Endowment Misselling

Have I been mis-sold my endowment policy?

Once more the financial services fraternity is faced with accusations of mis-selling and its Regulator, the Financial Services Authority (FSA) has had to take serious action in what is now termed the endowment mis-selling scandal. In order to acquaint you with the events which have led up to this and more importantly how this could be used to your advantage in gaining the compensation to which you are entitled, please consider the following information.

In the old days we had the "full" endowment which attracted tax relief in the form of Life Assurance Premium Relief (LAPR). This type of policy was often considerably more expensive than the equivalent repayment mortgage but it did contain a guarantee of repayment of the mortgage loan at maturity and more often than not there was a very substantial tax-free lump sum payable as well. The fact that it was considerably more expensive to service on a month-by-month basis obviously lessened its popularity.

In an initiative to boost sales, Life Offices issued a “watered-down” version called the "low cost" endowment, which was less expensive. This frequently undercut the repayment mortgage equivalent at the cost of the underwritten guarantee, which the aforementioned full endowment (and of course a repayment mortgage) had as its cornerstone. This was the start of a more risky approach, which was set to gather momentum.

As the commissions paid to people selling this new breed of endowment often exceeded the total of the first year's premiums, it quickly became popular with life office sales people as it helped develop their business on the back of the boom in housing and home ownership. By the time the introduction of the Financial Services Act took place in 1988, teams of highly incentivised and well-organised sales people were operating right across the UK.

Sales received a further boost by the introduction of the even riskier unit linked 'Managed Fund' arrangements which had life cover built into them. Because they did not have terminal bonuses, these could be surrendered (penalty free) should they reach their targets early. So, in summary, what had started as a guaranteed way of repaying a mortgage loan had become in essence an extraordinary gamble on future investment returns, yet remarkably its name, endowment, continued to be used unchanged.

The removal of tax relief in 1984 made the endowment policy more expensive and therefore less affordable. As a direct consequence, if normal market forces were working, sales of these products should have started to fall. The fact that these products continued to be taken up in large numbers attracted the attention of the Regulator as far back as 1990. Any misgivings within the Firms were swept aside by the commission hunger on which these firms were audited to.

Most Clients, however, were blissfully unaware of how their endowment worked or that there was a stock market involvement, because in most cases this had been carefully concealed from them.

The worst-case scenario has now happened. Markets have failed, (for the time being at least) and people are now saddled with an under-performing repayment vehicle with very little prospect of their salvation by an upturn in the stock market and the value of their policy. Ultimately, because your home is at risk if you do not fully repay your mortgage loan when the policy matures the time has come to do something about it. It is no good blaming your endowment under these changed circumstances as it is only reflecting what is happening in the market place, which is what it was designed to do in the first place. Instead, your attention should be focused on the events which took place during the sale of the product to you, as it is more than likely, in our view, that this was done by breaking the Rules of the Regulator. This is where the window of opportunity exists to resolve this matter satisfactorily from your standpoint.

One word of warning - your complaint will be handled by an employee or perhaps a professional contractor who will be viewing your complaint from the firms viewpoint. They do not give in easily and so far six firms have been fined for not handling their caseload of endowment mortgage complaints properly and more are undoubtedly to come! The problem does not exist as far as CPH clients are concerned because virtually all our rejections would go to the Financial Ombudsman Service (FOS) for his independent arbitration.

CPH Financial Advisory Services in-house endowment experts will review your situation and will offer advice on your potential endowment claim. The link below will take you to the review policy page. Complete and submit the form and one of our advisers will telephone you shortly. This service is free and without obligation.

Have I been mis-sold my endowment policy?

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In the preparation of this site every effort has been made to offer the most current, correct and clearly expressed information possible. Nonetheless, inadvertent errors can occur and applicable laws, rules and regulations often change. Further, the information contained herein is intended to afford general guidelines on matters of interest. The application and impact of laws can vary widely, however, from case to case, based upon the specific or unique facts involved. Accordingly, the information in this site is not intended to serve as legal, accounting, tax or financial advice. Users are encouraged to consult with CPH Financial Advisory Services professional advisers for advice concerning specific matters before making any decision and CPH Financial Advisory Services disclaims any responsibility for positions taken by individuals for any misunderstanding upon the part of users. Not all products/services are regulated by the Financial Services Authority (F.S.A.) and in particular the complaint handling process described above. Claims are handled by CPH Financial Advisory Services of the Bath Master's House, Davenport Street, Macclesfield, Cheshire, SK10 1JE The Principal of which is Mr. Michael J. Cooper.