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Reining in the cowboy culture

Are endowment-chasing firms operating in the Wild West of financial services? Some of the stories emerging from the the sector would suggest as much.

There are all manner of sharp practices being used, many simply illegal. Some firms set up, only to disappear again almost overnight with their customers’ money.

On this side of the law, some marketing and advertising tactics have appalled IFAs.

Firms defend themselves by saying that with many insurers applying time bars, speed is of the essence and consumers should be made aware of their rights.

It is not surprising that many IFAs are hostile to the system. They question why their clients can claim for theoretically underperforming policies which may not show a loss at maturity.

Advisers also believe that the balance of proof lies with them to prove themselves innocent despite the fact that regulations in force at the time of the endowment sale did not require the full complexity of today’s documents to justify a sale. They also point to the prevailing wisdom of the time about endowment mortgages.

A great deal of this is true. It is not just the excesses of endowment chasers but also the way in which the system appears almost incapable of showing flexibility in, say, the cases of John Joseph or Ivan Massow where there are very strong extenuating circumstances.

But what it also shows is that politicians and regulators did not fully consider the implications of the system before it was set up and whether, following the pension review, financial services could take another shock like this.

It has allowed cowboys to take advantage of the compensation culture, created many instances of unfairness against firms and threatened the existence of many advisers.

Action is now planned to regulate endowment chasers which may address some issues, but was it so difficult to foresee how the endowment crisis would attract cowboy outfits? They are merely the worst example of what can happen when a compensation culture gets out of hand.

Maybe it is time that the whole system was adjusted and the Wild West tamed.

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