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Panorama failed to take in whole picture

What a pity about the BBC&#39s Panorama Mortgage Timebomb programme last

week. I was expecting a serious in-depth analysis of endowment policies,

about what percentage of them are likely to fail to repay the mortgage and

an actuarial comparison between the total costs of endowment and repayment


Instead, we were treated to a number of examples of the failure of

policies sold by Allied Dunbar and Eagle Star, both owned by Zurich Life,

to be on track to repay the mortgage. We were not told what rate of

expected annual growth was selected to provide the necessary maturity value

or whether the policies were low start.

Yes, we all know these two companies have not exactly acquitted themselves

well, with very poor with-profits bonuses from Eagle Starand sometimes

excessive assumptions about future investment returns from Allied Dunbar,

combined with poor unit-linked insurancefund performance.

Frequently, anticipated compound growth figures at the time the policy

started wereover-optimistic compared with actual investment growth.

The outrage of the Gan salesman againstthe couple who suffered a “churn

and burn” ofa perfectly good Allied Dunbar endowmentpolicy, which on the

admission of the programme-makers would have repaid the mortgage in

question, was not a criticism of theoriginal endowment policy but was an

exposure of the type of dishonest sales methods which were frequently

taught by sales managers of many of the direct-sales companies.

In the case referred to, the matter was probably an issue for the fraud

squad and it is a pitiful indictment of Windsor Life, the successor to Gan,

that it made such a disgracefully inadequate offer of compensation for what

was a total breach of all the compliance regulations.

The reference to the Standard Life mortgage was, indeed, a sad case.

Standard Life changed its contract six years ago to provide very high

surrender values. However, we were not advised whether the policy in

contention, sold by Halifax, was a low-start policy, in which case that

could have been a factor to be considered. Additionally, the couple were

not young and, therefore, the life insurance cost must have been


The use by the programme-maker of a visual background of money being

counted out by bookies at a racetrack while making critical reference to

endowment policies generally, was trite and cheap-quality visual


I consider that the importance of the subject warranted a much worthier

and less sensational presentational backcloth. After all, millions of

people have these policies and there is no evidence that they are generally

a disaster story.

The closing minutes, which suggested that advice on endowment policies is

not regulated, were an example of total inaccuracy in view of the fact that

the sale of them has been regulated for 10 years or more.

The FSA spokesman certainly was most objective in his advice to endowment

policyholders to seek independent financial advice. However, because so

much emphasis had been placed by the programme-makers upon the change in

status of several former Gan salesman to IFAs, the effect, accidental or

contrived, will have been to damn all IFAs – despite the fact that all the

offending policies referred to were almost certainly sold by direct


Many of the best IFAs started their careers working for life insurance

companies but decided to set up as IFAs and do the job properly. This does

not make them automatically dishonest and unfit to look after their clients

in their new role as IFAs. The scenario reflected the position of the

industry when it was dominated by the direct salesforces until the late

1980s, when the new regulatory regime began to clean up the industry.

The programme referred to a small number of cases and ignored the fact

that the majority of endowment policies are believed to be on track to

repay the mortgage. No reference was made to the success stories of

mortgagesrepaid with big surpluses, which far outweigh the failures of the


It was a pity that the programme failed to assess carefully the overall

25-year cost of the two alternative mortgage payment methods. Had it done

so, it might well have established that the likely cost of the repayment

mortgage is, indeed, higher than an endowment mortgage from one of the

providers which was responsible for the majority of the policies sold.

An interesting feature of the programme was the filmed activity of the

Allied Dunbar salesman who failed to declare his status (can&#39t think why)

and whose throwaway line to close the deal was: “Well, it&#39s also 10 quid a

month cheaper” (that is cheaper than the repayment mortgage).

This highlighted the real problem, namely, the fact that where unrealistic

expectations of investment returns have been used – higher than the rate of

interest payable on the mortgage – then the overall outgoings will be

cheaper but at the expense of a higher risk of not achieving the necessary

returns to repay the mortgage.

Where a policy was sold on the sales pitch that it saved money, it was

clearly an incautious approach. But surely the bottom line is thatthe past

returns on endowment policies have been well in excess of the cost of

borrowing money at typical mortgage interest rates. A margin of 4 per cent

is not untypical.

If ever investment returns fall below that level of mortgage interest, it

means that British industry will not be able to make an investment return

on borrowed money. That will spell the end of commerce, investment and

industry as they will no longer be able to earn money on borrowings. I find

it difficult to believe that such a scenario will happen during the next 25


The programme was sensational, shallow and trite in its treatment of the

subject. It concentrated on a number of admittedly really bad cases without

any comment on the majority of cases, which provide no grounds for gloom

and doom.

Certainly, there has been bad selling in the past. We all know where so

many of those policies have ended up – in closed funds. Maybe the programme

should have applied more pressure to have the victims&#39 cases reopened and

proper compensation paid.

It would appear that it is just as important for the programme-maker to

present his product to maximise his viewing ratings as it isfor the

financial adviser to earn his commission on the sale of an appropriate

mortgage policy. The difference is that the financial adviser is very

rigorously regulated and has to ensure that records are good and advice


A golden opportunity was missed for showing up the general serious

shortcomings and poor performance of many but not the majority of endowment


Information about which companies have bad surrender values and high

charges would have been really useful. The only objective analysis of

endowment policies was that carried out by the Office of Fair Trading about

five years ago but even that very well written document was misquoted at

the time. Let&#39s face it, bad news sells. Cry foul and you get more viewers.

I am not suggesting that endowment policies are magic or right for most

people. The new flexible mortgages and Isa mortgages may be better for

many. However, many of thetotally justified criticisms levelled at

endowment policies have been addressed by providersstill offering them.

Sadly, the worst feature, namely the inflexibility, is enforced by the

Inland Revenue rules over qualifying policies.

All I wish is that the deliberate assassination plan to destroy endowment

policies, could be replaced by objective assessment, instead of which we

have suffered a campaign largely motivated by the current fashion to deride

payment by commission.

This has been compounded by the Government&#39s belief that, while lawyers

should be entitled to write their own unlimited pay cheques, financial

advisers should provide their services gratis.

Sadly, all this criticism could have the effect of the withering on the

vine of a product has served millions of homeowners very well.

If that, combined with declining profitsas a result of stakeholder&#39s

unprofitability, undermines the financial security of lifecompanies and,

therefore, with-profits funds, perhaps with-profits endowment policies have

no future.

If they do die, I do not believe it will have anything to do with a flaw

in the basic product as supplied by the majority of life offices. Panorama

has done the product a disservice.


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