View more on these topics

&#39FSA wreaking endowment havoc&#39

A group of IFAs have lashed out at the FSA, saying it is stirring up an endowment scare which could cause untold and unnecessary damage.

Many advisers believe the endowment letters could wreak havoc. They are upset that policyholders are so afraid they will not be able to pay off their mortgages that they are cashing in policies.

The real scandal is that policyholders are cashing in policies which are going to reap the rewards upon maturity, say IFAs.

O&#39Halloran & Co partner Terence O&#39Halloran says: “There is no need for 99 per cent of all people with endowments at the moment to worry at all about whether their contracts are going to produce the goods.”

But the FSA insists the endowment letters will find 60 per cent of policyholders are facing shortfalls.

FSA spokeswoman Louise Buckley says: “The shortfall exercise is con-tinuing until June 2001. Currently, many firms are contacting people with policies nearer maturity, as they will have a shor-ter time period to address any issues.

“Many of these policies were taken out a long time ago and appear to have enjoyed greater investment returns and so are less likely to have a shortfall.

“We still anticipate that, overall, there will be around 60 per cent of policies that fall in the red and amber categories.”

But many IFAs insist that the FSA does not know what it is doing when it comes to endowments. They claim that the letters are flawed as the method of calculating the potential shortfalls is misleading.

Using 6 per cent to calculate the projection rate does not produce an accurate prediction, say IFAs.

O&#39Halloran says it is important to remember the calculations only reveal the gross returns and these are subject to deductions such as admin charges. This means the actual return a policyholder could expect on these figures is at best 4.5 per cent a year.

Advisers say these are better figures upon which to base calculations as the current values in reality fall lower than most people realise because it is not a “true 6 per cent”.

IFAs say different calculations should apply for different policies and 6 per cent does not account for this and is inaccurate.

Advisers claim the FSA has rushed through the endowment issue, demanding companies send out review letters without giving them enough time to decide if it is possible to calculate predictions in this way.

One of the worst outcomes of the endowment letters is that they are adding to the tarnished image of the financial industry, say IFAs. They say consumers believe they have no one to turn for advice as they fear they cannot trust anyone at all.

IFAs say there is a need to warn consumers of potential dangers in case they face a shortfall on policies but it is dangerous to place yourself on either side of the fence.

They add that it is impossible to predict what will happen with endowments in the future because no one knows what the situation will be when each policy reaches maturity.

London & Country Mortgages mortgage adviser David Hollingworth says: “If I were a policyholder, I would rather be warned I face a potential shortfall than find out at the last minute before the policy matures.

“The danger is in people having a knee-jerk reac-tion to this. But how can people predict what will happen to policies on maturity? The very nature of investments means that you cannot predict it.”

Recommended

Letter of the lore

M is for market-maker. A company that trades policies, buying unwanted mid-term with-profits endowments and whole-of-life policies on their own account for resale to investors.N is for non-qualifying. How the proceeds from a maturing Tep are taxed will depend on whe-ther the policy is qualifying or non-qualifying. Policies become non-qualifying when amended by the life […]

Employing the net

With the 1 per cent charge being the real focus of stakeholder design, one way providers may gain an edge in the group market is to give employers the facility to administer schemes via the internet.Of an estimated 36 group personal pension providers, only 10 are offering group stakeholder- friendly plans. Of the 10, Friends […]

Euro life office chief executives split on internet as business conduit

More than a third of major European life office chief executives believe the internet will not be an efficient way of doing business, according to a survey by Tillinghast-Towers Perrin.The pan-European survey found that 40 per cent of chief executive officers from Europe&#39s leading life offices believe the internet will only be useful as an […]

Julian Gibbs

With Standard Life&#39s entry into the with-profits bond market, all the major life companies are now issuing these bonds.Standard Life is being typically cautious in thatit is only offering an initial reversionary bonus of 4.5 per cent with a terminal bonus from day two which is, as yet, of unknown quantity. Furthermore, it is stating […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com