| This article discusses the current situation | | | | this will pose further problems for you in |
| with endowment mortgages in the UK. If you | | | | pursuing the complaint. This is discussed in |
| own an endowment plan and have yet to take | | | | more detail below. |
| any action regarding a possible shortfall, | | | | |
| you must act quickly to rectify your | | | | YOUR COMPLAINT |
| situation. This document will help you to | | | | |
| learn more about the issues involved. | | | | Once you have grasped the fundamentals |
| | | | described above, you must then consider how |
| THE BACKGROUND | | | | best to approach and execute your complaint. |
| | | | |
| Endowment mortgage plans provided an | | | | You must firstly decide whether to: |
| alternative to repayment mortgages and were | | | | |
| introduced to the UK in the 1980's. An | | | | · Use a complaint handler or |
| endowment mortgage combines an interest-only | | | | |
| mortgage and an investment usually based on | | | | · Complain personally. |
| stocks and shares. Throughout the term of the | | | | |
| mortgage the policyholder pays only interest | | | | There is some useful information compiled by |
| on the amount borrowed on the mortgage and | | | | Which? In their Consumer Factsheet which is |
| also pays a monthly premium for the endowment | | | | recommended reading. It is the most concise |
| policy which provides both an investment | | | | and unbiased document available discussing |
| component and in addition, life insurance | | | | the pro's and cons of using a complaints |
| cover. | | | | handler. |
| | | | |
| Many endowment plans were sold with heavy | | | | Always address the complaint to the person or |
| emphasis on the following: | | | | company that sold you the plan. This could be |
| | | | any one of the following "agents":o |
| · The policyholder would be able to | | | | Building society or bank staff who discussed |
| repay the mortgage debt within the term | | | | the mortgage and sold the endowment plan.o |
| agreed. | | | | Insurance company agents (ie either an |
| | | | employee of the life company providing the |
| · The policyholder's mortgage | | | | plan or a "tied" agent of the company who was |
| payments would be cheaper because they would | | | | only able to sell the company products)o |
| only be paying interest on the loan. | | | | High street brokers which can include |
| | | | independent financial advisers (IFA's), |
| · The plan would also deliver | | | | estate agents and other financial |
| investment value over and above the mortgage | | | | professionals. |
| sum. | | | | |
| | | | Your complaint might include some of the |
| · The policyholder would also have | | | | following key arguments (please be aware that |
| death benefit or life cover protecting them | | | | this is not an exhaustive list and there may |
| against the amount of the loan. | | | | be further grounds for complaint based on |
| | | | your own circumstances):a) Other options |
| The above points were all feasible on paper | | | | for repaying the mortgage may not have been |
| but unfortunately with the exception of the | | | | discussed fully with you.b) The adviser |
| death benefit, the main positives were | | | | may not have explained there was a risk the |
| completely dependent on how the investment | | | | endowment would not meet the target amountc) |
| plan actually performed. This "performance" | | | | The adviser may not have discussed in |
| element meant that no guarantees could be | | | | full the funds the endowment was to be |
| given and the customer relied heavily on the | | | | invested in.d) The adviser may not have |
| salesman / adviser to fully inform them about | | | | properly established your attitude to risk.e) |
| the risks associated with such plans. | | | | The adviser may not have fully explained |
| | | | the fees and charges on the policyf) A |
| Some customers were misled by over zealous | | | | fact find may not have been completed during |
| salesmen who did not discuss the negatives of | | | | the sales process and therefore the adviser |
| such policies in any detail. Many other | | | | would not have full knowledge of your |
| customers simply did not fully understand the | | | | financial situation.g) The endowment may |
| concept of endowments and did not appreciate | | | | stretch beyond your retirement and the |
| the risks involved. The fact that the plans | | | | adviser / salesman may not have ensured that |
| were a cheap option compared to repayment | | | | you had income or funds to repay the |
| vehicles clearly did not help. The low costs | | | | premiums.h) You may have been persuaded |
| enticed many customers into signing up for a | | | | by the adviser to sell an existing endowment |
| plan that might not have been the best option | | | | prior to starting your current plan. This is |
| for them in the long run. As interest rates | | | | known as "churning" and is regarded as poor |
| hit double figures in the late eighties and | | | | selling practice.i) The adviser may have |
| early nineties, the plans became ever more | | | | promised that the policy would definitely pay |
| popular. The stock market was stable and the | | | | off the mortgage and there would be a lump |
| early history of endowment investments in the | | | | sum in addition at the end of the policy term |
| UK generally was quite encouraging. | | | | |
| | | | The Complaint should not just focus on the |
| During the years 2000-2003 however, endowment | | | | obvious arguments about "promises" or |
| investment plans suffered severely from the | | | | "guarantees" that have not been honoured and |
| downturn in the stock market. Around 70% of | | | | that have now resulted in a shortfall. These |
| the endowment funds began to haemorrhage | | | | promises were rarely confirmed in writing and |
| profits and with each year seemingly worse | | | | such issues can easily be dealt with by the |
| than the last, the situation gradually | | | | providers who will simply reject the |
| deteriorated. In recent years there has been | | | | arguments. |
| a partial recovery for some funds but the | | | | |
| majority are now in decline with no hope of | | | | The most effective arguments that can be used |
| meeting their targets for hard up endowment | | | | in a standard complaint (ie not involving |
| policyholders. | | | | retirement or churning issues) relate to the |
| | | | attitude to risk not being properly checked / |
| MAKING A COMPLAINT | | | | documented and the fact that other mortgage |
| | | | options may not have been fully discussed or |
| If your current endowment plan is failing and | | | | again documented. |
| recent projections show a shortfall and if | | | | |
| you believe that you were misled during the | | | | Please note - the arguments quoted above |
| selling of the plan, then you should complain | | | | mainly relate to issues covered by the new |
| about the position you now find yourself in. | | | | regulations that came into force in April |
| | | | 1988. Prior to this date the requirements of |
| If you haven't received an update or | | | | sale were far less stringent and this may be |
| projection recently - make sure you demand | | | | used in argument by the provider. |
| one as soon as possible. Many people can go | | | | |
| years without receiving any news on their | | | | THE COMPLAINT PROCESS |
| plans. Do you know how your plan is | | | | |
| performing? | | | | The endowment provider must acknowledge the |
| | | | complaint within 7 days. They must then |
| WARNING LETTERS | | | | investigate the details of the complaint and |
| | | | within 4 weeks provide the customer with an |
| As discussed above, every endowment | | | | update about the investigation. The provider |
| policyholder should receive a yearly update | | | | must then provide a final response to the |
| on their plan. The projection letter should | | | | customer that deals with the individual |
| confirm whether the plan is on target. It | | | | issues within 8 weeks. In practice most |
| should set out different levels of "returns" | | | | providers will take longer than this because |
| based on anticipated or possible performance | | | | of the sheer volume of complaints that are |
| and if there is a shortfall you should be | | | | being received. Some providers / companies |
| told. The letter should also indicate what | | | | are quicker than others in their complaint |
| action you can take to correct the situation | | | | handling methods. Some of the more efficient |
| if the plan is off target. | | | | firms include the Halifax, Norwich Union and |
| | | | Prudential. These firms will generally |
| From June 2004 the Financial Ombudsman | | | | respond within the eight week period. |
| Service introduced a colour coded warning | | | | |
| mechanism that endowment providers are | | | | The final response may contain an offer for |
| supposed to use in order to warn customers | | | | redress along with a full explanation of the |
| about any shortfall. The intention was to | | | | reasons why the complaint is upheld. |
| clearly communicate bad news to customers and | | | | Conversely if the complaint is rejected, the |
| ensure that they would be left in no doubt | | | | provider must explain in detail precisely why |
| that steps had to be taken to rectify the | | | | they have come to their decision. |
| problem. | | | | |
| | | | REDRESS / COMPENSATION |
| If a plan is likely fall short the provider | | | | |
| must send a RED, or AMBER letter. A "red | | | | If the provider upholds the complaint, they |
| letter" as the term suggests is a serious | | | | are obliged to make an offer of redress to |
| warning and definite action should be taken | | | | place the customer in the same position that |
| by the customer to rectify the problem. Amber | | | | they would have been in had they chosen a |
| letters involve less serious shortfalls but | | | | repayment mortgage. |
| must still be acted upon to avoid problems | | | | |
| further down the line. | | | | The redress calculation is known as an RU89. |
| | | | Most providers use software to determine the |
| The colour coded scheme also provides | | | | calculation which can be very complicated. |
| policyholders with a number of options that | | | | They must factor in various factors such as |
| would allow them to rectify their situation. | | | | the fluctuating interest rates, whether a |
| Such options would usually include switching | | | | customer has switched mortgage products (ie; |
| to a repayment mortgage vehicle, waiting to | | | | discounted mortgage products, trackers etc) |
| see if the policy investment levels improved | | | | and whether they have paid any lump sums off |
| or making a formal complaint. A deadline for | | | | the mortgage. |
| complaining should also be communicated in | | | | |
| the warning letter. | | | | The RU89 can very often be only one part of a |
| | | | redress calculation. Additional elements |
| All letters from an endowment provider should | | | | covering retirement, early redemption of the |
| be read and fully understood. Policyholders | | | | mortgage or a previous switch to a repayment |
| should seek advice from the provider or an | | | | mortgage can all involve secondary |
| independent financial adviser if they have | | | | calculations which can increase an offer of |
| any concerns about their plan. | | | | redress. |
| | | | |
| YOU MAY BE RUNNING OUT OF TIME TO CLAIM | | | | WHAT IF THE COMPENSATION IS NOT ADEQUATE |
| | | | |
| The time bar and why should people be | | | | Complainants can very often be disappointed |
| concerned about it? | | | | when they receive their redress proposal. |
| | | | Expectations can sometimes be unreasonably |
| As revealed above since June 2004, endowment | | | | high particularly given the prominent figures |
| providers have been required to set out a | | | | and "easy money" message delivered by some |
| final date for a complaint to be made. If a | | | | press advertising. There is no easy money to |
| customer does not complain by this date, the | | | | be made, but you should be able to receive an |
| provider can refuse to attend to the | | | | award that places you back in the position |
| complaint. The Ombudsman will be unlikely to | | | | you would have been had you opted for the |
| intervene or adjudicate on the issues because | | | | repayment vehicle from the outset. |
| they would consider the matter to be time | | | | |
| barred in accordance with their rules. | | | | You can raise additional points with the |
| | | | provider if you feel they have made an error |
| The June 2004 "rule" sets the time limit for | | | | or have been unreasonable in their approach |
| complaining at 3 years from the firm's first | | | | to the redress proposal. If you are |
| warning letter to the consumer. This type of | | | | represented, your complaint handler should do |
| warning has become known in the industry as a | | | | this for you and should be presenting further |
| 'red' letter. It sets out the position and | | | | arguments on your behalf. |
| mentions that there is a high risk of a | | | | |
| shortfall. | | | | It is however rare for a provider to revise a |
| | | | proposal unless a glaring error has been |
| When you read in the press that time is | | | | made. If you do have a dispute with them |
| running out - this is precisely what the | | | | regarding the redress and they refuse to |
| comment refers to. Many people wrongly | | | | budge you must take the matter further. |
| believe that there is a single deadline or | | | | |
| key date beyond which everyone in the UK will | | | | DISPUTES |
| be unable to complain. The truth is that | | | | |
| every provider will send different warnings | | | | If the offer of redress is inadequate OR |
| at different times. The three year period | | | | worse still, if no offer has been received |
| applies on a case by case basis depending on | | | | because the complaint has been rejected, you |
| when the first warning letter was received by | | | | have two options: |
| the customer. | | | | |
| | | | 1) You can refer the matter to the |
| It is worth pointing out that 2006 is an | | | | Ombudsman for adjudication. |
| extremely important year as far as time | | | | |
| barring is concerned. This is because the | | | | 2) You can take legal advice and |
| majority of endowment providers began to | | | | consider further action against the provider. |
| communicate the first in a series of warning | | | | |
| letters during 2003. It follows that for | | | | Option 1) is by far the simplest and most |
| many, the 3 year period will soon expire. | | | | cost effective. The Ombudsman process is very |
| This is why many complaint handlers have | | | | fair and is free of charge. Please be aware |
| sought to bring to the public's attention the | | | | that some complaint handlers may want an |
| fact that time really is running out. For the | | | | enhanced fee for dealing with an Ombudsman |
| majority of those that have not yet made a | | | | application. |
| complaint, this is most definitely the case. | | | | |
| | | | Option 2) is open to everyone but likely to |
| Pre 1988 endowments - can a policyholder | | | | be very expensive unless you can secure a "No |
| complain if the policy was sold before April | | | | win no fee" arrangement with a solicitor. |
| 1988? | | | | This option is not financially viable for |
| | | | most people. |
| The surprising answer is that YES you may be | | | | |
| able to complain but only against a bank, | | | | THE OMBUDSMAN |
| building society or insurance company agent / | | | | |
| employee. Here we explain why. | | | | The Financial Ombudsman Service was set up by |
| | | | legislation to help settle individual |
| On the 29th April 1988 the Financial Services | | | | disputes between consumers and financial |
| Act 1986 was finally implemented in the UK. | | | | firms. They can consider complaints about a |
| Prior to this date all financial brokers | | | | wide range of financial matters - from |
| (i.e. high street independent financial | | | | insurance and mortgages to savings and |
| advisers, estate agents etc) were | | | | investments. The service is free to |
| unregulated. This means that the Ombudsman at | | | | consumers. You must complain to the firm |
| the time had no control over the brokers and | | | | first, (ie the firm that sold the endowment) |
| any sales that were conducted by them fall | | | | before they can look at your case. |
| outside of the scope of the Ombudsman and the | | | | |
| rules that applied at the time. | | | | The Ombudsman will review the decision made |
| | | | by the firm and determine whether they have |
| You cannot therefore complain to the | | | | been fair in their dealings with you. They |
| Ombudsman about any sale conducted by an | | | | will also determine whether the decision is |
| independent broker prior to the deadline of | | | | in accordance with the guidelines laid down |
| 29th April 1988. You can still complain to | | | | by the regulator the Financial Services |
| the broker (if they are still in business) | | | | Authority (FSA) to resolve disputes. There |
| and present your arguments but with no | | | | are specific guidelines that must be followed |
| regulatory body to back you up there is | | | | in relation to endowment complaints. The |
| little hope of a positive reply. You can only | | | | Ombudsman will also review an offer of |
| resort to legal action which would involve | | | | redress to determine its reasonableness. |
| costly litigation against the broker with an | | | | |
| uncertain outcome. | | | | THE FINANCIAL SERVICES COMPENSATION SCHEME |
| | | | |
| You must distinguish between a sale conducted | | | | If the firm or provider you are complaining |
| by a broker and one conducted by a bank, | | | | about are no longer trading, or have |
| building society or insurance company agent. | | | | otherwise been declared in default by the |
| Such "salesmen" were regulated to a degree at | | | | FSA, your case may be referred to the FSCS. |
| the time and the Ombudsman has agreed to look | | | | This only applies to sales that took place |
| at all complaints if they are presented | | | | after 28th August 1988. |
| within the three years allowed (see above) | | | | |
| | | | LEGAL ACTION |
| There is however a restriction on what | | | | |
| elements you can actually complain about | | | | Legal action is always the last resort and is |
| because there were less requirements and | | | | an option that is often suggested by the |
| regulatory obligations to comply with at the | | | | Ombudsman. Unfortunately what the Ombudsman |
| time. This means that the scope for argument | | | | does not tell you is that litigation against |
| is substantially reduced. Notwithstanding | | | | the endowment salesman or firm can be very |
| this, many complaints will still have a very | | | | expensive with an uncertain outcome. Always |
| reasonable chance of success because the | | | | seek advice from a solicitor on whether legal |
| sales process was relatively unsophisticated | | | | action is a sensible option. |
| at the time. | | | | |
| | | | Remember that the larger companies will |
| In summary - you can complain about a bank, | | | | always defend their position in the courts. |
| building society or insurance agent | | | | They have no choice because one precedent in |
| (including tied agent) sale pre April 88, but | | | | favour of the customer will cause panic in |
| the prospects of complaining successfully | | | | the industry. |
| against an independent broker are very slim | | | | |
| indeed with legal action being the only | | | | There are some individuals who have been |
| viable course. Any legal action will be | | | | brave enough to take on the might of the big |
| subject to issues of "limitation" and the | | | | financial companies. One such cases that has |
| time bar ruling. | | | | been reported recently involved Friends |
| | | | Provident who found themselves on the losing |
| POST APRIL 1988 ENDOWMENT POLICIES | | | | side in a county court trial. They were |
| | | | ordered to pay their policyholder £1500 |
| If your plan was sold after 29th April 1988, | | | | after initially seeking to rely on the time |
| it makes no difference whether the sale was | | | | bar. This was a shot in the arm for |
| conducted by a high street broker or by a | | | | policyholders everywhere but it has not yet |
| larger financial organisation. All | | | | had an impact on the industry as a whole. |
| transactions were subject to regulation and | | | | |
| therefore you have in theory, the right to | | | | SUMMARY |
| complain about the plan and the fact that you | | | | |
| may have been the victim of misselling. | | | | This lengthy document should be carefully |
| | | | reviewed by all endowment policyholders who |
| Your complaint must be made against the | | | | have not yet made a complaint about a |
| person or company that sold the plan. If the | | | | projected shortfall with their plan. Act now |
| person / company is no longer in business | | | | before it is too late. |