Much has been written about the arbitrary, unprofessional and arrogant manner in which Hector Sants has presented his estimate of the cost of consumer detriment through poor financial advice. One point seems to have been missed though – the basis of his estimate is the amount of compensation paid to consumers.
We should remember that the regulator acts as prosecutor and judge in deciding if advice has been unsuitable and, if it thinks it has, how much compensation should be paid.
It is well known that if all the cases in which the regulator has decided that compensation was due had been passed through a judicial process, the great majority would have been kicked out.
To take just low-cost endowment mortgages as an example. A judicial process would have taken account of the fact that an illustration given to the consumer pointed out that the figures shown could not be guaranteed.
It would have taken account of the fact that the percentage being used for illustrative purposes had been determined by the regulator, not the adviser.
It would have taken account of the fact that the same fiscal forces which brought down the investment return of policies also brought down the mortgage interest rates and that anyone who had put what was being saved on their mortgage interest into a savings account did not have a shortfall when it became time to pay off the mortgage.
It might have taken account of the fact that repayment mortgages were very difficult to sell in those days because endowment mortgages were showing such high returns that everyone wanted a bit of the action.
It might even have taken into account that in April 1988, Which? magazine judged repayment and low-cost endowment mortgages as “joint best buys”.
Where the complainer and the adviser had different recollections as to what had been said in the past but there was no documentation to prove either right, it would have been even-handed rather than nearly always accepting the complain- ers’ recollection.
The figures which Sants is throwing around are in clear breach of Cobs 4.2.1R. They are not clear. They are certainly not fair and they are very misleading.
Haven Risk Management