The Endowment Diary

The Endowment Diary


The Endowment Mis-selling Debacle - one of the UK's worst financial scandals

Wednesday, January 30, 2008

Banned For Life

Banned For Life

Jonathan Leigh Hardie, of Primedale Financial Services, has been banned indefinitely from being a senior manager by the FSA, for refusing to investigate nearly 400 cases of alleged endowment mis-selling.

Primedale Financial Services had been the subject of complaints over a five year period, to May 2006. The Financial Services Authority (FSA) had received 389 complaints over this period about potential endowment mis-selling, out of around 3,000 mortgage endowment policies sold between 1988 and 1999.

The FSA state that Hardie had "already decided that Primedale had never knowingly mis-sold an endowment policy", and refused to assess the claims properly.

The company is now in liquidation, and as a result of the FSA ruling Hardie is banned from entering senior management.

Sunday, January 20, 2008

FSA Bends In The Wind

FSA Bends in The Wind

The Financial Services Authority (FSA), has given discounts of £4M on fines imposed on banks, building societies, mortgage firms and stockbrokers over the past year.

The firms (eg Nationwide, Capital One and Norwich Union) had been found guilty of serious rule breaches ranging from mis-selling of payment protection insurance (PPI) to failing to adequately safeguard the personal details of customers.

The discounts offered are in the region of 30%, in return for promising to co-operate and not challenging the FSA's findings at tribunal.

Which? is far from impressed, and accuses the FSA of "putting the interests of the industry over those of consumers".

The FSA has decided to bend in the wind as a result of the fight it had with Legal & General in 2005, over its endowments mis-selling case.

L&G successfully appealed against the size of the fine imposed on it.

The FSA is showing excessive weakness, it neglects the fact that were a firm to complain about the size of a fine it would receive an enormous amount of negative publicity during the tribunal.

By offering such large discounts, the FSA has let the insurance and banking industry have its cake and eat it.

Thursday, January 17, 2008

Commercial Union Cut Payouts

Commercial Union Cut Payouts

Those unfortunate endowment policy holders who save with Commercial Union are in for a very unpleasant shock this year.

A saver who put in £50 a month for 25 years from January 1 1983, (from age 29) will receive just £39,321. This is 10% down on the £43,697 paid out on a 25-year plan taken out in January 1 1982.

To add to the misery, it is 19.6% down on the £48,889 paid out two years ago.

The odd thing is the fund, in which these policies are invested, grew by 5.4% last year and 11.7% the year before.

Why the cut the cut then?

Will the senior management of Commercial Union be taking a cut in their bonuses too?

Will Commercial Union be cutting their management charges, given that the fund is not producing the payouts that holders were led to believe it would?

As ever, it the hapless long suffering endowment policy holder that is left to foot the bill for failure not the managers of the endowment company.

Wednesday, January 16, 2008

Norwich Union Cuts Payouts

Norwich Union Cuts Payouts

This has not been a good week, PR wise, for Norwich Union; and a very bad week for those who hold endowment policies with Norwich Union. Earlier it was reported that Norwich Union was using part of its inherited estate to pay off compensation claims, now it has announced that it is cutting back on payouts.

Norwich Union has 900,000 endowment policy holders, and has announced that despite 4 years of rising stock markets 90% are still in the red zone.

Last year the red zone was 89%.

Norwich Union has now announced a 2% cut in its payout on a typical policy.

The company has 69,000 mortgage endowments that will mature this year, half are expected to fall short by over £1K.

The rather strange thing about the cut in payouts is that the fund in which the policies are invested grew by 5.4%.

Why the cut then?

Will the senior management of Norwich be taking a cut in their bonuses too?

Will Norwich be cutting their management charges, given that the fund is not producing the payouts that holders were led to believe it would?

Tuesday, January 15, 2008

Calls For £100K Limit To Be Scrapped

Calls For £100K Limit To Be Scrapped

IFAOnline reports that the Financial Ombudsman Service (FOS) has been told by the All Party Parliamentary Group on Insurance and Financial Services (APPGIFS) to scrap or substantially raise its £100K compensation limit.

APPGIFS says the existing limits on awards, that were established over 25 years ago, have not increased in line with financial transactions carried out by retail and small business customers.

The FOS has been heavily involved in the endowment policy scandal.

Friday, January 11, 2008

Norwich Union's Sleight of Hand

Norwich Union's Sleight of Hand

It seems that Norwich Union is planning an interesting use of £150M of its inherited estate (orphan funds), which in theory are meant to be for the benefit of its policy holders.

Norwich plans to use £150M of £5BN surplus assets to pay for claims made against the company.

Currently Norwich Union is in the process of re attributing the funds to with-profits policyholders and shareholders, which is perfectly reasonable. However, Which? has warned that £150M has been designated to pay for past mis-selling.

It should be noted that the Financial Services Authority (FSA) does allow money in with-profits funds to be used in a number of ways, including settling compensations claims. It is considering a change in its regulations.

However, it seems to be rather "sharp practice" to use policy holders' money to pay for mis-selling perpetrated by the company that claims to be acting in the interest of the policy holders.

Which? is of the same opinion, and has quite rightly threatened to take the matter to court.

Norwich Union is negotiating the re attribution of the £5BN surplus, and also wants to use some of the money to finance business expansion; which also seems to me to be taking a liberty with policy holders' funds.

Dominic Lindley, financial policy adviser to Which?, is also claiming that billions of pounds of with-profits money has already been used by insurance companies to pay for the mis-selling of endowments and pensions.

What are the FSA doing about this?

Why do they sit on their hands and allow companies, such as Norwich Union, to get away with this?

Friday, January 04, 2008

The Reckoning

The Reckoning

As Neasa MacErlean writes in The Observer:

"One of the biggest financial scandals of the past 30 years reaches its climax in 2008 when thousands of endowment policies linked to mortgages start to mature. Endowment mortgages were sold in massive numbers from April 1983 and - since most home loans were set for 25 years - will start coming up for repayment by borrowers from April 2008."

Norwich Union describes 2008 as a peak year in terms of the numbers of endowments it has maturing, estimated to be about 90,000.

She offers some advice to those hapless endowment holders facing shortfalls, estimated to be on average between £10K to £35K, on their policies.

However, the only effective solution to this shameful scandal is for the life assurance companies to underwrite these useless underperforming products.