Repay Endowment Compensation?

HelpWhereIcan

Having received my annual statement for my endowment from the Prudential this morning, I was pleased to see the growth that it has been achieving recently and thought I would ask a question of the scrupulously fair population of MSE.

Let us imagine the scenario of, say Mr Brown. Mr Brown took out an endowment with a major life company in 1991.

In 2002, he used the services of an endowment claims company to successfully lodge a mis-selling complaint on the basis that the investment risk was never explained to him and the policy/funds did not match his 'risk profile'. His compensation was calculated to be £5000 and duly paid by the reprehensible life company. Mr Brown decides not to surrender the endowment and continues to pay the premiums having converted his mortgage to a repayment and used the compensation as an overpayment.

In 2016, Mr Brown's endowment matures and meets the original targeted mortgage amount of say, £ 55,000. This does not give him a surplus, but means that the endowment did it's job and met the original mortgage amount.

Now for the poser. Seeing as the life company have paid Mr Brown compensation of £5,000 and he has kept the endowment on, is he not better off than, say me who was not mis-sold and did not claim. Even though, by his own admission, he was less prepared to take an investment risk than me, has he not benefited at my expense.

Would it not be fair for me to expect the life company to apply a lower terminal bonus to his policy to reflect the fact that he received an 'advance payment' of £5000 from the fund that we all have a stake in? Should his maturity value not be reduced by the amount of his compensation payment in the light of the fact that he was clearly prepared to take an investment risk after he received the compensation.

Would I not have a case to say that something like this could help protect life companies and investors from the vagaries of those people and claims companies who have (possibly bogusly) claimed and received compensation, but chosen to retain the investment vehicle that was so patently unsuited to their needs (or unfit for purpose as the common by word seem to be these days). Am I and the other policy holders/unit holders not entitled to receive a larger payout than the one we receive that is lowered cos the company had to pay compensation to Mr Brown?

Would I not have a case for compensation against the claims company to say that their actions affected the actual performance of my investment and that they were not careful enough in selecting Mr Brown because he was obviously prepared to take more of a risk than they represented to the life company?

Should I be able to claim against the Life company for not making sure that the policy was surrendered as expected in calculation used to work out Mr Brown's compensation?

I await your comments and please do not assume which side of the fence I fall on this argument - you may be surprised.

dunstonh

I understand where you are coming from in the comments.

However, if the financial services industry is foolish enough to agree this flawed redress method then its their own fault.

Reviewing redress just after a stockmarket crash was a bad idea. Calculating it on the surrender value was a bad idea because that is nearly always lower than the real value. Allowing people to keep endowments on upheld complaints was a bad idea. This allows the scenarios you mention to occur.

So, in summary, the financial services industry only has itself to blame. Hopefully it will learn from it and move on and not have something like this again.

Ian_W

Interesting post HelpWhereICan and I voted NO, though I do think I have reasoned and informed arguments to support this.

I was sold 3 endowments, the first one was unit linked and the IFA went to great pains to explain that the investment was linked to stocks and shares and that over a 25yr period there was a very low risk that it wouldn't provide sufficent funds to pay off the mortgage. I couldn't claim I didn't know there was a risk [Low doesn't equal NO] or that it was invested in Shares. I'd previously had a repayment mortgage and an endowment mortgage was significantly cheaper and, as we were borrowing considerably more, this a prime motivator in deciding on an endowment - not to mention the fact that Which? and almost every financial journo were saying you're a mug not to take this route. Needless to say I have not claimed for mis-selling, though I suspect many in the same boat have - the where there's blame, there's a claim culture is very much of the 21st century.

Mr Brown's claim isn't about the shortfall, it's about being mis-sold because he wasn't aware of the risk involved. It's upheld on that basis and his compo isn't worked out on the shortfall, it's to put him in the position as if he'd had a repayment mortgage from the start. The fact that he continues with the risk and it eventually pays off is immaterial to his compo, IMO.

As dh says the compensation scheme dreamed up is silly but it came from the financial services industry so it must stand the cost. The only thing is, from my point of view, that it diminishes my chances of my remaining "with profits" endowments hitting their targets - so who is paying for it? The industry, or the consumer?

It would have been much better to have established an industry wide compensation fund that simply ensured that endowments met their mortgage targets. Given the cost of processing claims and the compo awarded I cannot believe it would actually have cost a great deal more to do this.

vinno65

Hi helpwhereican,
If you are in the fortunate position to be able to keep your endowment going well done. I for one believe you are entitle to keep the money for two reasons. Firstly if you now take an informed judgement on an endowment and use it purely as an investment vehicle you are not now risking your house on it. It is this aspect of the original sale that redres is paid for. Secondly as Dunston says the industry have agreed to the redress fiasco I believe as they re not willing to take the risk of endowments maturing with a shortfall, if they let this happen they may be have been in dire financial stakes.

regards Vinno,

n.b. redress has nothing to do with shortfalls, say for example you keep the endowment going and it does shortfall by £10,000 could you then go back and ask them to make up the difference??