Nine in ten Britons with an endowment policy believe they were victims of mis-selling, according to research by Fairinvestment.co.uk.
A similar number of policyholders believe they will suffer a shortfall, and need to come up with extra cash to cover their mortgages when they mature.
Endowment policies were popular during the 1980s and 90s as a way to repay interest-only mortgages, and many consumers believed they would also receive a cash lump sum when the policy matured.
However, a Fairinvestment.co.uk poll found 86% of endowment policyholders were expecting their policy to suffer a shortfall, meaning it would not repay their mortgage in full.
Policyholders can make a complaint to the ombudsman service, but only if the policy was mis-sold to them. Fairinvestment.co.uk’s research suggests 87% of consumers believe their policy was sold under false pretences.
Commenting on the findings, Sharon Bradley, chartered financial planner at Fairinvestment.co.uk, says: “There are several reasons that somebody may have been mis-sold an endowment policy, including a lack of adequate explanation. An endowment policy is not a short term commitment, and this should have been made clear when the policy was bought, as should the fees and risks involved.
“Without this information people were unable to make an informed decision and should be able to claim some compensation depending on the circumstances.”
Of those consumers who felt their had bought their policy after receiving poor advice, 49% said they had been given a guarantee that the policy would cover the mortgage costs, while 27% say the risks involved were not made clear. A further 6% felt fees and charges had not been properly explained.
For consumers to make a complaint and be eligible for compensation, they must have been mis-sold their policy and also suffer a shortfall when the policy matures.
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"The trouble with endowments (in the 80s) is that EVERYWHERE was extolling their virtues at the time. I remember editorials in the daily papers singing their praises and highlighting the potential for a lump sum payout after paying off your mortgage. (Funny how the press forget this now.) And I would suggest that many (not all) members of the public now have selective memory. 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." Dave Walton
"I am amazed that it’s taking this long for the truth to come out, 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.
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.
The old adage is true, if its sounds to god to be true it usually is, and if you don’t understand it, can’t explain it, how do you think the client will and why should they buy it. I‘ve talked to so many advisers over the years who plainly didn’t understand what they were selling only what their company told them.
It happens time and time again in this industry, look at precipice bonds, how risky were they, but sold with “guarantees” as “safe” investments, please....." Chris Pinkney, Director, Tercos Financial
"I feel quite angry over the accusations made by the above article on the 13th August. It seems to suggest that virtually all endowments were mis sold and if that were the case then all the IFA’s that sold them were also incompetent. I was an IFA at the time when endowments were rife, along with Pep then ISA’s. It was the fantastic past performance of most of providers of these products that sold them. 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! The changes that were made included writing to all existing endowment / investment holders and informing them of a potential shortfall if their investment only performed at 6% instead of 7.5%pa. This led to an uproar from client’s and media speculation did the rest which gets us to this sorry state of affairs we now have. It always strikes me with astonishment that clients did not know that they would get less if their endowments under-performed but always remembered that they could get a surplus. It has always been plainly illustrated at 6, 7.5 and 10%pa return on policies before 99’ ( and 4, 6 & 8% after ) as to what you can expect to receive back but clients seem to have an ability to forget these figures when they scream mis sold as they jump on the compensation band wagon.
I am sure that some contracts were mis-sold, you would not advise a 50 yr old retiring at 65 with a cautious attitude to risk to have an investment based mortgage, in fact you would not even mention it as an option because that would be bad advice, but in general these products were sold properly with the right advice process in place. For blame I suggest you look to the Orchestrators of the problem, who set the accepted rates of return, who wanted us to discuss repayment options with client’s and who were very quick to pass the buck back to our industry when things got a little tough. Even now it seems that the ombudsman is prepared to bend over backwards to help a complainer despite irrefutable evidence to the contrary as long as they complain enough.
Isn’t it about time that the government actually helped our industry before there is no industry left ? this means helping the advisers now and not the clients. Obviously this will never happen and the small IFA will die out leaving the banks with what they have wanted since the start of polarisation.
Sorry to sound so gloomy and sarcastic but I am sure that my views will be echoed by any adviser in our industry that has been around for 10 yrs +, also it helps to know that this will never go to print because the real truth never does." Alan Townley, Dave Alan Financial ServicesIFAonline
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