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Did projections put policies out of focus?

The thorny issue of endowment misselling has been stirred up again after IFA Defence Union chief Evan Owen called for a suspension of all misselling cases against IFAs while the confusion caused by Lautro projections is resolved.

Owen says IFAs are being unfairly blamed for endowment misselling and claims to have gathered wide-ranging evidence of inappropriate charging by product providers based on Lautro guideline figures for mortgage illustrations between 1988 and December 1994.

The FSA sent a memo to Owen in which it says it identified 11 firms in 2001 that used standard Lautro charges in the specified period when there had been “a breach of contractual warranty”. This has only served to heighten Owen’s sense of injustice. He believes that providers and the FSA, which has taken on Lautro’s regulatory mantle, need to take more responsibility for alleged endowment misselling based on the prescriptive guidelines.

In a bid to uncover more information Owen has submitted a complaint to Standard Life over the alleged misselling of a pension policy to him in 1991 based on “flawed” Lautro critical-yield projections.

The FSA has refused to be drawn into the debate and Standard Life has denied any wrongdoing but Owen’s move has met with more vocal resistance from the Financial Ombudsman Service. FOS spokeswoman Emma Parker says: “Many consumers have been waiting a long time for these cases to be heard. Suspending these cases would not do anyone any good.”

Describing Lautro projections as a “red herring”, she adds: “This is just one strand of a much larger picture. Like any case, the endowment cases we investigate will turn on whether the product is suitable for the client and the consumer’s attitude to risk. If you look at this one factor in isolation it will tend to skew the real picture.”

Elsewhere, Owen’s approach has received a mixed response.

Key Retirement Solutions development director Dean Mirfin says the industry needs to address the issue of endowment misselling once and for all but feels the issues are more blurred than Owen’s argument would suggest.

He says: “I feel for IFAs with cases against them that believed they advised in good faith, but the issue of how a policy has been sold and these Lautro projections have become blurred. On misselling cases, you have to look at how the policy was sold and look at the supporting advice given to the client.”

Mirfin says someone needs to be held accountable for the information in the Lautro guidelines. He says: “Ultimately, who is responsible for this? I do not know how much input providers had with Lautro.”

Syndaxi Financial Planning managing director Robert Reid says there were problems with Lautro but cautions Owen against claiming that IFAs were unwitting victims of the guidelines.

He says: “You have to be careful to go down this route. Certainly, the illustration was not giving people information they could rely on but there is clearly a problem with saying that IFAs’ responsibility stopped with the illustration and that they did not know it differed from the provider’s actual projections for an endowment policy.”

Cheshire Trafford UK managing director Rod Leonard has three outstanding endowment cases against him and 13 endowment complaints over the last two years which stem from the Lautro period. None of these complaints, he says, has been upheld but they have cost him more than 10,000 to defend. Leonard resents paying for what he feels are other people’s mistakes. “The regulator has got it wrong with this and has been having a go at us for years. The FSA, not providers or IFAs, has got to assume responsibility for this.”

Whether there is any justification to this criticism or not, the issue of who is to blame will be of interest to all fee-paying IFAs.

Recent hikes in FSCS levies were caused by a combination of an increase in precipice bond compensation payments and endowment issues. The FOS says two-thirds of its workload is taken up investigating endowment complaints.

Mirfin says: “This is the one issue in the financial services that everyone wants to go away. For firms like ourselves, fees paid to the FOS and FSCS went up by 12,000 last year and this was driven by pensions and endowment issues.”

It remains to be seen whether Owen’s test case against Standard Life will prompt a wave of complaints against providers by IFAs. The FOS is adamant that Owen is barking up the wrong tree and the FSA does not appear willing to revisit the problems that may have been caused by Lautro figures, but if Owen does garner enough support from IFAs, the FSA may find itself under pressure from providers to intervene.


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