Last gasp attempt on Endowment Mis-sold

dunstonh

Most of the people I knew at the time who took endowments did it because the repayments were lower, and didn't seem to give a !!!!!! why they were...

That fits with the ones I did and I know that is fairly consistent with other advisers. Monthly cost was the main driver. You were talking about mortgages at around £150-£200pm with the endowment mortgage being £20pm cheaper than repayment.

Crazy_Saver

ManAtHome wrote: »

Well I remember (nearly 30 years ago) saying "better go somewhere else if you only do endowments" and a repayment quote magically appeared. Most of the people I knew at the time who took endowments did it because the repayments were lower, and didn't seem to give a !!!!!! why they were...

If what you are saying is true ManAtHome (and I am not doubting you), do you think that means that people today are still willing to take similar risks? I find it hard to comprehend someone today taking on something as large as a mortgage and not realise that it may not pay out in full. Hang on- that's exactly what we did 16 years ago. Was it because we were young or was it a sign of the times!

I can honestly say that back in 1991, even though we were young and ridiculously naive when it came to our own finances we would never have willingly risked not being able to pay our mortgage.

Yes, we lived fast, partied a lot, had great holidays and lived in a lovely 1 bed flat in NW10. But, nothing we ever did was on credit and we were never in debt. We never used a credit card, never bought anything on HP, not even our car. We were by no means well off, just sensible. Our rules were, if we can't afford it, we can't have it unless we save for it. There is no way that we would have risked our house for £10-£15 pcm.

I suppose we were also swayed by the fact that we already had an endowment (started in 1987)with a letter form the solicitors quoting an estimated £47k surplus. No mention at all of a shortfall. Unfortunately, our IFA talked us into cashing this one in:mad:

Looking back, I don't think we even really knew what an endowment was. Even though we already had one, this was arranged for us by the estate agent that we bought our house from when we were first time buyers. To us, an endowment was just another name for a mortgage.

Crazy_Saver

terrierlady wrote: »

yes I remember being told it was similar to a saving plan ,would make profit or at the very least pay off the amount borrowed nothing was mentioned of a shortfall 20 years ago

Very similar to our advice!

I have to be honest and say that when we were shown the quotes, the lowest figure was a projection that was lower than the target amount, but I remember being led to believe "that companies had to put this figure on but it's nothing to worry about". In fact, even in 2000 when I changed advisors, they advised me to go down the part endowment and part repayment route. The new IFA said that realistically, the middle rate is normally the lowest figure expected. Wrong again:rolleyes:

I'm really not saying that all IFA's seem to be a tad misleading, just most of the ones that I have been unfortunate to have used.

Now I am older and wiser, I take the IFA's personality and professionalism into account when considering their advice. I tend to steer well clear of the ones with the over the top bubbly personality-the type that says "don't worry it will be fine. I actually had a very large drink with them only last night. I'm sure we'll get a good deal!"

Looking back, I can't believe alarm bells weren't ringing in my head.

It's these IFA's that give all the rest a bad name. I am still with the same firm of consultants, but I choose who I deal with.

The good IFA's really do outshine the bad ones.:T

Crazy Saver

dunstonh

A couple of things need to be noted here. Of all the different types of advisers, pro rata, IFAs are the most compliant. The FOS have reported something like 15 firms being responsible for nearly 70% of all complaints. The banks have the worst reputation.

The term IFA covers a mutlitued of advisers from average skills to highly skilled specialists. Its too wide ranging. That is something the FSA appear to have recognised and issued proposals two weeks ago to change the types of advisers.

Some of the proposals are good. Some are awful.

The proposals include upgrading the qualification requirements for IFAs and making IFAs fee basis only. However, that can include commission offset. That isnt really a lot different from today. It will just be a different disclosure. It is very much based on the NMA IFA model, which many of you know is something I believe in and operate under already. So, I am quite pleased about that.

The other advisers that dont go down that route will be of lower standard, with low quality exams and a lesser product range available. There will also be less consumer protection and the advice will almost be flow chart in style and the regulatory requirement will be that the product recommended is "better than doing nothing" rather than best advice.

So, the IFAs that "upgrade" will be of far higher quality. However, those that are left will be of lower quality and will deal with the mass market. Banks in particular will be the big winners here. The FSA have already admitted that the middle market will be worse off under these proposals as they will have to pick poor products and simple advice which may not be best or see an IFA and pay for it. Although the FSA seem to have missed the point that "free advice" is not free as the commission is recovered in higher charges on the product. Paying an explicitly agreed charge is often cheaper (i.e. 1% initial charge on amount invested is cheaper than a 3% commission which is then deducted from the investment in an extra 0.5%p.a. for 6 years). They class the middle ground as those earning £30k-£80k p.a.

There is a proposal to allow a period of time with a middle ground adviser to allow a transitional period for existing advisers to move into another category (up or down or give up investment class advice. It is estimated that nearly 70% of current IFAs are basically mortgage advisers anyway and would be better off not doing investment business under the current rules, let alone the new ones).

The proposals will any impact on investment class products and advisers and not mortgages.

So, there is good and bad in those proposals as IFAs will be getting better but the rest will be getting worse. It does seem strange though that the biggest winners in these changes will be the banks and it is the banks that give out the worst advice in general.

ManAtHome

Dunno what things were like in the early 90s, but the early 80s were awash with people who'd given up careers to flog all sorts of insurance-based products. Standard thing seemed to be that a number of teachers, nurses etc were recruited to sell to their ex-colleagues, friends and family - easy money for a while, but once the friends ran out it became pretty obvious that most of them weren't really "super salesmen".

I did know several people who went into this - if you imagine Harry Enfield doing his "loadamoney" with a bit of MLM and Pyramid-selling on the side...

There is always going to be some kind of boom/gold-rush going on, and always plenty of people prepared to flog you stuff which benefits them more than you. Sadly, many people spend more time researching their plasma telly than financial products worth much much more.

EdInvestor

ManAtHome wrote: »

Dunno what things were like in the early 90s, but the early 80s were awash with people who'd given up careers to flog all sorts of insurance-based products.

Possibly you mean the period post 1988 when regulation came in and personal pensions were allowed?That unleashed a massive misselling crisis caused in part by all those teachers and nurses....:rolleyes:

I can honestly say that back in 1991, even though we were young and ridiculously naive when it came to our own finances we would never have willingly risked not being able to pay our mortgage. There is no way that we would have risked our house for £10-£15 pcm.

Many people I have met understood that the only risk was to the size of the extra lump sum on top of the mortgage. They would never have taken an endowment if they had realised that it might fall shoret of paying off the basic mortgage.

Looking back, I don't think we even really knew what an endowment was.To us, an endowment was just another name for a mortgage.

This is why you get these occasional cases where an error has occurred and the endowment has not been set up. The mortgage may be near maturity and the homeowner has no idea that the amount is not covered at all.

"Endowment mortgages" were after all sold mainly by the banks and building societies and the mortgage market back then was very simple.There was no reason why anyone should be aware that an endowment mortgage was actually three products bundled together - interest only loan, investment policy and life cover.

Indeed it's quite obvious that many people still don't understand the product, which is one of the main reasons they have no clear idea what to do to resolve their shortfalls.

Mr_helpful

Crazy_Saver wrote: »

Hi Mr helpful, haven't heard much from you lately.

Please don't shout me down, as I am normally a supporter of your posts, but I would like to ask the IFA's out there a question.

I know that things in the financial world are very much different now compared to 15-20 years ago but......
can you honestly say,
hand on heart,
that you believe,
that back then,
the majority of endowments were sold by advisors who really did explain that there was a risk that your endowment may not mature with enough funds to pay back your mortgage in full.

Yes but in any situation people filter out information that does not fit their reality set (borrowed that from absolute bounder) so whilst they hear and recognise the word more quite often one doesnt register the word less

I agree that most people were told that the figures were not guaranteed, but I really don't believe that they came away knowing that there could be a substantial shortfall. In fact the not guaranteed part was more than likely to have been interpreted as.........may not make exactly the figure shown on the quote.

I would agree with this but you can only go on the present info. We can all be smart with hindsight (just look at edinvestor)

Again, I must stress that I know that the way IFA's practice today really is a different kettle of fish compared to the way they practiced in the 80s and 90s.

Very true

Regards

Any occupation will have its rotton people but IMHO there were no more and no less than in any other occupation. We were trained to pass exams set by the regulators of the day and basically the regulators were working on behalf of the government. As Edinvestor says there was a fiasco of mis sold pensions after july 1988 but who was overseeing this and who dod nopt realise what was going on? It wasnt the ordinary IFA who had been told to switch frozen pensions or those in a company pension to a personal pension. It was government led as was the training that was heavily biased in favour of endowmnets.
Back to OP it is logical that if you can get morte than something you can also get less. Thats just common sense Im afraid but it is a human problem that our attention is poor when we hear things we dont want to hear or that which does not fit our expectation. Just watch any Derren Brown program or stunt and then go back over what he really said and not what you thought he said. Just reading these boards there are people who answer a post having got a complete misunderstanding from what was written so when its verbal there is even more scope for error

ManAtHome

EdInvestor wrote: »

Possibly you mean the period post 1988 when regulation came in and personal pensions were allowed?That unleashed a massive misselling crisis caused in part by all those teachers and nurses....:rolleyes:

No was definitely early 80s Ed - they were peddling some pension products to the self-employed amongst us, but mainly Life Assurance I think.

Fortunately most them had bu**ered off by 1988...

EdInvestor

ManAtHome wrote: »

No was definitely early 80s Ed - they were peddling some pension products to the self-employed ..

That's right, the mass market wasn't opened up until later. The big operator in the area you mention earlier was Equitable Life....

defender_of_the_weak

the original post has sort of been widened out to a 'how did we get here', so a bit of background both pre and post regulation.

In the eighties many companies recruited part time staff who would keep the day job and flog insurance part time until they had built up sufficient clients and experience to make the transition full time. By 1988, regulation was supposed to address some of these problems and eventually led to training and competence schemes being put in place. Recruitment was still high on the agenda and many unsuitable people came into the industry. Unsuitable does not mean crook it relates more to incompetent/ignorant/avaricious. Training consisted on open book tests or multi choice so simple a child could pass and be deemed competent.

Dunston is right, warnings of risk were included but in the main these were buried on page five and a half as opposed to banner headlines of investment performance and pictures of cruises. Mid nineties industry introduced compulsory exams as a benchmark, sadly this is the equivalent of an O level and even now the latest commentators are suggesting that it will be years before the new system is in place