Advisers have criticised suggestions that most endowment mortgages were mis-sold.
Many have reacted angrily to research by Fairinvestment.co.uk, which suggested 87% of endowment policy holders believe they were sold the product under false pretences.
One adviser, Dave Walton, says the product was talked up by the media and many clients believed they knew better than their adviser.
“I remember editorials in the daily papers singing their [endowment mortgages] praises and highlighting the potential for a lump sum payout after paying off your mortgage,” he says.
“I can remember one young couple demanding an endowment mortgage. I worked for the CIS at the time and unfortunately they even opted for the lower cost competitor, despite my explaining that the competitor’s lower sum assured carried a greater risk of failure."
Others say they gave advice in good faith at the time, based on past performance of the product, and can not be held responsible for changing market conditions.
Alan Townley, of Dave Alan Financial Services, says: “Let’s make no mistake, people are greedy and although you can spell out that past performance does not equate to future performance it tends to fall on deaf ears when they can only see pound signs in front of them.
“Add to this that given a 7.5% pa return (the medium rate set by our governing bodies at the time) and including critical illness cover it would work out cheaper in almost every instance to go the interest only plus investment route as opposed to repayment. Which route do you think that most clients took?
“My advice then was no different to what it was a few years later, the only difference being that the medium quoted rate of return was changed to 6%. This single factor made the investment route generally more expensive and repayment mortgages became the norm but.....the advice had not changed!”
One adviser blames government interference for the poor performance of endowment policies, which had traditionally performed well.
“Low cost endowments I sold in the 1970s matured at up to three and a half times the target value – some scandal!” explains John Mayhead.
“The trouble was we did not expect to have a government that would order companies to sell their share holdings when the market hit bottom when we invaded Iraq. They worried needlessly but the harm has been sensational! Who pays for this ghastly error? Joe Soap the public and IFAs.”
However, some advisers have claimed that endowment policies were always a bad idea, and suggest some advisers failed to grasp the complexity of the product and its guarantees.
“As an adviser of 22 years I sold very few endowments simply because I told the truth, there was no guarantee that the mortgage would be repaid! After telling clients that there were not many wanting to take the risk,” says Chris Pinkney, director at Tercos Financial.
“I’m not saying salesmen were stating there was a guarantee the mortgage would be repaid, though I’m sure some did verbally, but very few pointed out what the guarantees were at maturity if all the premiums had been paid.”
According to the Financial Services Compensation Scheme, mortgage endowment claims continue to be the most numerous it deals with, number 7,400 in the 2007/08 financial year. The Financial Ombudsman Service has confirmed that the number of endowment complaints is beginning to fall.
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