Endowment Complaint - Questions

littleboo

I'm hoping someone can advise on these issues :

1) In the case of our endowment complaint, and specifically "The adviser did not discuss in full the funds our endowment was to be invested in", the company is claiming that because we were passed the product illustration and literature, there is no complaint on this point. Is this correct ? I would expect that the professional advisor would be required to do more than just pass on documents from the provider without discussing/explaining what it all means to the client.

2) If you were categorised as a "Cautious" investor, ( 2 on the scale of 1 to 5 ) is a with profits endowment considered a good match to that risk profile ?

Thanks in anticipation

dunstonh

1) In the case of our endowment complaint, and specifically "The adviser did not discuss in full the funds our endowment was to be invested in", the company is claiming that because we were passed the product illustration and literature, there is no complaint on this point. Is this correct ? I would expect that the professional advisor would be required to do more than just pass on documents from the provider without discussing/explaining what it all means to the client.

Specifics about the fund(s) are not required to be given on any report or discussed in detail if you dont want to. Documentation supplied is good enough.

2) If you were categorised as a "Cautious" investor, ( 2 on the scale of 1 to 5 ) is a with profits endowment considered a good match to that risk profile ?

Generally, a with profits fund with no MVR is classed as a cautious fund. If there is an MVR potential it tends to be classed as a medium risk fund. With fixed term contracts, it is possible that some would have classed the with profits as a cautious fund and could get away with that as it does contain some degree of capital security if held until maturity. You certainly shouldnt class it as cautious on an open ended contract.

vinno65

Hi Littleboo, you are quite correct, a salesperson can not rely on the fact that he gave you some product literature, he should have gone through it with you as part of the sale. However if he had of done then he would have had to point out that far from being the golden goose he was probably making the endowment out to be,he would have had to point out that it was not in fact guaranteed to pay your mortgage or even possibly come remotely close to achieving that. He would have had to point you to the illustrations showing the potential for a short fall. You may well have then asked him "what's this? you have just told us that our mortgage was definately going to be paid off!" After much coughing and spluttering he would have then had to tell you the truth about endowments with the likelihood that you would have told him to stick it where the sun don't shine!.
Also have a look what No:1 on the scale of 1 to 5 says. You'll probably find that it says very cautious. Another sharp practice by these firms was to have a scale of 1-5 on you attitude to risk with the lowest saying very cautious. There was nowhere for you to state that you were completely risk averse. So people would tick No:1 believing they were making the point that they were risk averse. However firms have successfully argued at the FOS that a cautious or even very cautious attitude to risk is still suitable for endowments !

Regards Vinno

littleboo

Thanks for that.

On the first point, I was going on the information on the Enodmentaction web site which says you may have grounds for complaint if "The adviser didn't explain how your endowment would be invested and explain the risks involved" which seems to suggest he/she should do more than just pass product information on ?

On the second point, can you tell me what an MVR is ?

Many thanks

dunstonh

littleboo said fund information wasnt discussed. Not the illustrations or key features. They of course do need to be handed over and certain sections dicussed. In many cases, funds are not mentioned on illustrations or key features. There is no requirement for the detail on funds to be given (even today) except beyond a reasoning on the suitability report as to why the funds chosen were suitable and that they match the risk profile.

That being said, I find it hard to believe that you cant discuss an endowment without mentioning where its invested. Although maybe thats just me (and I am beginning to increasingly think that).

On the second point, can you tell me what an MVR is ?

Market value reduction. It allows the companies to apply a penalty to the fund if you withdraw the funds at a non-contractual point and the markets are down and the fund would suffer a loss. ie. early surrender.

Funds that have the facility to charge this are usually classed as a grade or two above those funds that do not.

vinno65

Hi Dunston,
maybe it was just you, hence why you have no complaints against you! But the young lady wearing the Abbey National uniform with a badge that said "Abbey National Mortgage Advisor" working out of an Abbey National branch who sold me my FP endowment never mentioned investments. Call me naive (i probaly was back then) but I left with the impression that an endowment was some kind of savings scheme. It was alarge chunk of my monthly outgoing and I believed that compound interest and the tax relief over the 25 years was where the money came from. The stock market certainly wasn't mentioned and the possibility of failure wasn't either.

regards Vinno

vinno65

Hi Dunston,
maybe it was just you, hence why you have no complaints against you! But the young lady wearing the Abbey National uniform with a badge that said "Abbey National Mortgage Advisor" working out of an Abbey National branch who sold me my FP endowment never mentioned investments. Call me naive (i probaly was back then) but I left with the impression that an endowment was some kind of savings scheme. It was a large chunk of my monthly outgoing and I believed that compound interest and the tax relief over the 25 years was where the money came from. The stock market certainly wasn't mentioned and the possibility of failure wasn't either.

I'm sure your not the only honest IFA but you might be an endangered species!

regards Vinno

dunstonh

With 85% of financial advice firms not having any complaints to ombudsman, I think its fair to say that I am not.

vinno65

Yes but what % of financial advice to these 85% of firms contribute to?
It's easy to play with stats

regards Vinno

dunstonh

Its 85% of companies that are authorised to give advice. Ranging from one man bands right through to large salesforces. We already know that 26 companies account for just shy of 60% of all complaints. So, avoid those 26 companies and you should be ok.