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Free-standing review shakes IFAs

At first sight, the newly launched review of FSAVCs is not as limited as

it was set out to be.

The finalised plans include a catch-all clause which says that anyone who

wants a review of their top-up policy can request one.

This extends the review beyond the categories which were originally

identified as high-risk and has sparked fears of a flood of claims against

IFAs. It has also aroused suspicions that the FSA is playing down the scale

of the problem, especially given the renewed furore over endowments.

The FSA rejected a review of endowment mortgages on cost-benefit grounds

even though it admits millions of people could have underperforming


The number of FSAVCs missold was estimated to be in tens of thousands. The

misselling arose because some people were advised to buy FSAVCs when they

would have been better off investing in an in-house AVC.

The high-risk categories are sales made between April 29, 1988 and August

15, 1999.

But the finalised plan from the FSA also says investors should be invited

to ask for a review if they belong to matched-contribution schemes or

subsidised schemes offering other subsidised benefits.

The organisation set up by the ABI to help advisers through the pension

review believes the catch-all has left the review “rather wide open” while

IFA representatives are concerned.

Aifa director general Paul Smee says: “We do not understand the thinking

behind the instruction that everyone can request a review.”

Smee complains that the guidance, announced last week, has not dealt with

the administrative side of the review sufficiently.

He says: “There is a great risk of IFAs constructing a haystack to find a

needle. Many firms will not even have a single case and having a vast

administrative system may be disproportionate to the problem. This is not a

proactive review along the lines of the pension review.”

LIA spokesman Michael Davies says: “There is an enormous difference

between this and the pension review where miners were persua-ded to part

with their redundancy money and nurses persuaded to leave occupational


Most seem to regard the endowment crisis as a much bigger deal. Sofa

spokesman Robert Reid says this is simply because of the sheer number of

the policies sold.

He welcomes the FSAVC guidance on one hand, saying IFAs can be in control

from the beginning of the rev-iew, which starts now, but he has some

criticism, saying it “lacks definition”.

He says: “IFAs need to know exactly what is expected of them and what they

will be inspected on.”

Financial services solicitor Reynolds Porter Cham berlain partner Jonathan

Davies sees the main problem with the review as being on the admin side.

He says: “Saying anyone can ask for a review is no more significant than

saying anyone can make a complaint. The real difficulty will be identifying

the cases affected.

“IFAs will need to have records going back to 1988 but all rules stipulate

that records have to be maintained for a mere six years. The late 1980s was

also before most of the industry was computerised.”

IFAs admit their record-keeping could have been better. Norwest

Consultants IFA Harry Katz says: “You need the documents to show you went

through the motions both for endowments and FSAVCs, then you have nothing

to worry about. But for IFAs who go whizzing round the country,

record-keeping was probably the last thing on their mind.”

Help is at hand from Pass. It is setting up a range of services designed

to help smaller IFAs with the FSAVC review. The services include a guide, a

helpdesk, healthchecks to ensure review work meets regulatory requirements

and a loss assessment service.

All in all, it would seem to be a review of processes rather than of sales



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