Endowment shortfall

darrenbilly

Good afternoon,

In 1990 my dad took out a low start endowment policy with Aviva (Norwich Union at the time) using an FIA approved broker (luckily it was after they started regulating them) At the time the endowment was to pay out £77,900 upon maturity (April 2015) and he was told that there would also be surplus money for him to spend as he pleased. The first years payment was on £56 p/month and slowly increased over 5 years to £113, which it has been ever since. By about 1998 he was told that the endowment would not perform as promised, with a shortfall of around £5000. At this point my mum contacted a company (he believes it was ECA, a claims company) they said that due to the broker's situation (one of the partners was declared bankrupt in '92) they could not claim all the time the were not trading. As the shortfall was relatively small at this point, they left it. In the following years the shortfall increased. Having received a red letter in 2009/10 (shortfall then at roughly £28,000) He contacted Aviva at this point, to complain and seek compensation, they said it was nothing to do with them as it was sold through a broker, they told us that the broker was no longer trading. We then went to the FSCS, they said nothing could be done because the broker did still exist, wasn't trading, but was solvent. So again it was left, in the hope that perhaps the broker's circumstances changed. Another red letter was sent in 2012 (shortfall at £34-£37,000), prompting action be taken, again contacted the FSCS, they said all they could do was give me the name and address of one of the partners. I sent a letter to the partner earlier this week, he is working for an independent financial services company, less than a mile away from where I currently live. I do not expect much to come of this letter. Having also rung Aviva earlier this week and complaining about this obvious huge miss-selling, they have lodged his complaint and will look into it.

Seeing as the broker was a verified/IFA approved company, why has Aviva not done more to help the situation. I must point out, as you may know, Aviva have an MEP, they have told my dad he will receive the maximum of £15,800 upon maturity. This still leaves a huge sum for him to pay.

Also, he was never consulted by the broker about his financial position at the time, nor was his attitude to risk assessed, nor did they mention that a repayment mortgage could be a better option, or that the endowment could under perform.

I hope someone can shed some more light on his position, any more we can do?

Thanks for reading my short 'book'...!

McKneff

When he started to get all these 'warnings of shortfall' did he not do anything about it at all.

He could have just changed over to a repayment mortgage and it would have sorted most of the problem out then. This is what we did as soon as we got our first red letter.

I'm getting the impression that is has just been left and left in the hope that it would be sorted by others ie brokers etc.

As for the legalities, hopefully someone will be along to help.
Good luck

holly_hobby

Hi,

Your Father effected what is called a low start (low cost endowment) - this is where the initial premium is less that it would be on a regular policy, but increases over the preceeding 5ys to reach its final and then continuing monthly premium - resulting in a final premium higher than would be evidenced if he had effected a corresponding level premium policy instead. As a result any low start sale must be robustly jusitified by the adviser.

Accordingly, I would only expect to see an easily justified low start policy sale, where the individual had an occupation and/or income at point of sale, that was expect to rise (above normal salary increment raises) to a later more significant amount (e.g newly quailified professional such as solicitor, dentist, dr, etc), whose income in the very early and formative yrs of practice is generally much lower than to be achieved once they are experienced/are out of the lower early paygrades for the profession.

Or the individual had a lot of outgoings at the POS and early yrs, which would over the procdeding 5 yrs reduce, the low start policy being attractive in affording them the opportunty to pch their home and budget in the early yrs, yet their known future financial improvements placing them in a position to easily afford and justify the higher prems (which are effectively making up lost ground from reduced early prems and resulting reduced investment) from yr 5 to maturity ( or based on another similar income/commitment circumstance).

Selling a low start policy, simply because the individual couldn't afford the level premium at outset (say due to high interest rates at the time), with no real basis of sale, or known prospect of achieveing a much higher salary or future change to financial circs, to make the effective double prem payable from yr 5 onwards. justifiable or affordable, does not constitute a justified sale,and could quite possibly be a mis-sale. (although compensation would be equivilent to diff in prems & interest, and policy re-adjustment - if possible).

This is of course, unless the policty was arranged under an execution only basis. (ie dad asked for and wanted this type of plan).

The performance side of things are evaluated differently, Dad can not be compensated for loss of expectation (ie poor performance), a mis-sale would only be jusitified if he was not aware/or advised of the performance profile and risks associated the policy and/or it didn't suit his risk profile at the time of sale - of which there is no indication it didn't.

Indeed, Dad has been aware since 1998, for at least 14 yrs, that the policy may not meet the target sum - meaning that in respect of a LCE and EMvs, he had 3 yrs from this point (up to 2001) to complain about possible unsuitability. Notwithstanding this, you say, despite knowledge of the non-gted nature, they chose not to pursue a complaint at the time (after contacting a claims company re the poor performance), as they felt the anticipated shortfall at an estimated 5k, was low so elected to maintain the plan as a mortgage repayment vehicle - indicating suitabiltity and their acceptance of the policy's risk profile. Both events and timeline completely bar Dad from any suitability based complaint.

There may be a mis-sale in the low start basis of the plan (for reasons discussed earlier), depending of course of why it was deemed a suitable recommendation to Dads circs, and what the point of sale docs confirm, inc the documented reason why/suitability assessment. Again any complaint may be time barred depending upon when Dad realised (if not at POS) that he could have afforded a level prem policy, or its proven that no comparison was made between the 2 (ie level and low start).

To which, if this was sold by an IFA (whom are not an appointed or company representaive of NU (now Aviva)), it is the IFA whom any complaint must be directed - and not Aviva(ex NU) whom merely facilitated the policy provison, and have no responsbility for any advice or recommendation provided by the agent.

Have a look through any of Dads docs from the time this was purchased - and in the meantime see what the IFA comes back with.

Hope this helps

Holly

.

darrenbilly

McKneff wrote: »

When he started to get all these 'warnings of shortfall' did he not do anything about it at all.

He could have just changed over to a repayment mortgage and it would have sorted most of the problem out then. This is what we did as soon as we got our first red letter.

I'm getting the impression that is has just been left and left in the hope that it would be sorted by others ie brokers etc.

As for the legalities, hopefully someone will be along to help.
Good luck

As I mentioned in the original post, he did act upon it, but the advice he sought told him there was nothing that could be done at the time.

Had he changed to a repayment mortgage, Aviva would not have offered him the MEP. So his situation would be worse

Nothing has been 'left and left'. He sought advice, that he trusted was sound. The FSCS themselves have told him that nothing could be done.

darrenbilly

Holly, thanks for your advice there.

At the time of the policy being sold, my dad was a self employed general maintenance worker. Which is not the kind of profession that has wage increases (upon, say, graduation) outside of any normal increases. At the time he had no idea about mortgages or endowments, hence his going to a financial adviser for help. This type of endowment was sold to him, as the only way to go. He was not aware of repayment mortgages or a level type endowment. He was merely a maintenance worker, seeking professional advice.

He has stressed time and time again that he was not made aware of any risk that may be involved. Whether the endowment would over or under perform etc.

I know there has been a long period in which something may have been done, but he was told, by companies including the FSCS, that nothing could be done at the time. Again, he was acting on the advice of 'professionals'.

Thank You for your help, I shall wait to see what the IFA says

dunstonh

Had he changed to a repayment mortgage, Aviva would not have offered him the MEP. So his situation would be worse

that is not correct. Aviva will pay the MEP irrespective of the mortgage being on repayment or interest only basis. They dont care.

At the time of the policy being sold, my dad was a self employed general maintenance worker. Which is not the kind of profession that has wage increases (upon, say, graduation) outside of any normal increases. At the time he had no idea about mortgages or endowments, hence his going to a financial adviser for help. This type of endowment was sold to him, as the only way to go. He was not aware of repayment mortgages or a level type endowment. He was merely a maintenance worker, seeking professional advice.

In 1990, it was the way to go for most people. Media was pro-endowment. Had this site existed back then it would have endowment best buys and the Consumers Association (now Which?) recommended endowments. That was how it was.

Its not all bad either as endowments were typically cheaper than repayment mortgages by around £20pm on a average sized mortgage. A lot of people bought because they were lower cost.

Having also rung Aviva earlier this week and complaining about this obvious huge miss-selling

I'm afraid I dont see any huge mis-selling here. Indeed, nothing seems to suggest any mis-selling at all. There is potential but when you consider that most endowment complaints were rejected, the stats are also against him.

One other thing to consider is that Aviva would have started the time bar process around 2003-2005. That would timebar complaints around 2006-2008. Most endowments are now time barred from complaint. So, the adviser in question only has to ask Aviva if they put a time bar on it and if they did, he can reject the complaint.

Mortgage interest rates are at all time lows (part of the reason why endowments have failed) and the money that has been saved each month should have been put towards the mortgage or put to savings to cover the shortfall. These warnings are issued to allow people to do just that. Ignoring them is always a bad move. That is also why a timebar exists as the responsibility for inaction will in the end be the fault of the borrower.

holly_hobby

darrenbilly wrote: »

At the time of the policy being sold, my dad was a self employed general maintenance worker. Which is not the kind of profession that has wage increases (upon, say, graduation) outside of any normal increases.

Refer ...

holly_hobby wrote: »

Or the individual had a lot of outgoings at the POS and early yrs, which would over the procdeding 5 yrs reduce, the low start policy being attractive in affording them the opportunty to pch their home and budget in the early yrs, yet their known future financial improvements placing them in a position to easily afford and justify the higher prems (which are effectively making up lost ground from reduced early prems and resulting reduced investment) from yr 5 to maturity ( or based on another similar income/commitment circumstance).

Self employed means that his future income could be more flexible and possible of real increase than an employee i.e working more contracts, increased rate charged to clients etc. His SE employment may actually act for the defence - but as I say, I would need to see the POS docs inc factfind, to determine if there is any weight to a mis-sale on the type of policy sold,and if indeed there was no cost comparison between the 2 policy types.

darrenbilly wrote: »

At the time he had no idea about mortgages or endowments, hence his going to a financial adviser for help. This type of endowment was sold to him, as the only way to go. He was not aware of repayment mortgages or a level type endowment. He was merely a maintenance worker, seeking professional advice.

Ok, he was a first time buyer ?

Did he have any savings or investment vehicles at the time of sale ?

There should have been a comparison between the 2 repayment methods.

To which, it is important to note that endowment mortgaegs, esp in 1990 (and the early 90s), were cheaper than equivilent repayment mortgages, largely due to the interest rates at the time (circa 14%'ish in 1990) from memory.

Therefore a Selp Employed FTB effecting an interest only mge, combined with the sale of a low start low cost endowment - on the face of it clearly indicates affordbility/budget issues and constraints - meaning that even if offered a repayment mge (which you say he wasn't), given the diff in monthly outlay, it may have been very unlikely he would have chosen this route in any event -(I say this without seeing the POS docs of course). We also have the fact that the low cost endowment also had the possibility at maturity, of a tax fee lump sum in addition to the target amount - making it at the time (and without the benefit of hindsight) the most attractive mge repayment route of the 2 for many borrowers of the time.

Dad chosing an interest only mge - also meant that he also benefited from full MIRAS (tax relief) on the first 30k of the borrowings, another aspect why many (inc the advisers selling them) also effecteed interest only mortgages. (and it should be noted, that no one was to know what the future would bring, with low interst rates and resulting poor returns, and none of us selling or buying them, had or have a crystal ball I'm afraid)

So again, the above does not immediately indicate a mis-sale of either the low-start or an endowment (interest only) mortgage - but I repeat that this is without examination of Dads POS docs and recollection of events.

darrenbilly wrote: »

He has stressed time and time again that he was not made aware of any risk that may be involved. Whether the endowment would over or under perform etc.

The passage of time does funny things to memory, however we do know that he was aware as far back as 1998 of the associated risks, and depending upon the POS docs ie policy illustrations, factfind, suitability report, it may well be be proven that he was made aware of the policy basis and risks from outset - not only by the advisers verbal discussion, but further supported by documents such as his policy illustration quotes, policy documents etc.

darrenbilly wrote: »

I know there has been a long period in which something may have been done, but he was told, by companies including the FSCS, that nothing could be done at the time. Again, he was acting on the advice of 'professionals'.

He was adivsed in 1998 that 1 of the IFAs had gone bankrupt, so at that point he chose (ie was not directed by any party) to leave it there and didn't pursue any further, either referring to FSCS or anyone else.

He later, when the estimated shortfall was noted as having increased, then chose to contact Aviva - whom advised as the sale was not from a appointed/company rep of NUs - that they were not responsible.

To which he then referred to FSCS, and has now in turn actually contacted the IFA.

Meaning that the complaint will be time barred - meaning that the IFA you have now contacted has no legal responsibility to review it, if they chose not to.

darrenbilly wrote: »

Thank You for your help, I shall wait to see what the IFA says

I wish you well and hope this has helped plot the ground for you.

Best wishes

Holly x






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darrenbilly

dunstonh

I have read a letter from Aviva that mentioned changing the type of policy, this may be the endowment itself, rather than the mortgage. But they did say they would not pay out if something was changed.

dunstonh wrote: »

In 1990, it was the way to go for most people. Media was pro-endowment. Had this site existed back then it would have endowment best buys and the Consumers Association (now Which?) recommended endowments. That was how it was.

Its not all bad either as endowments were typically cheaper than repayment mortgages by around £20pm on a average sized mortgage. A lot of people bought because they were lower cost.

This is making an assumption that because what was offered was most common, it was chosen. The other options available, both repayment mortgage and level endowment were not considered. Looking in to the future, at the time, including my dads financial situation in the future could have shown that a repayment mortgage or level endowment would have been the best option. The risk associated with the low start was not discussed.

I'm afraid I dont see any huge mis-selling here. Indeed, nothing seems to suggest any mis-selling at all. There is potential but when you consider that most endowment complaints were rejected, the stats are also against him.

All options at the time were not discussed. LSE was not the only option, the adviser should not have made the decision for him, but discussed and assessed his needs/requirements at the time AND in the future. I have read many, and know of many, who have made and succeeded in miss selling. Claims have been for far smaller sums of money. I can't fathom how a £35,000+ shortfall is not classed as miss sold, when most claims are below £10,000 (and successful)

One other thing to consider is that Aviva would have started the time bar process around 2003-2005. That would timebar complaints around 2006-2008. Most endowments are now time barred from complaint. So, the adviser in question only has to ask Aviva if they put a time bar on it and if they did, he can reject the complaint.

I am aware of the time bar. I know that this process may be a stab in total darkness, but something is better than nothing. Had I been the age I am now, back when the shortfall and miss selling was first noticed, I would have done what I am trying to do now.

Mortgage interest rates are at all time lows (part of the reason why endowments have failed) and the money that has been saved each month should have been put towards the mortgage or put to savings to cover the shortfall. These warnings are issued to allow people to do just that. Ignoring them is always a bad move. That is also why a timebar exists as the responsibility for inaction will in the end be the fault of the borrower.

Interest rates certainly are low. Also partly because banks were far too generous with those who couldn't afford their products. Including those taking out mortgages and defaulting. But 2013 interest rates do not have any relation to the miss selling and false promises made to my dad in 1990. He did not ignore the warnings, he acted on them at the time, maybe not entirely in the right way, but he did not ignore them.

dunstonh

I have read a letter from Aviva that mentioned changing the type of policy, this may be the endowment itself, rather than the mortgage. But they did say they would not pay out if something was changed.

If you change the endowment, then it ceases. But not the mortgage.

This is making an assumption that because what was offered was most common, it was chosen.

We are looking back nearly 23 years. A lot of it is going to be assumption and guesswork when it comes to opinions as his memory wont be great on what happened and the documentation will likely say something different.

Looking in to the future, at the time, including my dads financial situation in the future could have shown that a repayment mortgage or level endowment would have been the best option. The risk associated with the low start was not discussed.

You were not there. So, you cannot say what was or wasnt said. Back then, an endowment mortgage would almost certainly have been cheaper than repayment. Suitability in 1990 would have favoured the endowment in most cases. People typically forget around 70% of what they are told within a short period. I recall doing endowments back in the early 90s and people were not interested in the endowment itself. Typically the mortgage was the important thing and the cheapest way of getting it. I used to do a cost comparison and supply a copy stating the pros and cons on a single sheet of paper. It was often a 3 minute segment in the conversation. Who knows if that happened to him 23 years ago? If a comparison exists on file, then it will be thought to have happened, even if he cannot remember.

I have read many, and know of many, who have made and succeeded in miss selling. Claims have been for far smaller sums of money. I can't fathom how a £35,000+ shortfall is not classed as miss sold, when most claims are below £10,000 (and successful)

Size of shortfall is irrelevant to the complaint. Aviva tend to be not far off the target figure. This perhaps indicates a higher target growth rate and a lower monthly premium. Most people know of endowment complaint successes. However, the fact is that most complaints were rejected. I have known of people who had upheld complaints and didnt get a penny.

I am aware of the time bar. I know that this process may be a stab in total darkness, but something is better than nothing. Had I been the age I am now, back when the shortfall and miss selling was first noticed, I would have done what I am trying to do now.

a tardis would be helpful at this stage!

But 2013 interest rates do not have any relation to the miss selling and false promises made to my dad in 1990.

They do have an relationship with events. The move to a low inflation with a steady extended growth period made most people better off but endowments were built to work better in a boom/bust and typically higher inflation economy. Had the old economy continued, endowments would have continued to pay out big surpluses as they did most of their life. However, people would have been worse off as monthly costs would have been higher, property values lower and spending power lower. Not ideal but the things that impacted on them negatively, did help in other areas. None of that changes whether it was mis-sold or not but it does explain what happened.

holly_hobby

darrenbilly wrote: »

dunstonh

I have read a letter from Aviva that mentioned changing the type of policy, this may be the endowment itself, rather than the mortgage. But they did say they would not pay out if something was changed.

That would be the policy itself - if unclear what this related to, and rather than act on assumption, clarification should have been sought at the time to be fair.

darrenbilly wrote: »

This is making an assumption that because what was offered was most common, it was chosen. The other options available, both repayment mortgage and level endowment were not considered.

You can not state this as fact - its assumption and hearsay at this point - unless of course you were present in the interview.

darrenbilly wrote: »

Looking in to the future, at the time, including my dads financial situation in the future could have shown that a repayment mortgage or level endowment would have been the best option. The risk associated with the low start was not discussed.

Well if repayment was the best option, no form of low cost endowment (level premium or otherwise) would have been the suitable, given his adverse risk profile.

Setting that to one side, how do you know all this is proven fact, does Dad hold, and have you reviewed, a copy of the fact find from the point of sale ? As that is largely what any investigation will be based on.

darrenbilly wrote: »

All options at the time were not discussed. LSE was not the only option, the adviser should not have made the decision for him, but discussed and assessed his needs/requirements at the time AND in the future.

I feel this is assumption again (unless as I say based on your review of Dads POS docuements ?), and whist I don't doubt your Dad may not recall any discussions took place, that doesn't mean they didn't.

Indeed, even if it went as far as to FOS (and there is no surviving POS docs), its a reasonable assumption that both repayment and IO would have been discussed, as would have level to low start premiums - and essentially. as a deviation to standard practice (and a reviewif there are any other upheld FOS complaints of the same nature against the IFA), it would be up to Dad to prove otherwise.

darrenbilly wrote: »

I have read many, and know of many, who have made and succeeded in miss selling. Claims have been for far smaller sums of money. I can't fathom how a £35,000+ shortfall is not classed as miss sold, when most claims are below £10,000 (and successful)

An upheld complaint, and resulting compensation, is not directly based on how poorly the policy may have performed to target, but is the monetary difference between if the complainant had effected a repayment mge instead of an endowment mge upto the point of the complaint review ( if the policy is still being used as a mortgage repayment vehicle).

Indeed i some cases, as Duns. has quite rightly stated, although a complaint has been upheld, the complainant may have suffered no financial loss at all (meaning no compensation due), and actually in some cases they may have financially gained over the same term (and I've seen this over several cases).

You must remember that the compensation awarded on a justified mge endowment complaint, is not how short to target the policy maturity value may be (unless a written gte was provided), as you simply can not be compensated for loss of expectation (ie poor performance), but it is essentially to put you back in the position you would have been if you had affected a C&I mge from outset.

darrenbilly wrote: »

I am aware of the time bar. I know that this process may be a stab in total darkness.

It is re ATR suitability and performance.

darrenbilly wrote: »

Interest rates certainly are low. Also partly because banks were far too generous with those who couldn't afford their products. Including those taking out mortgages and defaulting. But 2013 interest rates do not have any relation to the miss selling and false promises made to my dad in 1990.

Unfortuantely, thats nothing to do with whether the policy was suitable to his risk profile and if he was aware of the non-gted nature of the contract at POS in 1990 - this statement is irking back to loss of expectation which as we have discussed is not a valid basis of complaint.

I don't mean to sound like a wet blanket or obstructive, but the above points will/should be raised by the IFA if he agrees to investigate. We are just trying to guide you and illustrate that our comments our from our own experience, and made to be helpful to you - which is how I hope you accept them.

The bottom line is we/I just don't want you wasting too much time and effort on this, when I do feel it may have no legs given the duration since awareness of issues, and Im talking the LS issue (not suitability/ATR which will be sucessfully TB'd).

Hope this helps ... even if not exactly music to Dads ears .

Holly