Manoeuvring the endowment maze

Thousands of endowments matured last year, leaving tens of thousands of homeowners with shortfalls as high as ₤15 000, and wondering where the difference would come.  This erupted into a devastating scandal last year.

A crackdown on endowment firms by the financial watchdog, Financial Services Authority, resulted in more than 100 000 rejected endowment cases being opened and reviewed, resulting in £120m returned to customers who were mis-sold their endowment. It also fined firms another £14 million since 2000 for mis-selling and mishandling endowment complaints.

The Financial Services Authority’s report into 52 firms found that 75% of the cases the bank’s rejected were reviewed by the FSA and were settled in the homeowners’ favour. But, six of the 22 financial companies with problems in their endowment mortgage packages, have still not taken any action to repay clients.

This is great news for people who are still owed money, or still feel they have a legitimate claim.  Many people are still afraid of taking on the big banks.  The banks still retain their aloof reputation, almost royalty, above the law, and an entity onto themselves.  Even the banks felt this, until the government stepped in and took action in the endowment scandal, as well as the illegal administration fees on overdraft accounts.

At one time people started a paper trail, hoping for relief or at least an affirmation that the endowment company’s promises would be kept.  For many people, the unexpected short fall of their endowment left them in dire straights. 

Vernon Everett of the Financial Services Authority said:

‘It is encouraging that firms have improved the speed and quality of how they handle complaints. News of a potential shortfall is a major worry for consumers and firms owe it to them to deal with their complaints quickly and fairly. We are keeping a close eye on this to make sure that firms continue to do just that.

‘Firms must also look ahead and not focus solely on the here and now. They need to pay particular attention to helping people deal with shortfalls when policies mature.’

The movement by the FSA reduced the time needed to handle complaints. The number of complaints taking more than eight weeks dropped to 7,000, Sept 2006, from 33, 000 the year earlier.

Everyone who took out an endowment should take the time to find out whether they were mis-sold.

If the financial adviser did not fully explain all the conditions of the mortgage or did not make sure that it was the most appropriate product for the individual buyer, the mortgage was mis-sold.

Not all endowments with a shortfall were mis-sold, but there are several things the financial adviser might have done which means you have a legitimate claim.  One of the biggest problems was promising that the endowment would cover the full capital owed on the mortgage.

The second was offering people an endowment that had no hope of managing it properly, or covering a short fall.  This includes mortgage owners who did not understand the stock market, and what that meant to their endowment.  In fact, many people were never told that there was a slight chance that there may be now payout at the end of the endowment.

Another miss-selling tactic promised that the endowment would not only repay the capital, but it would also offer a surplus, leaving many people believing they were paying their mortgage and saving for their retirement.

Single people who were sold the life assurance definitely fit into the miss-sold category. Or, you were single or married and already carried enough life assurance to cover the mortgage capital.

The last group are people who were convinced that they needed to trade in their current endowment for a ‘better’ one, with a greater payout at the end.

However, the clock is ticking.  Some companies, like Prudential, have set a time limit on complaints. Most homeowners do not understand it that tens of thousands of people were mis-sold products by commissioned-based salespeople.  The general consensus is that miss-selling is a minor problem that only affected a few unfortunate people. Even if the homeowner has learned more about their financial product over the years, they need to understand that their case will be based on their situation ‘at the point of sale.’

The Financial Ombudsman Service (FOS), can order companies to offer compensation for valid complaints even if the firm has previously rejected the complaint.  This is not public knowledge. If you were rejected, then it is time to try again within six months of receiving a final decision from your endowment firm.

The ombudsman said: “We are only able to ignore the deadline in extreme circumstances, such as when someone is in hospital.”

The FSA wrote to the chief executives of all endowment companies alerting them of consumer rights and warning them to think twice before rejecting complaints.

Clive Briault of the FSA said: “The FOS is upholding a very high percentage of complaints from some firms, suggesting they may not be handling them properly.”

Of the endowment complaints handled by the ombudsman, 45% are upheld, compared with an average rate of 30% to 40%.