View more on these topics

Mispricing landed IFAs with bigger bill

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.”

Recommended

Ethical funds outperform non ethical counterparts

The average ethical fund has posted growth of 18.3 per cent compared with 13.7 per cent growth from the average non-ethical fund, according to Investment, Life & Pensions Moneyfacts.A survey of the last 12 months shows ethical funds have also outperformed index trackers which grew 15.7 per cent and the FTSE 100 which saw 13.2 […]

FSA teams up with Police Mutual on financial capability

The FSA has joined forces with the Police Mutual Assurance Society to deliver the FSA’s financial capability material to the Police Service.Police Mutual Assurance Society claims it is the first financial services firm to have adopted the financial capability material within its own distribution model, rather than using the FSA’s pool of volunteer presenters.The incorporated […]

Lutine now accepts applications online

Lutine is now able to accept life insurance applications online at www.lutine.com or through the Exchange quotation platform.Lutine managing director Jon Clarke says the development is at the heart of Lutine’s plans to provide more efficient and easy solutions to advisers. He says: “No-one really likes form filling and we have therefore made our online […]

UK funds under management hit £456bn

Funds under management of UK domiciled investment funds reached £456 billion in July, a fall of 1.6 per cent from June but 22 per cent higher than July 2006, according to IMA figures.

Japan: mid-year review and outlook

By Chris Taylor, Manager of the Neptune Japan Opportunities Fund H1 2014 Economy: after a harsh winter that slowed activity in the economy, the main event of the first half of the year has been the debate over what impact the 1 April VAT hike from five to eight per cent would have; we are […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment