HELP! with Endowment Shortfall please!??

[221b]

Hello guys

 

I've in the last week been successful in challenging Winterthur for mis-selling me my endowment in April 1998.

 

I did it on my own and they didn't even challenge me - they seem to have rolled over and have just asked me how (of two ways) I want them to calculate the difference in interest from what I would have accrued had I taken out a repayment instead - this is what the FSC would recommend and they'll cough up!

 

I got all the information as to which tacks to try off the Which! website and am happy to post my successful letter tomorrow when I've had a chance to upload it from my old PC to my Mac.

 

I'm sorry for those who have missed the deadline for their particular endowment company, but those of you who haven't or are even not yet sure if you have (!) do not give up hope and don't be tempted to go with the 'no win no fee' sharks - as - with everything else on this site, it's well within our grasp to do it ourselves given the correct advice.

 

Watch this space, will post letter tomorrow!

 

221b

[221b]

Thia is very long I'm afraid, but it's a collection of bits of various documents and my own musings through succesfully claiming back money owed to me through a mis-sold endowment. Nightmare computer problems trapped this doc in my old computer for 6 weeks so apologies for the long delay!

 

If you find it useful, please click the scales!

 

More than five million endowments have a shortfall. If yours is one of them, is this just bad luck or were you badly advised?

 

There are 11 million endowment policies linked to mortgages in the UK. More than half are predicted to fail to do what they were sold to do - pay off people's mortgages. This is yet another depressing statistic to add to the financial services industry's dismal track record. Yet, despite the enormity of the problem, the regulator for financial services, the Financial Services Authority (FSA), won't conduct an industry review.

 

No review - no problem?

This doesn't mean there hasn't been mis-selling, or that you can't claim compensation if you were wrongly advised to take out an endowment mortgage. What it does mean is that the onus is on you to get your case reviewed, by making a complaint.

 

Read on to find out whether you have a valid complaint, how to put your complaint together and how much compensation you might receive if your complaint is upheld.

 

How to Seek Compensation

You won't receive compensation simply because your endowment has a shortfall. Use our guide to find out whether you should claim

The fact that your endowment has a shortfall is not, in itself, grounds for complaint. You have to prove that you were wrongly advised to take out an endowment mortgage, and that you have lost out financially as a result. Think back to the meetings you had with your adviser and what you were told. If any of the following ring a bell, you may have good grounds for making a complaint.

 

Your attitude to risk

A lot depends on your attitude to risk at the time the endowment was sold to you, and on whether your adviser established this. Recent research by the FSA Consumer Panel showed that only 10 per cent of people surveyed said the adviser told them about the risk attached to endowments.

The adviser should have established how risky or cautious you were with your savings or investments, and explained that there was a risk the endowment might not pay off the mortgage. They should have told you that the amount you would get back depended on the performance of the policy, and discussed carefully the fund(s) in which you invested.

 

Overstated claims

We know from the many Which? members who have contacted us that advisers often used to be bullish about the likely performance of the endowment, boasting that it would not only pay off the mortgage, but also produce an additional lump sum. Some advisers claimed that 'no endowment has ever failed to paid off a mortgage'. If your adviser said things like this, include it in your complaint, even if you have no proof.

 

Churning

If you already had an endowment policy at the time the mortgage was recommended, this should have been used to back your loan. If your adviser told you to cash in the endowment and then sold you another one to replace it, this is called 'churning' and is appalling advice. It's also against the rules.

 

Payments into retirement

If your mortgage and endowment were set to continue past your expected retirement age, your adviser should have felt confident that you would have enough income in retirement to continue to pay the mortgage and endowment premiums. If this wasn't discussed, or if you were told not to worry because the endowment would pay off the mortgage before retirement, this is grounds for a mis-selling complaint.

 

Norman's conquest

You will need patience if you decide to make a complaint. Norman Huntingdon's complaint against his firm of advisers, Chatterton-Bennett, started in December 1999 and was finally upheld by the Ombudsman in August 2000. However, it took Chatterton-Bennett until December 2000 to gather all the information needed to calculate the compensation.

The good news is that interest is usually added to any claim from the date of the Ombudsman's decision. So while Norman has had to wait a while, he won't have lost out further by the delay in the compensation being paid.

 

Endowment Policies January 2001

 

Your Endowment File

Whoever advised you take out the endowment policy was required to give you 'best advice'. If the best advice for you was to choose an endowment mortgage, this should be demonstrated by the various documents that the adviser needed to complete, and which should be held on your endowment file. In reality, many files don't contain adequate evidence that an endowment was best advice. While this lack of proof is not enough in itself to ensure your complaint is upheld, it will help your case if the file is inadequate. You can ask the company that advised you for copies of all the documents on your file.

 

Making your complaint

The first thing to do is to contact the firm that advised you to take out the endowment. If your adviser was independent (an IFA), you must go to the compliance department of the adviser's company. If your IFA is no longer trading, go straight to the FOS for advice, see contacts.

Our step-by-step guide to making a financial complaint (here) gives more details and explains the coming changes to the various ombudsman schemes.

 

What to include in your complaint

Don't forget to include basic information, such as your policy number, when the advice was given and, if you know it, the adviser's name.

When putting together your complaint, summarise why you think the advice was wrong. For example, because your adviser failed to explain the risks involved with endowments, or to go through all the other options with you carefully. Perhaps they made no attempt to establish your attitude to risk, in which case include this. Also include anything the adviser said about the the policy providing a lump sum after repaying the mortgage, or about the track record of endowments.

 

If you are risk averse, illustrate this by explaining what other savings you had at the time you took out the mortgage. If you previously had a repayment mortgage but were persuaded to change, mention this.

 

More help before you complain

To streamline complaints, the FOS has a questionnaire it is sending to people who have already had their complaint assessed by their endowment provider. However, you can ask for a copy of the questionnaire to use as a guide when making your initial complaint. Also ask for a copy of the FOS's briefing note on endowment complaints. This is intended for endowment providers, but it's useful for complainants, too, as it explains how the FOS assesses complaints.

 

The FSA has produced factsheets about endowment shortfalls and on how to go about making a complaint. We give the FSA and FOS details on contacts.

Was the advice regulated?

 

Anyone who was wrongly sold an endowment after 28 April 1988, which is when the Financial Services Act came into effect, can make a formal complaint. However, as the O'Neills discovered, if you took out an endowment before this, there may be no way to seek redress.

Most large organisations, such as insurance companies and banks, have signed a voluntary jurisdiction agreement. This means that complaints concerning endowments that were taken out before April 1988 will be dealt with in the same way as all other endowment mis-selling complaints, so you shouldn't have a problem.

 

However, smaller firms, like IFAs, are unlikely to have signed the agreement and so need not deal with pre-April 1988 complaints at all. This also applies to firms that never became regulated. In either of these circumstances, neither the Ombudsman nor the Investors Compensation Scheme can deal with your complaint; your only hope of redress is via the courts.

 

Endowment Policies January 2001

 

Compensation

If your complaint is upheld by your endowment provider or your adviser's firm, you will be offered compensation. However, until recently this has often been derisory, as Helen Bleehen found out (see 'Compensation check', below). This was because the payout was generally a refund of premiums plus interest, which was often little more than the value of the cancelled endowment policy.

 

Things have improved now, though. The FSA has issued guidelines to endowment providers and financial advisers on the way they should calculate compensation.

 

Doing the sums

The FSA guidelines make clear that the aim of compensation is to put people into the position they would have been in had they been given the right mortgage advice. In most cases, where an endowment mortgage is considered bad advice, the best advice would probably have been to take out a repayment mortgage.

 

To establish whether someone has lost out financially, the FSA now requires whoever recommended the endowment to compare the current value of the endowment with the amount of capital that the borrower would have repaid had a repayment mortgage been recommended. If the capital repaid is greater than the endowment value, the loss - and the likely level of compensation - is the difference between the two amounts.

 

This is a fair way to work out how much compensation people are entitled to. However, it is a time-consuming calculation to make. To ensure that your complaint is not delayed, make sure you provide details of your mortgage lender and mortgage account (your reference number, for example). This will help to speed up any requests for information your endowment provider or adviser will have to make to your mortgage lender.

 

Taking it further

If you don't agree with the outcome of your complaint, your next step is to take your case to the ombudsman. In its 'deadlock' letter, your endowment provider or financial adviser will give you the name and address of the relevant ombudsman and details of how to complain.

 

Compensation check

When Helen Bleehen learnt that her endowment had a shortfall of £15,200, she complained about the advice she had received. Legal & General upheld the complaint and offered to cancel her endowment policy and to return all the premiums she had paid, plus interest.

 

We didn't think this was adequate compensation and advised Helen to get it checked by the Ombudsman. It's just as well we did because the FSA has recently announced that compensation will now be worked out by comparing the value of the endowment with the capital that would have been repaid with a repayment mortgage (see 'Doing the sums', above). The Ombudsman is currently calculating what Helen should receive under the new guidelines; it's likely to be considerably more than she was offered originally.

 

Policies January 2001

Contacts

Financial Ombudsman Service

020 7216 0016

 

Financial Services Authority

0845 606 1234

 

Institute of Financial Planning

0117 945 2470

 

No One to Turn to

Terry and Barbara O'Neill were sold a 20-year endowment mortgage in March 1988 after a meeting with advisers from Scottish Life and from an IFA firm, PA & OM Wright & Partners. Terry was 50 and Barbara 49, so they questioned whether the 20-year term was suitable, as it meant the endowment and mortgage continued until Terry was 70. Terry says the Scottish Life adviser assured them the endowment would pay off the mortgage by the time Terry retired at 65.

 

Terry is now 64 and due to retire next year. Far from being able to pay off the mortgage early, as they were promised, the endowment has a shortfall. However, the O'Neills can't get compensation. Scottish Life says the IFA is responsible for the advice because Scottish Life paid it commission for selling the endowment. The Ombudsman agrees. But the advice was given a month before regulation came into effect and the IFA is no longer trading, so none of the existing redress schemes apply. See Was the advice regulated?, for more on this.

 

With friends like these ...

Just two years after taking out a Friends Provident endowment through an IFA, Lesley Ashworth has been told that it has a potential shortfall of £6,100. She currently pays £312 a month for her mortgage and endowment. If she switched to a repayment mortgage - which is guaranteed to pay off the loan at the end of the term - her monthly payment would be just a few pounds more at £319.

 

Bad advice from Lloyds

Sally Norman and Leslie Murphy were a bit luckier than the O'Neills because they were sold their endowment mortgage in August 1988 - just after regulation came in. They have good grounds for complaint because they say their Lloyds Bank manager, who recommended they take out the endowment, didn't explain the risks this involved. They also say he failed to assess their attitude to risk or discuss any other options open to them - such as a repayment mortgage.

 

We estimate that, if Sally and Leslie had taken out a repayment mortgage, they would now have repaid around £19,300 of their £72,000 mortgage. Instead, after paying in £14,500 over the last 12 years, their Eagle Star endowment is worth just £10,870 and has an estimated shortfall of £22,000.

Before contacting us, they had agreed to increase their endowment premiums by £75 a month, as suggested by Eagle Star. Sally and Leslie are now making a complaint to Lloyds/TSB about the advice they received in 1988.

 

Mix-up with a top-up

In April 1996, Louise and Guy Bastow took out a new mortgage with Woolwich for £53,500. They already had an endowment covering their old mortgage of £23,500, so Woolwich sold them a 'top-up' endowment to cover the balance (£30,000). However, Louise says that it wasn't made clear the new endowment was just a top-up and they cashed in their first policy.

Although the sale of the top-up endowment wasn't bad advice, Louise and Guy's case highlights the need for advisers to give clear information and to ensure customers understand what they are buying. They weren't given clear information and are over £20,000 short on their mortgage as a result. Louise and Guy discovered the problem only when they received the standard projection letter that all endowment providers have been sending to their customers. Ironically, the top-up endowment is on target to repay the £30,000 it covers.

 

Sweet FSA

The FSA says there won't be an industry-wide review into endowment mis-selling like there was with personal pensions a few years ago. This decision is based on calculations it has done which show that, over the term of the mortgage, most people will fare at least as well with an endowment-backed loan as with a repayment one. But we think those calculations are flawed because of the way the FSA has dealt with endowment charges.

The bulk of charges on endowments are levied in the first few years. During this time, relatively little of your monthly premiums are invested, so investment growth tends to be slow or non-existent. This slow start affects the value of a policy throughout its life. However, the FSA's calculations don't take into account upfront charging. Instead, they assume that charges are spread evenly over the term of the policy. This overestimates the real value of people's endowments.

 

Agreement on compensation

While we agree that a review along the lines of the pension mis-selling one is not practical, we think the FSA is being too complacent and is not doing enough to identify those consumers most at risk. Having said that, the FSA does acknowledge that many people have been wrongly sold endowment mortgages, and it has now issued guidance on how their loss should be calculated. This is by comparing the financial position they are in now with the position they would have been in had they taken out a repayment mortgage.

 

So, if you think an endowment mortgage was wrong for you, don't be put off complaining just because there won't be an industry-wide review. Even if you have surrendered your endowment policy, you can still complain if you think you were originally given bad advice. However, if you were advised to take out the endowment before April 1988, see 'Was the advice regulated?'.

 

Hope this is useful!

221b

[221b]

Here's what I composed and it worked for me!

 

Feel free to use where it relates to your case. Sorry again for long delay.

 

Good luck!

 

221b

 

Please click scales if useful!

 

22nd October 2006

 

 

 

Dear Sir /Madam

 

Re ************ Mortgage Endowment Plan

Policy number ********

 

 

I should like to make a complaint about the above endowment which was mis-sold to me on April 18th 1998.

 

This is for the reasons listed below:

 

• This being my first mortgage, I was naturally very ‘green’ about the various options open to me. I trusted my ‘advisor’, Mike ******** as having my best interests at heart.

 

• I did not at any time realise that he was on commission for selling me an endowment - I was given to understand that he was employed by ******* Estate Agents as their mortgage advisor, to give advice, not steer me towards the policy that would provide him with the most commission. I have since found out even more alarmingly that Mr ******* was in fact, a tied agent with ******** Life and not the independent I was led to believe by ******** Estate Agents and indeed Mr ******** himself.

 

• The alternatives of repayment mortgages and others were dismissed by the advisor pretty much instantly as ‘not what people were doing these days’; indeed he implied that people were ‘stuck’ with repayment mortgages and that they were a very old-fashioned way of paying off one’s mortgage and that the track record of endowments was glowing compared to traditional mortgages. I was most definitely steered towards an endowment mortgage as the best possible option for me.

 

• I was given no projected figures for a repayment mortgage, not even for one lender and did not get the impression at all that Mr ******** was ‘shopping around’ on my behalf. Mr ******** was required to give me 'best advice'. If the best advice for me was to choose an endowment mortgage, this should be demonstrated by the various documents that he needed to complete, and which should be held on my endowment file. Having reviewed the file, I can find absolutely no evidence of this.

 

• I believe he took advantage of the fact that I was under a time pressure as the house I wanted to purchase was going to be auctioned in 3 ½ weeks if my sale wasn’t tied up before then.

 

• He did not even shop around for me within the confines of an endowment mortgage, I was presented with ********* Life as being the best possible option for me without being shown any facts to back this up, nor was it compared with other lenders’ projections.

 

• The projections I was furnished with for ******** were geared towards a growth rate of 7.5%. I feel that this growth rate was extremely inflated compared to the FOS’s medium growth rate.

 

• Indeed Mr ********* boasted that not only would my endowment pay off my mortgage, but it would give me a nice tidy lump sum left over at the end, not dissimilar to a ‘with profits’ insurance policy. The only problem I would have, he assured me would be deciding what to spend the big lump sum on!

 

• At no point did he even discuss the possibility that the policy might not pay off the mortgage; it was all very rosily painted. He should have told me that the amount I would get back depended on the performance of the policy, and discussed carefully the fund(s) in which I invested. He was in fact quite bullish about the likely performance of the endowment. He also claimed that 'no endowment has ever failed to pay off a mortgage'.

 

• I don’t feel Mike ******** established my attitude to risk fully. He asked it in an offhand way; “how do you feel about investments generally”? I stated that I had no investments at that point and that I didn’t want anything too risky, but that my experience was extremely limited; not-existent in fact. Bearing in mind that I didn’t want anything too risky, I should have been steered directly away from an endowment mortgage and towards a repayment option. It was never suggested that the endowment option was in fact a risky product. In fact if Mr ******* had probed further, he would have concluded that I was in fact risk averse, illustrated by my other savings I had at the time I took out the mortgage - Building Society savings accounts and an insurance ‘with profits’ style policy, no shares or other risky investment funds.

 

In conclusion, I have lost out considerably financially as a result of Mr ********* appalling lack of customer care in mis-selling the endowment to me in the first place. This is because he failed to explain the risks involved with endowments, or to go through all the other options with me carefully. He made no attempt to establish my attitude to risk. Also he said the policy would provide a lump sum after repaying the mortgage, and exaggerated heavily the track record of endowments.

 

I look forward to hearing back from you along with the appropriate level of compensation as recommended by the FSA - by you comparing the current value of the endowment with the amount of capital that the I would have repaid had a repayment mortgage been recommended to me and refunding me the difference as compensation.

 

Yours faithfully

 

 

 

 

 

***** *****

 

 

 

 

 

 

 

 

 

Endowment Mis-selling

********** Life (UK) Limited

********** Way

Basingstoke

Hampshire

RG21 6SZ

[221b]

Good luck, Phil.

 

Glad to be of help. This site (and the people who make it what it is, obviously) has helped me tremendously, so it's a pleasure to help other folk out in turn...

 

Let us know how you get on.

 

221b