The “Lautro 12” endowment mispricing debacle has resulted in many IFAs paying out too much compensation for mortgage endowment complaints, raising the possibility of financial redress for advisers, according to legal experts.
Earlier this month, Money Marketing revealed that the Information Commissioner has told the FSA to reveal the names of the 12 endowment providers it found had mispriced Lautro premiums, leading to unrealistically high maturity figures between 1988 and 1994.
It is understood that other providers also mispriced projections but, unlike the 12, have not necessarily paid any consumer redress.
OAC Actuaries and Consultants chief executive Roger Grenville-Jones, who provided the FSA’s actuarial evidence in its endowment mortgage dispute with Legal & General, considers that the mispricing has meant advisers have paid higher compensation bills.
He says: “Where compensation for misselling has been paid, the amount of compensation is automatically increased to adjust for the policy being too small, at the expense of the firm paying the compensation, but only up to the present time.”
Grenville-Jones says it is very difficult to estimate the extra sums that advisers have had to pay out due to mispricing by providers but “it is not a trivial amount”.
Estimates suggest that advisers have paid out around £83m in endowment missales, with the Financial Ombudsman Service upholding around a third of the estimated 50,000 complaints, with average payouts of around £5,000.
Compliance expert Adam Samuel believes that although the mispricing does not affect an adviser’s liability for a missale, it has led to adv-iser compensation bills being higher than if the mispricing did not occur.
Samuel says: “Under-pricing will have reduced surrender values which are deducted from the amount req-uired to repay the loan and other extra costs to produce the compensation amount.
“If the insurers had set the premiums correctly, the surrender value would be higher and this would have brought down the compensation.”
Shakespeare Putsman LLP partner Gareth Fatchett says: “We have had a positive opinion from specialist counsel about taking action on behalf of advisers. It is arguable that redress by IFAs could be reclaimed against providers who are shown to have used incorrect charging assumptions. Potentially, this creates a whole raft of claims from IFA firms who have paid redress needlessly.”
IFA Defence Union chairman Evan Owen says: “IFAs should not have had to waste time defending complaints, paying case fees triggered by false shortfalls and forking out compensation that others were responsible for. The providers must be held to account.”