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Industry clashes with policyholders over the scale of misselling

IFAs are backing the FSA&#39s decision not to conduct a full-scale review into mortgage endowments.

They believe the FSA is finally beginning to accept the poor performance of products can be the result of changing financial conditions and is not in itself evidence of misselling. Yet pressure is mounting from consumer groups for the FSA to take a more assertive stance amid fears that the decision does not serve the public interest well.

In an attempt to undermine the decision, the Financial Services Consumer Panel has released new figures showing that half of endowment policyholders believe they are victims of misselling.

The survey, carried out by IFF Research, suggests that around 3.3 million endowments could have been sold with the promise that the policy would pay off the mortgage on maturity.

The findings are based on interviews conducted with 607 policyholders who have already received their endowment review letters.

Meanwhile, the FSA has confirmed figures revealed exclusively in Money Marketing that 60 per cent of the 11 million endowment letters being sent out report a possible shortfall. Of the five million letters which have already dropped on policyholders&#39 doormats, around 40 per cent show the chance of a shortfall.

Consumer panel chairwoman Barbara Saunders says the FSA&#39s refusal to carry out a thorough investigation of endowments is likely to bring a deluge of complaints from consumers.

She says: “The fact that our new research shows half of all policyholders believe they were missold a policy suggests there will be a huge volume of complaints. We want the FSA to monitor these complaints carefully and ensure people receive redress promptly where appropriate.”

But IFAs are sceptical of the research. Informed Choice managing director Nick Bamford says: “I find it difficult to accept that half of all endowment policyholders believe they were not properly informed of the risks when they bought the policies.”

Whether policyholders&#39 claims can be believed has also been brought into question by trade bodies.

Aifa director general Paul Smee says: “The FSA&#39s own research indicates that most people have no cause for complaint over their endowments as they have not lost out financially. I am always slightly sceptical of people who claim total recall of a conversation they had several years ago with a financial adviser.”

But this is not to say a minority of people were not sold policies by overzealous, commission-hungry salespeople.

The Analysts director Tom Kean says: “No doubt, pressurised tactics were used when selling endowments by salesforces interested in commission but this is on the direct-sales side. Even this is not proof that people did not actually receive a good deal.”

Smee says the key is to compare the nature of the advice given with any actual loss the policyholder might have incurred as a result.

The FSA has announced that compensation will only be offered where a consumer can claim they are worse off by having taken out an endowment rather than a repayment mortgage.

It says a full-scale review would be expensive and time-consuming and that its research indicates such a review is unnecessary.

It believes there is not enough evidence of misselling and, even if consumers claim they were not aware of the risks, in most cases, they are no worse off as a result of taking out an endowment mortgage.

But the regulator&#39s decision not to launch a full-scale investigation does not mean everybody in the industry will get off the hook. The FSA says it will be targeting its efforts at certain companies which have had particular problems.

It intends to name and shame the companies which do not come up to scratch and says it will make further announcements before Christmas about its targeted reviews.

IFAs targeted by the FSA may face fines and the cost of any compensation payments under the limited review. But not all IFAs will be expected to reopen their books and spend hours on administration and contacting clients in the way they were forced to during the pension review.

On the whole, the FSA&#39s decision throws many IFAs into an unusual position – that of taking the side of the regulator and supporting its stance on a controversial issue.

Bamford says: “The FSA is absolutely right not to have a full-scale review. In the vast majority of cases, the policies will pay off the debt on maturity. The key point is for consumers not to panic and surrender their policy before it matures.”

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