Why are some endowments so much worse than others?

dunstonh

If you cancelled the pension because you couldnt afford it, why did you then start a regular investment plan?

If you couldnt afford one, how could you afford the other?

ReportInvestor

Quite amused by the idea of Ed as an Ombudsman plant . On a par with my "membership" of the Nationwide PR department :rolleyes:.

I did have a conversation last year with a Yorkshire BS ex-director who was miffed that YBS had had to set aside provisions for endowment mis-selling. He was convinced ( I wasn't ) that everyone who signed up to an endowment knew roughly what they were doing, and they were primarily doing it to save money on their mortgage.

dunstonh

I did have a conversation last year with a Yorkshire BS ex-director who was miffed that YBS had had to set aside provisions for endowment mis-selling. He was convinced ( I wasn't ) that everyone who signed up to an endowment knew roughly what they were doing, and they were primarily doing it to save money on their mortgage.

Which does reflect my experience. The lower monthly cost was the most common reason. Although I wouldnt say everyone (like the YBS ex director). Saying everyone would be incorrect.

I would also question how people thought they could only get more when the illustration shows 4,6 & 8% with 6% coming in on target, 8% with surplus and 4% falling short.

If the 4% figure showed a shortfall, surely that indicates that it could fall short? This is of course where the comparison with mortgaged buy to lets is today. I wonder how many people who said they didnt know their endowment could fall short have gone into mortgaged buy to lets thinking that its guaranteed to make them rich?

mayb_2

I would perhaps suggest you go back and read it all again - but what difference does it make dunstonh?

If it was churned it was churned regardless of whether I could afford it or not.

If it wasn't churned it must have been what - fraud? Because where the Agent was asked on the Fact Find if we had cancelled a policy/pension
in the last three months he responded no - this is in writing dunstonh and the Ombudsman queried it with the CIS himself!

This was the Agent who sold us the pension visiting our house because we had said we wanted to cancel a pension! Wonder how he got that wrong on the form?

The CIS have also put into writing to the Ombudsman that this was an oversight by the Agent and put the Ombudsman's mind at rest on that one.

We have written evidence of when we cancelled the pension, and the CIS have confirmed that this was the case - in writing and to the Ombudsman - it was done at the same time that we took out this policy. You may or may not chose to take my word for that.

We stuck to the truth and the facts when dealing with the Ombudsman and the Company. We felt that if we told it how it was we would get justice.:rotfl:

We found the Ombudsman to be both disingenuous and partisan in his approach to our case. However, there is no vehicle to challenge how an Ombudsman arrives at his decision, only whether he followed procedure. He does not have to look at all of the evidence and can put whatever weight he chooses on the evidence he does have. His decision is not binding on the complainant. However, this is part of another thread and is serving no purpose here. See you at the thread pasted above?

mayb_2

I am not good at this finding bits of a past thread and pasting them in but I do think I remember dunstonh you saying that you were no longer involved in the mortgage business and had never missold an endowment to anyone - am I right? You were not happy, if I remember rightly that you had to pay insurance in case you were ever accused of misselling because you were not guilty of this- is that right too? I am sure it is right that you yourself did not missell them and I would not question your integrity. I am curious though.

You are saying:

Which does reflect my experience. The lower monthly cost was the most common reason. Although I wouldnt say everyone (like the YBS ex director). Saying everyone would be incorrect.

Can you tell us how, when you did sell endowment mortgages, you ensured that the consumer knew exactly what they were buying into (rather than just that it was cheaper) and how you did keep them informed as to the progress of their endowment before it became a requirement of the FSA regulations with these green, amber and red letter things.

Because, and I bow to your greater experience of these things, as I understood it these projections were only given in recent years as a matter of course - in line with the FSA requirements follwing the 'crash' of these policies - and so nobody would have been aware in the initial years of the performance of their policies at whatever % it was projected, unless they were kept informed by the company itself or the origingal IFA etc. Is that wrong? Unless of course they fully understood the funds involved and could follow the progress on the stock market etc.

I quote you here.

I would also question how people thought they could only get more when the illustration shows 4,6 & 8% with 6% coming in on target, 8% with surplus and 4% falling short.

I have to admit you lost me there completely. This is what I am asking - how on earth is someone such as myself supposed to understand these things now let alone then?

mayb_2

I may also be a bit naieve about buy to lets dusntonh but how could someone with a shortfall, and presumably having a problem paying their original mortgage, find the money to get involved in buy to lets.

I do have some experience of them as I worked for a time in an Estate Agents, and they managed many such properties. Apart from those people who each had an individual property and when they moved in together had an available property to let, most of these buy to lets went to people running these as a sort of business and had more than one or two.

If the ordinary joe bought a house now with a mortgage near to the value of the house, he would be lucky to make much profit on the rent. However, the hope is that over a period of time the house value would increase and this would create a profit. If you wait long enough this would most likely be the case. However, the profit on rent can be best achieved by buying cheap and renovating to a letable standard so your rental income is significantly higher than the mortgage.

I don't understand the problem with this scenario dunstonh because the whole process is up to the individual carrying this through. Nobody is advising them to do it - they make the choice themselves. It has no doubt failed for some but it is also highly successful for those who go into it with their eyes wide open.

dunstonh

I am not good at this finding bits of a past thread and pasting them in but I do think I remember dunstonh you saying that you were no longer involved in the mortgage business and had never missold an endowment to anyone - am I right?

Correct.

You were not happy, if I remember rightly that you had to pay insurance in case you were ever accused of misselling because you were not guilty of this- is that right too?

Incorrect. I pay PI insurance and I have no problem with that as it covers me and my business. However, I also have to pay to the FOS/FSCS in levies to cover other people's mis-selling. That is the bit I am not happy with. When I have a personal liability for the advice I give for the rest of my life, I don't believe it is fair that I have to pay for those that do not have that same liability. Such as the limited companies and PLCs.

Can you tell us how, when you did sell endowment mortgages, you ensured that the consumer knew exactly what they were buying into (rather than just that it was cheaper)

They were issued with a cost comparison between endowement mortgage and repayment mortgage. This included an endowment vs repayment pros/cons of each summary. This sheet was signed by the client along with statement that they had read and understood the information and there was a written reason why they had chosen that method.

There was the option to set the target growth rate required to hit target and that was discussed with the client. So, if 4.4% was used, it would only have to average 4.4% p.a. to hit target compared with the higher target growth rates. That discussion by default meant that risk was being discussed.

Lastly, the reason why letter contained the paragraph stating that the target growth rate was discussed and x% was chosen and that the endowment would hit target providing that target growth rate was achieved but would fall short if it wasnt. The RWL was signed before application was completed.

and how you did keep them informed as to the progress of their endowment before it became a requirement of the FSA regulations with these green, amber and red letter things.

I didnt. I was a tied agent back then and there was no requirement for me to give any ongoing servicing. Statements were of course issued direct annually and the plans had built in checks every 5 years starting in year 10 and each of the last 5 years (quite normal for most endowments).

Because, and I bow to your greater experience of these things, as I understood it these projections were only given in recent years as a matter of course - in line with the FSA requirements follwing the 'crash' of these policies - and so nobody would have been aware in the initial years of the performance of their policies at whatever % it was projected, unless they were kept informed by the company itself or the origingal IFA etc. Is that wrong? Unless of course they fully understood the funds involved and could follow the progress on the stock market etc.

Most plans had built in checks. Indeed, we were not allowed to recommend PEP mortgages as the PEP we had available did not have built in checks. The difference now is that the information is provided annually whereas back then the projections wouldnt have kicked in until year 10 at the earliest. With endowments generally beginning to fail around 2001/2, many plans had not yet hit the 10 year mark and those that had would have been in a surplus position prior to that date.

I recall seeing a Pearl plan just after Pearl closed which had a red warning on the projections. However, the original illustration showed the required values at various years to hit target and at that point, the endowment had a higher value than was required to hit target. Now Pearl plans are naff for future potential and we did exit and move to an alternative. However, it shows that the projection system is flawed when an endowment can be ahead if itself against its required target growth rate but the projection shows it falling short because the projection uses much lower rates.

I quote you here.

I would also question how people thought they could only get more when the illustration shows 4,6 & 8% with 6% coming in on target, 8% with surplus and 4% falling short.

I have to admit you lost me there completely. This is what I am asking - how on earth is someone such as myself supposed to understand these things now let alone then?

You are given the illustration and on the first page you see what you may get back and it shows three figures (just like the projections you get now). The first figure shows a shortfall, the second shows it coming in on target and the third shows a surplus. It says that they are examples and not guaranteed and that you can get back less or more than this.

So, one example shows surplus and one example shows shortfall. What is difficult to understand there?

I may also be a bit naieve about buy to lets dusntonh but how could someone with a shortfall, and presumably having a problem paying their original mortgage, find the money to get involved in buy to lets.

Many people with endowments have other means. The average mortgage was around 30k when endowments were being sold (in my area). 30k is a very small figure by todays standards and if an endowment is falling short, its a small figure in real terms by todays standards. Even a 10k shortfall is easily mopped up at very little cost if there are enough years to go.

If the ordinary joe bought a house now with a mortgage near to the value of the house, he would be lucky to make much profit on the rent. However, the hope is that over a period of time the house value would increase and this would create a profit. If you wait long enough this would most likely be the case.

Yet you still see it happening. Indeed, your words say "the hope that over a period of time the house value would increase and this would create a profit". That means they may not and those words could apply to endowments just as much.

I don't understand the problem with this scenario dunstonh because the whole process is up to the individual carrying this through. Nobody is advising them to do it - they make the choice themselves. It has no doubt failed for some but it is also highly successful for those who go into it with their eyes wide open.

Yes, this time they are doing it themselves and wont have someone to blame when it goes wrong. However, the general view of many of these (and Im not talking about the professional landlords) is that property is a one way street to profit and there is not any risk. This is exactly the same mentality of endowments 10-15 years ago.

If you look at some of the posts on property forums or watch property programmes its very common to see comments about how they are now doing it to make up for failed endowments or pensions. I saw one programme a few weeks ago where the presenter even commented that they felt a certain property was too high a risk but the person buying didnt see the risk. It was their first property and they were blinded by the stories of money to made. In the end, that person ended up out of pocket.

The comparisons with endowments is striking. There was info there showing potential shortfalls (the 4% projection) but the focus was on the 8% surplus figure as they had been paying out more than that.

I will comment again that I do not doubt some were mis-sold and risks were not mentioned. However, you cannot ignore that very many ignored the risk for the reasons of lower cost (which I would class as the most common reason for doing one) and the "expectation" of lump sums at the end.

Also, this sudden exact memory of what was or wasnt said in meetings that took place 10-20 years ago is amazing. It is generally considered that around 70% of what is said in a meeting will be forgotten within a relatively short period of time. Some things stick of course but when you are being given 30 sheets of paper and booklets about mortgages and an endowment, it isnt going to sink in.

A slight tangent there but I think that is still a problem today and one the regulator has made worse, not better. There is so much information given out that is it impossible to take it all in. Before we get started we have to issue initial disclosure documents, menus, data protection statements, terms of business... That's around 20 pages of A4 and to be honest, virtually all of it is totally pointless.

A lot of the important information gets lost within the pointless/minor information. The key risk issues (which is the most important disclosure issue) gets lost within the pointless stuff. Another example of that is the suitability reports. I will do around 20-25 pages on an investment case. Over half those pages will have nothing to do with investing or contain information that is duplicated in other documents. The information is there to protect me in the event of a complaint and the duplication is there because the FOS wont put any weight on a key features document or illustrations which say the same things. So why issue it in the first place if it has no relevance? Why not just have a single source of information?

mayb_2

Thanks for that dunstonh. Why didn't everyone do it that way?

I do think that because you had a system of ensuring everything was done properly and to the book it may be hard for you to believe or understand how differently this happened in far too many instances. This site and the posts on it are proof of that.

You say about the information about risk being lost in the paperwork - my husband and I were advised to take out our endowment mortgage over the phone. The FA at the Estate Agents had come up with this as the only way of fixing us in to a lower mortgage rate (13% instead of 15%) I think, and that is all we knew about it at the time. With interest rates soaring we didn't want to take a risk on it going up and grabbed it with both hands. We were never pomised anything more than it would pay off our mortgage and never claimed otherwise. We never had a problem claiming for misselling of this endowment as the Fact Find backed us up etc and the company quickly wrapped this up. It has still left us in a very difficult financial position but they did everything they were required to do and we could ask for no more.

As I understand it the basis for deciding whether a mortgage endowment was missold is whether the consumer was aware of the risk attached to the endowment. If you required your clients to sign to say that they understood this then I can see why you have had no claims for misselling.

Unfortunately many policies were sold in a very different way.

You have said that you were not responsible for keeping clients up to date as you were a tied agent, and also

[I]Statements were of course issued direct annually and the plans had built in checks every 5 years starting in year 10 and each of the last 5 years (quite normal for most endowments).[/I]

I am assuming that the CIS Agent was also what you would describe as a tied agent, yet his Company did not issue statements directly to the consumers.

They claim to have sent bonus certificates to this Agent who was to be responsible for passing them on. We only saw one of these and understand now that they would not have kicked in until we had the policy for 4 years. So no information for the first 4 years. Should they have supplied projections as you described them in 1992 onwards?

The one bonus certificate we did see was from 1998 (didn't get it at that time though) and it had a diagram etc on the back but did not show an illustration for a 15 year policy or for the premium we were paying. The projections shown there if you work them out, were showing figures in line with the promises made for our plan. It also contained a statement giving the impression we could expect a large terminal bonus. We never received anything else and those that have been sent to us since we complained to the CIS, do not include any sort of illustration at all - just a statement of that year's annual bonus. If this was the sum of the paperwork they issued would it have been considered adequate under the legislation operating at the time?

The CIS have never been able to produce any of the brochures etc published at the time of the sale or since, that refer to a 15 year plan and they only appear to have been offering 10 or 20 year plans on a very different basis to ours. We will probably never be told what we actually purchased.

More recently we have been investigating a frozen pension policy for my husband also held with the CIS. He has never received any written or verbal information on this from the Company. Once again they tell us that this would have been passed to us via the Agent (they don't have these Agents any more). They apologised for the fact that this policy was not put on the database of their new computer system and that is why we have not received any paperwork since that happened either.

We have now been told that my husband could have been drawing from this pension for the last 5 years and so he has started drawing this pension now. (not a life altering amount as you can imagine) This had been frozen for years before I bought mine and at a time when you could not transfer them etc.

Can anyone tell us if we would have been in a better position if we had drawn on this pension 5 years ago bearing in mind that the fund closed at least two years ago and possibly more?

I have just read your post again and realised what you have said about the key features document. We never received one of these and as I have said they did not appear to have a standard plan offered over 15 years anyway. Why then did the FOS take the line that we would not have bought a policy without seeing these documents and so we did know what we were doing. Nothing in the fact find backed this up and it also confirmed that we received not illustrations at the point of sale. He questioned the CIS on these points specifically and then chose to take their 'word' for it (not backed up by any proof whatsoever) that we had been given everything at the time and that all proceedures had been carried out.

Were we singled out for this treatment or is it because this was another area of misselling and they just didn't want us or anyone else to go there?

dunstonh

Thanks for that dunstonh. Why didn't everyone do it that way?

I do think that because you had a system of ensuring everything was done properly and to the book it may be hard for you to believe or understand how differently this happened in far too many instances. This site and the posts on it are proof of that.

Remember that I was a tied agent back then working for a bank salesforce. There were three of us in the branch and was in a team of around 16 advisers. We all knew what each other was doing in. In that team of 16, I would say 2 were dodgy as hell and wouldnt surprise me if all their endowments were mis-sold. One was broke and always under pressure and one sailed very close to the wind. The rest were fine. I did have the reputation of writing War and Peace in my documentation. I was never going to win any sales awards but i did win the best compliance award twice.

The two that were dodgy as hell also sold the most and won the prizes and events for top sales. You may have seen my comments on this forum in the past saying avoid salesforces. That has a lot to do with my reasoning. Targets, incentives and rewards where one sale can make a difference between going to the Caribbean for a week or nothing can result in bad advice.

It is the minority that spoil it for majority. The dodgy ones would come in with around 400-500 cases a year whereas the average adviser would come in with 150-200 a year. I wouldnt be surprised that if the upheld complaints were analysed you would find the majority are with the top salespeople of each company.

You have said that you were not responsible for keeping clients up to date as you were a tied agent, and also

[I]Statements were of course issued direct annually and the plans had built in checks every 5 years starting in year 10 and each of the last 5 years (quite normal for most endowments).[/i]

I am assuming that the CIS Agent was also what you would describe as a tied agent, yet his Company did not issue statements directly to the consumers.

Correct. The statement issue is strange. If the policy was industrial branch, then there was no legal reason to do so. If it was ordinary branch, then at least once a year was required. When you did yours, it could have been either as industrial branch was phased out during the 90s. You can often tell the difference by how you paid. Door collections were usually industrial branch and direct debits were ordinary. The agent collecting the payments could sell industrial branch but not ordinary branch. An "area manager" or similar would be required to sell those. Of course, thats a generalisation of how things used to be and different companies or even areas within the same company would work different.

They claim to have sent bonus certificates to this Agent who was to be responsible for passing them on. We only saw one of these and understand now that they would not have kicked in until we had the policy for 4 years. So no information for the first 4 years. Should they have supplied projections as you described them in 1992 onwards?

There have been stories over the years of bonus statements turning up in skips instead of being delivered. Most companies stopped that sort of distribution during the 90s. As a savings endowment there was and still isnt a need to provide projections. Savings endowments are different to mortgage endowments in that respect.

More recently we have been investigating a frozen pension policy for my husband also held with the CIS. He has never received any written or verbal information on this from the Company. Once again they tell us that this would have been passed to us via the Agent (they don't have these Agents any more). They apologised for the fact that this policy was not put on the database of their new computer system and that is why we have not received any paperwork since that happened either.

I took on some clients a few years back who had something similar to that with Royal London. The original records were paperbased in the office and when they were computerised, some of their policies werent set up correctly on the new system. Royal London denied they existed and in the end it went to the FOS and Royal London managed to find them shortly after.

Can anyone tell us if we would have been in a better position if we had drawn on this pension 5 years ago bearing in mind that the fund closed at least two years ago and possibly more?

Early CIS plans had guaranteed annuity rates which increased each year they were left and kicked in at age 65 at the earliest.

I have just read your post again and realised what you have said about the key features document. We never received one of these and as I have said they did not appear to have a standard plan offered over 15 years anyway. Why then did the FOS take the line that we would not have bought a policy without seeing these documents and so we did know what we were doing.

I cannot remember when key features documents were introduced. Over the years they have become more detailed as new requirements kicked in. I'm guessing here that as the FOS doesnt place any strength on the key features document to support the adviser, it works just as much the other way.

Were we singled out for this treatment or is it because this was another area of misselling and they just didn't want us or anyone else to go there?

The FOS dont think like that. You do get some strange decisions from time to time but they do tend to side with the consumer in areas of doubt. However, it is quite possible that in your complaint you said too much and that can work against you. You can talk yourself out of a complaint if you arent careful. I couple of places in your thread you have said things which work against you if you had raised those points in your complaint.

When looking at a 1992 case, the FOS should look at it considering 1992 standards. Not 2006 standards, which are higher. Some things which are very important today on the compliance list didnt even exist then or wouldnt have been considered so that has to be taken into consideration.

If the adviser makes mistakes, that doesnt automatically result in an upheld complaint. The area of the mistake has to be relevant to your complaint or have an impact on whether you would have proceeded or not if the mistake had not occurred.

There has to be something on the files or in your complaint letter/explanations which has been enough to sway the FOS to decide that you were told enough. That doesnt mean the CIS did the thing fully compliant. It means that they just did enough to not be classed as a mis-sale.

Things like the statements not being sent doesnt impact on the decision to proceed with the investment or not so that would be ignored (although noted on the file so when the FSA do their compliance visit and check complaints, they can see if this was a trend and deal with it accordingly). Ongoing servicing would be ignored.

The churning part could be disregarded as you have clearly stated that you wanted to stop the pension and that the adviser didnt tell you to do it. Yes he didnt document it correctly but your wording in the complaint probably got them off the hook.

The investment fund issue could be disregarded as with profits was considered low risk in the early 90s. The fact the pension and the endowment used the same fund could be disregarded as the product has different terms and conditions and if the old product was no longer consistent with your needs but the new one was, then that would be enough to agree with the churn.

We really cannot tell how they made the decision in your case. We would need every bit of documentation in our hands. It wouldnt be rejected on some conspiracy theory though.

mayb_2

I do follow and agree with many things you have said her dunstonh but I still have this difficulty.

If I had told the FO that the CIS had talked me into cancelling the pension and taking out this policy I could have had a stronger case than I had by telling the truth. Is this what you are saying?

Part of the Ombudsman's decision was based on the fact that this was, as you say, a low risk policy and met the needs stated in the Fact Find.

But, if I wanted to save towards a pension, why does everyone ignore the fact that I would have been better off staying in the pension and doubling my premiums. Or are you saying that would not have been the case?

The premiums were paid through the bank the fact find is confusing on this question of whether this was ordinary business on not. The question is headed

Industrial Life Policies

Was an equivalent OB Policy available? Neither the yes or no box is ticked. and it looks as if N/A or perhaps N/E is written between those boxes (not applicable - no equivalent?).

The next question asks
If yes state reason for completion of IB proposal. This has not been filled in at all.

This was collected by Direct Debit, yet the only policies we have evidence existed at this time were Ten year savings options (not 10 & 20 as I said before sorry dunstonh,but 10 year savings plan or a Double 5 plan.

(and yes EdInvestor I was confused but the CIS originally sent us a projection for 20 years by mistake as it took them a while to remember how long they had sold this policy for)

These had to be collected by direct debit monthly. There was a third option for a Special Endowment Plan which the Agent collected the premiums for at the door - again 10 years. All of the explanations and projections etc for these plans are based on 10 years. There is no option to extend this period, although something was offered at the end of 10 years where you could increase the level of life assurance cover and savings without the need for a medical. We were not offered this option after 10 years and we were not paid out our money either.

This was the only documentary evidence offered of what the CIS said we had bought. The CIS told the Ombudsman that they had not kept documentation relating to the particular policy as it was too long ago but it would have been like this one and another one that referred to life assurance.

The Ombudsman did ask the CIS for their comments on all of the issues raised by our complaint. This included the fact that our attitude to risk was not completed on the Fact Find, that we had not signed the Fact Find, that no illustrations were issued as confirmed on the Fact Find, lack of applicable copy of literature availability and the point regarding the saving plan sold replacing the pension plan from a suitability point of view.

Inadequate answers were given to most of this including the following regarding the leaflets:

I am unable to comment on this, but it is likely that a relevant leaflet was issued at the time

This appears to fly in the face of everything you and others have said about the lack of paper evidence working to the benefit of the consumer. How can this be good enough when as I have said the FO refused to believe that anyone would buy a policy like this one without fully understanding what was involved! He even quoted our (by then failed and compensated) Mortgage Endowment that we had taken up two years before as evidence that we knew about Endowments and how they worked!!

I am sorry dunstonh but I would insist that we were not treated fairly by the Ombudsman and as I do have all of the paperwork here and can't send it I hope you will take my word for it.

If he had said he wouldn't uphold the decision on another more evidentialy sound basis (or even if he had said it did not fall within his remit)I would not have been happy, but at least I would have felt that I had been dealt with fairly. I cannot obviously copy his decision letter here but he even contradicts his own statements in his letters. Even EdInvestor would have to conceed he sounded more confused than I was.