Many clients have been asking us about endowment complaint letters
received in the last month. To understand fully the stance being
taken by the Consumers' Association, we have taken a long, hard look
at its website at www.endowmentaction.co.uk .
It is unprecedented that the retail financial services industry
should face such an onslaught. The campaign lessens the value of
financial advice and tars all advisers with the same brush. After the
pension review, it seems that financial advisers are fair game for
Once again, financial advisers are being put up against the wall and
measured by today's standards for advice given many years ago.
The ease of using the Financial Ombudsman Service means that advisers
are on to a loser before they start. The FOS charges firms £500 for,
in effect, opening up the file. This means that firms are £500 down
before the merit of any claim is assessed by the FOS caseworker.
Complaining to the FOS is an easy method to bash firms as it leaves
them financially disadvantaged before they start to present their
I suspect that many of the website-generated complaint letters are
done on the off-chance of receiving compensation – not a bad idea
when a firm can offer less than £500 to settle on an ex gratia basis
and still be better off than if the matter proceeded to the FOS.
The other route open to clients is going to court. I suspect you will
find few clients willing to enter into litigation due to the fact
that they face the risk of being proved wrong. The thought of meeting
the adviser's costs would discourage the bulk of claims.
I should make it clear that if a client has been advised badly, they
should be compensated. What I think is procedurally wrong is that
clients suffering amnesia over the advice they have received can
bring an FOS complaint without any financial risk to themselves.
This is an environment where financial ambulance-chasing is easy. No
one is prepared to instigate a case against the FOS to review
judicially the way in which it operates.
Calculating a loss
It is my opinion that loss can only be quantified at the end of the
endowment term. It is impossible at this point to assess loss as the
policies were designed to run as long-term contracts. The analysis
does not stand up.
If a client is awarded £1,000 now due to underperformance of a
policy, what happens if the market recovers?
Can you imagine what would happen if an IFA firm sued a client to
recover the £1,000 if the market recovered any potential shortfall?
The time to assess loss is at the end of the contract. The fact that
clients have been warned that, based upon assumptions, theirpolicy
will not repay their mortgage, creates a duty to mitigate loss. The
client cannot sit back and do nothing. They have to act to mitigate
What is really worrying about this debacle is that firms would prefer
to settle claims where perfectly good advice has been offered. Be
very wary of this as settling claims will make already jumpy PI
insurers even more timid.
The most robust way to deal with a client is to respond by
demonstrating that their complaint has no merit. It is the right of a
client to complain – the flipside is that it is the right of the firm
to defend itself on an equal plane.
There needs to be an action judicially reviewing the way in which FOS
claims are handled.
Loss claims by clients need to be looked into very carefully. It is
my opinion that a court would have to consider very carefully how a
loss (if any) should be dealt with.
The industry as a whole needs to be united to prevent it becoming
uninsurable and unwanted. It is all very well telling endowment
holders to issue standard letters of claim. In doing so, you must
also be wary of the consequences.
In a nutshell, a full-scale endowment review by the back door would
kill many firms. They would simply go bust and leave remaining firms
with a massive bill through the compensation scheme.
No one can reasonably object to clients making complaints. No one can
reasonably object to clients being compensated for loss. What should
happen is that the cases should be dealt with on a level playing
field. At the moment, the system does not favour advising firms. This
imbalance needs to be addressed by the industry.