Capital Bond Plus hidden costs!!

Grandma_A

Help!! My 90-year old mother-in-law (for whom I hold Power of Attorney) has,since 1995, paid £80K in life cover charges (attached to aninvestment bond) to Friends Provident WITHOUT THEM EVER TELLING HER SHE WASDOING SO! She is currently paying £10,000 a year!!!! FP arenow about to cancel her life cover because they have taken all her money andthe bond is about to disappear! This is all due to a unilateral change imposedby them in 1995, which she did not understand and on which her financialadvisor, Frizzells, failed to advise! We have complained to both companies andthe Ombudsman - apparently all of this is OK because it was all covered in the"small print" and it was down to her and her late husband to objectif they didn't like the change (they didn't because they didn't understand thechange and their financial advisor didn't warn them of its implications forthem).

Has any other elderly person suffered in a similar manner? We wouldsuggest that anyone with a Friends Provident Capital Bond Plus contact FP andask what they are being charged for life cover (because FP won't tell themunless they do!).

In 1986 they invested £30K in a Universal Bond Account (UBA) with Schroders,with £20K life cover attached costing £142 a year (and an associated discretionarytrust). All went well and by Jun 1995 the bond had grown to £51K plus the £20Klife cover. So second death payout would be £71K. In June 1995, hey askedFrizzells to arrange with FP (who had taken over Schroders) withdrawal of the£20K gain. They knew this would reduce second death payout to £51K but didn'tmind because they understandably needed the money to spend on themselves, notto benefit their heirs.

On 17 Aug 1995 they received "out of the blue" a letter from FP,informing them in glowing financial jargon that their policy would change to aCapital Bond Plus (CBP) in 4 weeks time (on 15.9.95)and quoting an examplefixed second death payout of £71K (no matter what happened to the value of thebond). No action was required from them. They wrote to Frizzells, saying theydid not understand how this would work and asking for clarification. Frizzellssimply passed their letter to FP and forwarded FP's response back to themwithout comment. My in-laws assumed that Frizzells' lack of comment and thefact that no signature was required from them meant that the change must beinsignificant. Neither FP nor Frizzells pointed out that the fixed payout wouldbe achieved by increasing the life cover element every time the bond reduced invalue, nor did either of them mention the consequent impact of the £20Kwithdrawal in progress at the time! So, in fact, this was a significantlydifferent product to their UBA!

So, on 15.9.95 their CBP was implemented with a fixed £71K payout(comprising bond value £51K plus £20K life cover). On 23.9.95 everythingchanged - the £20K withdrawal went through and their life cover immediatelydoubled to £40K without them knowing!! Had they realised this, they would havecancelled immediately - life cover was not a priority for them!

Since, then FP have taken life cover premiums without ever telling my motherin law they were doing so or of any increases. Her husband dealt with allfinancial matters and, after his death in 1998, she did not even know she HADlife cover! Hardly surprising since FP sent annual statements of the value ofthe bond but provided no information at all on life charges (until Iasked them to in 2010)!! Up to 2008, gains from the bond financed thelife cover (she thought its failure to grow was due to market conditions - shedidn't realise that FP were grabbing all the growth!!). In 2008, when she was85, a "tipping point" was reached (partly due to age-related premiumincreases) and the bond began to shrink. However, FP did not warn her of thisuntil 2010, when they told her it would run out of money in 2013 unless shepaid them £5000 every year! (Having told her in 2006 that her bond would"never run out of money"!!!). It is now about to run out and they have increased what they are asking to keep it in force to £8000 to be paid before December. She is distraught!

Since then, we have complained to both companies and to the Ombudsman, allto no avail!! It seems that it was OK for FP to move them to the Capital BondPlus because the small print of the original investment allowed them to do so,so their signature was not required. It was OK for Frizzells not to advisebecause my in-laws only asked for "clarification", not"advice"!! It was then OK for FP not to tell them about premiumincreases or costs because the small print of the new arrangement allowed themto do so! The inference seems to be that it was their own fault, even though theyquite properly consulted a financial advisor because they did not understandthe change!! My mother-in-law's solicitor and current financial advisor areappalled and say that both companies have showed a failure of due diligence.

Had the change been properly explained in 1995, my inlaws wouldnever have allowed it to proceed. My mother-in-law would certainly havecancelled years ago had she been told by FP what it was costing her!!

This wasn't even mis-selling ..... they bought one product in 1986 and itwas unilaterally changed to a different one in 1995 (although FP have managedto convince the Ombudsman that the change wasn't "significant" ......it certainly was for her!!!).

We don't know whether a similar change was imposed on others in 1995. If so,we suspect that many may have died before the matter came to light (we wouldn'thave realised had my mother-in-law not lived long enough for the bond to runout of money!). However, we wonder whether it was either my in-lawsrequest to withdraw £20K from the bond (or else the imminent 10-year premiumreview for the UBA) that "triggered" FP to take the opportunity toimpose the change to a product that would generate more profit for them frominvestors who reduced their bond value!!

We would be grateful for any views about this iniquitous situation, which weare seriously considering taking through the courts! It is disgraceful that mymother-in-law has discovered that the "nest egg" she thought wouldpay for care costs if she needed them has been entirely "gobbled up"in life charges! Some life cover providers stop taking premiums after the ageof 90 (having already done well from the insured person) ..... FP have seen heradvancing age as an excuse to take more and more!!

Grrrrr!

holly_hobby

The original investment purchased in 1986, was pre regulation - but from what you have stated its not the suitability of the original contract thats the issue, its the supplementary contractual changes, that are the point in fact.

Was your complaint to FOS rejected at just Adjudicator level or did you refer up to an Ombudsman, and its their full and final decision thats a rejection ?

Even so, whilst the Ombudsman may have rejected this, its not the end of the road for you, and you may actually pursue this matter through the courts.

I would suggest spending an hour with a solicitor for they to examine the contractual terms of the original arrangement, and whether the subsequent changes were lawfully permitted and implemented.

Hope this helps

Holly

Grandma_A

Thanks Holly, That's really helpful and yes, I am afraid we have had the Ombudsman's full and final decision. However, we agree that it may well be worth consulting a solicitor and that's probably going to have to be our next step (and meanwhile are writing to FP telling them that, in the hope it might "concentrate their minds"). Again thank you.

Regards. Alison

TrickyDicky101

Hi Alison

When you write to FP, I would recommend addressing it directly to the CEO who in this case is Andy Briggs. FP became Friends Life so it needs to be addressed to:

Andy Briggs
Chief Executive Officer
Friends Life
One New Change
London
EC4M 9EF

This will expedite matters if nothing else as the turnaround time is likely to be much faster than the 8 weeks officially quoted.

holly_hobby

Alison,

Be v careful how you word the letter, make sure the language and terms used, are not threatening but factual re the issues and concise.

What you don't want, if this gets to court, is the letter (along with FOS rejection) to be presented as evidence of a "pay up or else" demand (from which if they fail to act on), may use this to ask for the case to be dismissed, citing your action as an obvious frivilious and vexatious exercise (ie stamping of feet and sour grapes).

OR if you want to let rip (which I still don't advise), ensure you head you letter "without predjudice" which means it can not be used as evidence in any judicial proceedings.

Your solicitor should guide as to wheter this has any legs, and to ensure that you aren't persuaded to act where there is no or little chance of success, I would engage their services on a "no win no fee" basis - as if you lose the case, there may be some pretty meaty costings incurred and awarded against you .... so think carefully !

What my observations are (although she is 90 at this point), is that when she purchased the bond in 1986, pre-regulation and 27 yrs ago, she would have been 63 (not considered elderly), with apparently the faciliity for future change clearly noted in the T&Cs ?

9 years later, in 1995, when she was 72 (still not considered elderly), changes were implemented under the contractual terms, which although noted in the T&Cs, you say she/they didn't understand the resulting implications, and that upon contacting their adviser (for expert/quailified advice) they didn't explain the changes correctly - which based on this advice, led your parents in a law to retain the vehicle, when actually upon more recentr examination it had actually become unsuitable for them ?

If these are the basic facts, then from my reading its the IFAs advice thats the issue, and not specifically the changes.

What basis did FOS reject this complaint on ?

Have I completely mis-understood the issues ?

Hope this helps

Holly x

kingstreet

What was the basis of the client relationship with Frizzell?

What was the original purpose of this scheme? Who arranged it?

TrickyDicky101

Given the FOS rejection and should the OP wish to avoid incurring legal costs I would think a possible avenue would be one of the financial 'agony aunts' in one of the national newspapers.

I would structure any letter (either to Friends or to newspaper) along the lines of:

1. Product originally taken out & when in brief plus reasons for doing so (again keep it brief)
2. What happened in 1995 (keep it factual)
3. What happened subsequently (ie gradual loss of the investment element)
4. Why you think this unfair/unreasonable (keep this brief and avoid emotional language)
5. How you want this resolved (keep emotion out of this too - I would think something along the lines of the £30k of investment value that existed in 1995 at the point of change (after deduction of the £20k taken out at the time))

Avoid emotion - if present it obscures what the issue is and makes you much easier to dismiss, however cathartic it might be for you to include. Accept that any letter written is effectively an opening play and can be added to later if further detail is required.

kingstreet

During the 80s there were a lot of "capital conversion" schemes on the market, which utilised withdrawals from bonds or "income" from temporary immediate annuities to drive premiums to a MIP/MAP.

One gradually fell away to nothing, while the other grew, turning the investment from non-qualifying to qualifying and in 1986, you could still take the proceeds of a qualifying policy as a tax-free income.

The whole contract needs to be analysed to establish its purpose and it if has done as it was designed to. It's very difficult to say with any degree of accuracy what has taken place here. It may even be the case that the bond value was "sacrificed" to fund life cover for an IHT mitigation scheme.

I can't imagine how/why a scheme described above could be set up without it being intentional.

Grandma_A

TrickyDicky101 wrote: »

Hi Alison

When you write to FP, I would recommend addressing it directly to the CEO who in this case is Andy Briggs. FP became Friends Life so it needs to be addressed to:

Andy Briggs
Chief Executive Officer
Friends Life
One New Change
London
EC4M 9EF

This will expedite matters if nothing else as the turnaround time is likely to be much faster than the 8 weeks officially quoted.

Thanks for that, That's very useful and will do that! Quite honestly FP are hopeless - their latest letter to my mother-in-law starts off "Dear Mrs P ........ " a completely different name to hers (although the policy number and figures mentioned appear correct). It even refers to a completely different financial advisor! Hopefully the CEO will do better than that!
Regards. Alison

Grandma_A

holly_hobby wrote: »

Alison,

Be v careful how you word the letter, make sure the language and terms used, are not threatening but factual re the issues and concise.

What you don't want, if this gets to court, is the letter (along with FOS rejection) to be presented as evidence of a "pay up or else" demand (from which if they fail to act on), may use this to ask for the case to be dismissed, citing your action as an obvious frivilious and vexatious exercise (ie stamping of feet and sour grapes).

OR if you want to let rip (which I still don't advise), ensure you head you letter "without predjudice" which means it can not be used as evidence in any judicial proceedings.

Your solicitor should guide as to wheter this has any legs, and to ensure that you aren't persuaded to act where there is no or little chance of success, I would engage their services on a "no win no fee" basis - as if you lose the case, there may be some pretty meaty costings incurred and awarded against you .... so think carefully !

What my observations are (although she is 90 at this point), is that when she purchased the bond in 1986, pre-regulation and 27 yrs ago, she would have been 63 (not considered elderly), with apparently the faciliity for future change clearly noted in the T&Cs ?

9 years later, in 1995, when she was 72 (still not considered elderly), changes were implemented under the contractual terms, which although noted in the T&Cs, you say she/they didn't understand the resulting implications, and that upon contacting their adviser (for expert/quailified advice) they didn't explain the changes correctly - which based on this advice, led your parents in a law to retain the vehicle, when actually upon more recentr examination it had actually become unsuitable for them ?

If these are the basic facts, then from my reading its the IFAs advice thats the issue, and not specifically the changes.

What basis did FOS reject this complaint on ?

Have I completely mis-understood the issues ?

Hope this helps

Holly x

Thanks Holly, Yes you have correctly grasped a number of the issues and the IFA did indeed let my parents in law down badly in 1995, which is why we submitted two complaints to the Ombudsman. They seem to have managed to "wriggle out of" blame because my inlaws' letter asked them to "obtain clarification" and did not actually ask them to "advise". However, as they were not only acting as advisor but also as agent in all dealings with FP, surely they had a duty to ensure that my inlaws were properly informed in 1995 and to check they they understood the implications of the change. We even have a recent letter from Frizzells stating that although their failure to advise in 1995 "could not be viewed as good practice", their lack of comment could not be counted as "advice"!!!
Yes, we'll ask for "no win, no fee", although we don't plan to ask for large amounts of compensation or anything like that - we are initially just asking FP to restore my mother-in-law to the position she would have been in either (a) if she had stayed with the original UBA; or (b) if the £20K withdrawal had gone through before the implementation date of the CBP.
Alternatively, if they simply waived all future premiums, she could at least keep her £71K life cover, instead of losing it this December when her bond runs out of money (unless she pays out £9000). We would prefer to get some of her money back for her while she is alive, so that she has the "nest egg" she thought she had to pay for care.
One of the reasons the FOS rejected the complaint is that they claim that my mother-in-law has withdrawn £38K since the original £30K investment in 1986 and has not actually lost any money, while getting free life cover all that time. This is simply not true (and presumably came from information provided by FP). The total withdrawals since 1986 have actually been about £25K (the £20K withdrawn in 1995 plus some smaller amounts - because she viewed the investment as a source of income (not realising it was paying for life cover). It wouldbe interesting to know what FP actually told the Ombudsman because it is clear that his decision was based on a number of inaccuracies (despite our having provided very detailed documentary evidence). I suspect that the two complaints were actually so complex that it was difficult to keep track of the actual situation (certainly I have only understood it by getting so close to it!).
The changes did cause the problem too because they moved my inlaws from a product where their life cover was fixed at £20K, unaffected by withdrawals from their bond, to one where the life cover increased every time a withdrawal was made. As they wanted capital growth and hopefully income, the change was not suitable for their needs. They were given only 4 weeks' notice - had they (for example) been away from home the change would have gone through uncontested anyway! I suspect one of the causes was Friends' acquisition of Schroders in 1993, after which they presumably took every opportunity to move Schroders' clients to deals that were more lucrative for Friends (without paying too much attention to those clients' objectives).
Maybe I should put an outline of the letter I draft onto this forum before actually sending it. Quite honestly, while we will go to court if necessary (£80K is a vast sum to lose and we owe it to my mother-in-law to at least try to protect our interests), we would prefer a settlement that simply restores her to the position she should be in.
Again thanks. Alison

Grandma_A

kingstreet wrote: »

During the 80s there were a lot of "capital conversion" schemes on the market, which utilised withdrawals from bonds or "income" from temporary immediate annuities to drive premiums to a MIP/MAP.

One gradually fell away to nothing, while the other grew, turning the investment from non-qualifying to qualifying and in 1986, you could still take the proceeds of a qualifying policy as a tax-free income.

The whole contract needs to be analysed to establish its purpose and it if has done as it was designed to. It's very difficult to say with any degree of accuracy what has taken place here. It may even be the case that the bond value was "sacrificed" to fund life cover for an IHT mitigation scheme.

I can't imagine how/why a scheme described above could be set up without it being intentional.

Thank you for that. You are quite correct in that this was the original aim in 1986 (but not in 1995 - my inlaws were in the process of reviewing all this with their solicitor and Frizzells when Friends imposed the change). My inlaws had a daughter with Downs Syndrome (in her twenties at the time) and wished to safeguard her future interests. On Frizzells' advice they invested £30K in the Universal Bond Account (with £20K life cover attached, costing them £142 per year). This was attached to a Discretionary Trust (set up for the benefit of their daughter), with the aim of mitigating against inheritance tax and not jeopardising her state benefits after their deaths. This was due for review in 1996, which was one of the reasons for the many discussions they had with Frizzells during June/July 1995. The other reasons were that my father-in-law was terminally ill and also that their house had increased in value to the extent that it would fully finance their daughter's discretionary trust after their deaths. So they were changing their wills to reflect this wanted the UBA Trust to be changed so that my mother-in-law was the main beneficiary, to give her easier access to it, and also they wanted to withdraw the £20K gain on it for reinvestment in a manner that would help them deal with my father-in-law's illness at the time and also provide a source of readily accessible savings for my mother-in-law after his death. It was while all of this was happening that Friends Provident wrote in August 1995, unilaterally imposing the move to the CBP. So their financial advisor was fully aware of their priorities, which were to have some "liquid cash" for reinvestment right then and to leave the rest of the UBA where it was to be allowed to (hopefully) grow again and provide for future care for my mother-in-law, should she ever need it. They had little interest in life cover - their daughter would be well provided for during their lifetimes and after their deaths and they wanted their money to be available to themselves and to my mother in law in the future (not to benefit others after their deaths, given that their daughter was provided for elsewhere and could not own assets in her own right). Frizzells knew all of this and Friends Provident must also have known since Frizzells had already notified them of the intended £20K withdrawal. It was certainly Frizzells' duty to make sure Friends were aware!

We are aware that, while this review was taking place, Frizzells provided my inlaws with some proposals for reinvesting the funds they withdrew and were evidently aggrieved when my inlaws decided to simply put the money into a bank savings account. (We have copies of those proposals and know that Frizzells stood to gain a substantial amount of commission!). This may explain why their representative was so unhelpful to my inlaws when they asked for advice on Friends' proposal to move them to the CBP. However, Frizzells were their agent in their dealings with Friends and all communication was via Frizzells, so they certainly had a duty to ensure it was clearly understood and that the change was suitable to my inlaws' needs at the time (there is a considerable amount of documentary evidence to show this).

So after 1995 there was no question of them wishing to "sacrifice" the bond to fund an IHT mitigation scheme (although that may well have been the original intention in 1986). I am therefore suspicious about the timing of Friends Provident moving them to the CBP in 1995, just when they were in the process of changing their will and trust arrangements and reducing the amount invested in the UBA!

Their daughter sadly died fairly recently but until then it was always the intention that my mother-in-law, as main beneficiary, could access the bond if and when necessary for either her own or (indirectly) her daughter's wellbeing and care needs. In fact, this has rarely been necessary so the bond should have shown healthy growth over the years (instead of being plundered to pay for life cover that she did not want or need and which her daughter could not benefit from).

Unfortunately, her solicitor (who was her co-trustee until recently) also did not realise that there was still life cover attached to the bond and we have on record a letter from him, written in 1998 after my father-in-law's death, summarising my mother-in-law's assets for her new will and showing only the value of the bond - no mention of life cover. This is because no mention was made of this in the annual statements sent to him and my mother-in-law by Friends, showing only the value of the units in the bond.

Although I did not explain all this background information in my original post, we passed all this information to the Ombudsman, together with documentary evidence (correspondence, copies of the Trust documents, revised wills, etc., etc.). No doubt this added to the complexity involved in considering the case!

Thank you for your interest.

Regards. Alison