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Eyes wide shut

One of the latest insurance company victims of the endowment crisis is Prudential. According to a story in Money Marketing, the FSA&#39s £750,000 fine for misselling was imposed because Scottish Amicable advisers did not ensure consumers had the right risk profile for investing in a product which might not repay the loan in full at maturity. But hold on, is a house not an investment? Can property not go down in value?

What if I borrow 100 per cent and my house value falls at a time when I want to move? Can I sue my solicitor, estate agent or mortgage valuer for not checking on my risk profile first? No, of course not.

What if I get divorced and my ex-spouse takes half my house and endowment policy value. Who warned me of this before I skipped up the aisle? Maybe the vicar should pay me compensation.

No, financial advisers know that when they are dealing with a housebuyer, they are dealing with a client who accepts more investment risk than £100 a month in a with-profits endowment involves.

In fact, my firm&#39s only endowment complaint – a complete “try on” using the Consumers&#39 Association model complaint – had no risk profile shown on file. The ombudsman, when declining the complaint, told the client that they clearly had a medium-risk profile as they admitted owning a few shares. The ombudsman overlooked the risk of borrowing money and buying a house.

Scottish Amicable presumably gave out quotes and key features documents when it sold endowments, in which case, the consumers knew there was an investment risk and accepted it.

The Financial Services Ombudsman said in a letter to a client of mine that the High Court had ruled that, if a consumer signs a policy or investment application form, the adviser is “entitled to assume” the client has read the accompanying quotes and brochure and is satisfied with the product and risks involved. Unlike with most other goods, they then get a further barrage of information along with 14 days to change their mind.

This ruling presumably came about as a result of IFAs challenging the regulator or ombudsman and seems to have been kept conveniently quiet. It would appear to make most so-called misselling scandals redundant and, for that matter, FSA reviews such as FSAVCs. Misselling is meant to be policed by aimed sniper fire and not an artillery barrage.

I cannot help wondering if these insurance companies would roll over and pay out fines and compensation so quickly if it came out of directors&#39 own pockets as opposed to those of the shareholders in general. I doubt it.

The same Money Marketing article quoted Consumers&#39 Association director general Sheila McKechnie as saying it is vital that the compensation and fine are paid out of shareholders&#39 funds and not by the poor old policyholders.

But hold on, aren&#39t private shareholders not consumers as well? Why should one class of investor bail out another? In practice, many shareholders will also be Pru policyholders and vice versa.

The CA&#39s attack on endowment sales practices is simply compounding the existing compensation culture in the UK and encouraging claims from people who are happy to forget their own responsibilities when buying goods.

They understood the risks at the time but now they have selective memories when compensation cheques are freely on offer.

A little old-fashioned personal responsibility is needed and this view seems to be upheld by the law of the land.

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