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