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Analysts commend FSA&#39s handling of endowment crisis

Independent analysts have praised the FSA&#39s conduct in the endowment crisis despite IFA concerns.

Analyst Ned Cazalet of Cazalet Financial Consulting believes the FSA was sensible to revise projection rates in light of changes to the economic cli-mate. Both bond yields and the yield from the FTSE All Share index have fallen dramatically in recent years.

His opinion is shared by Merrill Lynch analyst Roman Cizdyn.

Cazalet says the FSA is also right not to factor in product charges to the projection rates as these fluctuate, while Cizdyn points out that information on charges is in the public domain for anyone who wants to use it.

A group of IFAs have claimed that the projection rates are flawed because they do not take into account expenses such as administration charges, which have the effect of reducing returns.

IFAs have also accused the FSA of creating an endowment “scare” but Cazalet believes the regulator has done the right thing.

The new projections rates have prompted the FSA, the ABI and life offices to write to consumers informing them of potential shortfalls in their endowment policies and advising them what to do next. The letters are colour coded red, amber and green according to the level of danger of a shortfall on maturity of the endowment – red being high risk and green low.

Money Marketing revealed last month that a staggering 40 per cent of the 10 million letters sent out are red and 20 per centare amber.

Cazalet says: “The rates had to be reviewed and 6 per cent seems a perf-ectly sensible figure to me. We are now in a low-inflation era. Reductions in yield cannot be included because they go up and down almost from day to day.”

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