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Where liability lies

In the 1990s, we had to listen to adverts stating: “It’s an Equitable Life, Henry.” It’s a pity that one man’s equitable life was another’s disaster.

What annoyed me about the whole affair was that the institutionalised misselling was never really dealt with by the regulators. Or was it a coincidence that drawdown cases were invested in with-profits to such a large degree that when the regulator completed research in the area, 59 per cent of all drawdown cases were 100 per cent in with-profits, the average being skewed by Equitable’s approach?

I spoke to over 20 people who had taken tax-free cash, then reinvested in an investment bond with the 5 per cent withdrawals funding a maximum investment plan and the residual fund going into a with-profits annuity. This product glut is bad enough but when the pension plan had a guaranteed annuity rate, it should have been enough to make all those who sold and all those who told them what to sell fully liable to fund compensation before any taxpayers chip in, if they chip in at all.

We cannot have a bail- out mentality encouraged in this sector. The concept of buyer beware needs to be dusted down and this will only come where transparency is enforced on the provider side. This is why consumer-agreed remuneration should not be dropped from the final outcome for the retail distribution review.

I went off with-profits in 1986 just after UKPI went pop and NPI was issuing pension illustrations with zero charges assumed. I stumbled across it when I requested a premium of £15,000 a year, the applicant’s salary was also £15,000 and was rolled up to retirement at 5 per cent. This final salary equalled the fund with a growth rate of 5 per cent. UKPI had offered a rate on deposits that it could not ultimately support.

The news that Friends Provident is cutting terminal bonuses simply confirms that I was right in my decision.

At the same time that I was taken through how to interpret Department for Trade & Industry returns, Equitable and Clerical Medical were allowed to be different from all other providers. Whoever agreed to that needs to dig deep too.

When the Equitable problems arose, I was oft quoted in magazines and newspapers and I recall being warned by a regulator that my files and those of other commentators who were practising advisers would be subject to special scrutiny. I had the temerity to suggest that when the market value adjustment was 11 per cent, people should leave as it could only increase. Ironically, I commented that when it was next raised to, say, 20 per cent (I recall it went to 18 per cent), the rate of exits would accelerate.

The regulator told me this was rubbish and it would slow but when MVAs went to 18 per cent, I was proved correct. I called the regulator back. He asked me if I had called to gloat. I said no, merely to warn him that the FSA’s AVC scheme was with Equitable. He seemed unaware of that fact. Perhaps that sums it up in the best possible way.

I, for one, cannot see why the taxpayer should pay compensation before the senior staff, actuarial staff and the sales staff who earned vast bonuses pay to the full extent of their assets.

One last thing before the former sales staff write in. If you ever said there was nil commission or that with-profits would have survived if it had not been for the efforts of Reid, Cazalet and others, don’t write to me, write a cheque instead. Now that would be equitable.


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