouldnt put it as extreme as that because you can control the amount of risk you want to take.

Not when we took out an endowment we couldn't.

Even now you still do not know the odds on an endowment being paid in 25 years time - so how can you control amount of risk if you do not know the odds?

D> However, taking out a mortgage to buy a house is a gamble, so is borrowing money on a property to let out. So is investing for a particular goal, such as retirement.

Three different things - I thought as an 'expert' you would know that

e.g. Endowment is gamble to REPAY money you owe OTHERS - Retirement is gamble to PAY for SELF in old age i.e. you do not owe this money to anybody else.

Am I making this any clearer Dunston - is the fog lifting a bit

D> All you are doing when using an investment vehicle againt a loan is aiming to get more back on the investment than you pay on the mortgage. Some years you will, some you wont. Someone willing to accept the risk that goes with that and investing in an appropriate way should be allowed to do it and if they do it knowing the risks then it is fit for purpose.

All your talk is about "investment vehicle" and not "savings vehicle" or "repayment vehicle" - gosh, why is that we wonder Alistair err I mean Dunston?

What exactly is the inducement for people to take out an endowment when deciding how to repay their large loan Dunston?

Sorry - you would not be allowed to conflate inducement with purpose in a court of law - no matter how much you doth protest

Garry_Anderson

Nads> guys - I think you're gonna have to agree to disagree on this one!!

Its okay Nads - I will turn the other cheek when Dunston gives me a thump

I believe he and many other advisors have convinced themselves that nothing really very wrong was done - that they only took advantage of market conditions.

They don't want to understand that they had responsibility not to sell something that may not pay out what was actually required of it - therefore unfit for purpose.

vinno65

dreamylittledream wrote:

Vinno - I keep making the point about lower costs because Garry keeps stating people will have to pay more money.

Hi Dreamylittledream,
If you read his posts I think what Gary is trying to point out is that endowment gave the building societies a chance to sell interest only mortgages to the public (remember some people were told by building societies that they would only get a mortgage if they took out an edowment)

Now we all know that on an interest only mortgage the interest never changes and consequently over a 25 yearterm the loan is much more expensive than a straight repayment. This was another reason why endowments were so popular with the industry, sorry consumer!!

As to the time bar I agree that the 2004 letters may hold a littlemore sway but even I got oneof them that had a date by which I could complain but no explaination as to how the date was arrived at!! I looked back at all the corespondence I had recieved from the firm but still could not make any sense of the date!

Watch this space on claimhandlers also, they're working on it!

regards Vinno

Garry_Anderson

Dreamer> Garry - no only you seem to know why which is intruiging as you haven't got a clue what I actually do within the industry. Your portrayal of me as a stooge is actually quite ironic...

You seem to (at least) have an interest of keeping confidence in the financial markets - at expense of the public being conned.

D> You still miss the point of redress - the shortfall can not be addressed because it is a projection, not a statement of fact (just like the original ones given with any post A day sale). You clearly haven't seen 'red' warning letters that predict a larger shortfall then the already guanateed minimum value (ie wthout further yearly or terminal bonus).

Had conditions remained as stated - that would be the factual case of loss - it could be better (like you wish to indicate) - but fact is that it could be worse.

D> If endowment redress is used correctly - ie by taking the payout and surrendering the policy and using these funds to repay part of the mortgage and converting the balance to repayment the consumer has not lost out. They will be paying the same amount per month as they would have been at this point had they originally had a repayment mortgage and the loan will be repaid at the end of the original term (unless they make a voluntary choice to change it).

How come people coming to very end of endowment when getting redress have not had shortfall made up then?

You seem to give the impression that this redress is what would happen if this were taken to court - it is not.

D> Furthermore given most endowment linked mortgages have been cheaper over the course of time -they have saved money up to the point of calcualtion. Yes thats no doubt the same money they spent on holidays etc...

Like I say - if you are correct - this money would be gone - therefore people would face financial hardship meeting shortfall.

D> As I said before churning has its own separate formula for redress - go have a look at example 9 on this link.

http://www.financial-ombudsman.org.uk/publications/guidance/mtge_endowment_redress.htm

I was aware about them having formula (example 10) - thank you very much - will come back to it in a sec.

D> Constantly stating points as fact that you can't prove weakens your argument. I'm not suprised you didn't get a straight answer from the SFO is you approached them in similar manner to which you post here. As ever it all depends on exactly what question you asked...

Err.. that endowments may not repay massive loans is not a fact?

I approached the SFO as I approached the FSA - politely asking where I was wrong in analysis.

Only after deliberate avoidance, evassion and deception by them do I get more assertive.

You treat me like a fool - I know difference between fact and opinion.

How could I win official complaint proving FSA to be without integrity if my arguments were not anything other than factual and well reasoned?

How many other people do you know that has proven the FSA to be without integrity?

Oh - it was a wind-up

D> There are considerable problems with the way the FOS is operating but sadly the points you are raising are largely a nonsense.

D> Big picture - missing - you do the math

I am soooo glad you said that dearest Dunston - my chum

This gets back to why "The FOS are part of the cover-up i.e. it is not access to justice - merely mediation for criminal actions."

Okay then - to get back to the calculation about these crooks churning people - this demonstrates my point precisely.

Our churning damages were more than CONSIDERABLE.

In last job I was a manager in the accounts department - just to show I can use calculator

Using the FOS formula - quote:

To compensate the consumer for the unsuitable advice to surrender the first policy, we would usually tell the firm to pay the consumer D + E where:

A = the total premiums paid to the surrendered policy;
B = interest on each premium, calculated from the date of payment to the date that the policy was surrendered;
C = the surrender proceeds that the consumer received;
D = A + B – C;
E = interest on D, calculated from the date of surrender until the date of settlement.

Interest is usually calculated at 8% simple [from 1 April 1993 and 15% per year simple before that date].

http://www.financial-ombudsman.org.uk/publications/guidance/mtge_endowment_redress.htm#c10

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So then - why is interest calculated at simple rate and not compound rate - like it would have been in the real world?
***********************************************************************************

For example - in our case it was 6 years before and 13 years after April 1993.

So for every £1 in D we have following formula:

((1*0.15)*6)+((1*0.08)*13)+1

This would give £2.94 redress for every pound churned.

Guess what the redress would be if it was only smallest 8% compound over the 19 years?

£4.31

Rates over that period have been much higher of course.

Answer to why they don't do it compound like in real world = to screw consumers out of proper redress.

Why is there no added penalty for wrong-doers or compensation to victims?

Answer = to enable wrong-doers to escape proper justice.

"The FOS are part of the cover-up i.e. it is not access to justice - merely mediation for criminal actions."