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Four million shortfalls on endowments

Around four million endowment mortgage holders could be facing serious shortfalls on their policies, according to industry sources.

Some 40 per cent of the10 million endowment shortfall letters going out to consumers are understood to be in the red risk of “definite” shortfall category, with another 20 per cent in the amber danger category.

This is despite predictions that shortfalls would occur in thousands rather than millions of cases.

The news comes as the new Financial Ombudsman Service Investment Ombudswoman Jane Whittles reveals she will be issuing guidance this autumn telling product providers to compensate endowment holders who have been given bad advice.

But IFAs may be off the hook, as the FOS believes most of the misselling which took place in the late 1980s and early 1990s was by direct salesforces.

Whittles is concerned because endowments now account for half the cases she adjudicates. She attributes this to the effect of the shortfall letters which will continue to go out until September 2001. The ABI says a quarter of the 10 million total has gone out so far.

The FOS will be recommending product providers to look at the position policyholders would be in if they had acted on appropriate advice, calculate where they would have been with a more suitable mortgage and pay to put them in that position.

It has pinpointed several categories of investor who have received bad advice, including right-to-buy cases, people with the wrong risk profile because they have no knowledge of the stockmarket, churning and sales close to retirement.

Friends Provident spokesman Jim Murdoch says: “It is unfortunate. The press will pick up on the misselling aspect which is not good for the industry. We will want to see what the ombudsman says in writing.”

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