Complain - you've nothing to lose

The home-owners who feel they have been mis-sold their endowments must seek compensation, but free financial advice may be on its way

As the Consumers' Association began a campaign this week urging five million endowment holders to complain about mis-selling, the Government is considering setting up a national network of kiosks offering free financial advice.

Money net

As the Consumers' Association began a campaign this week urging five million endowment holders to complain about mis-selling, the Government is considering setting up a national network of kiosks offering free financial advice.

A source close to the discussions says the Treasury accepts that the Sandler report's proposal for a suite of risk-free products does not go far enough to bridge the £27bn gap between people's actual savings and what they are estimated to need to save.

Within the financial services industry, considerable hopes are being pinned on reaching poorer people after the rule about being paid only through a bank account comes into force next year. This should bring three million people into the banking system, putting them within reach of mailshots and other marketing approaches.

But the Treasury is also beginning to recognise there are many people who already have bank accounts but for various reasons either cannot or will not save. Indeed, before saving they probably need advice on cutting debt and taking insurance.

So a three-pronged approach is being considered in Government circles, through the workplace, through existing networks such as Citizens' Advice Bureaus and through kiosks either standing alone in the high street or inside retail outlets such as supermarkets or department stores.

Feelers have been sent out to financial service providers to see if they would be willing to fund a free advice service, possibly through a voluntary levy.

Sheila McKechnie, director of the Consumers' Association (CA), agreed that the Sandler idea for risk-free savings products was not the way forward. "Products can be simple, but people are not," she said. "The trouble is that advisers operate in their own interests and not in the interests of the consumer."

Ms McKechnie was speaking at the launch of a new campaign called endowmentaction, which claims that up to five million consumers with an endowment mortgage, who may have been mis-sold, could be missing financial compensation.

Research by the CA found that 61 per cent of consumers with an endowment mortgage were told their endowment "would definitely" or "was guaranteed" to pay off their mortgage. Ms McKechnie added: "This is a strong indicator that these people were given bad advice and may well have been mis-sold. The figures show the endowments crisis could be affecting more people than pensions mis-selling."

The actor John Challis, who plays Boycie in the hit comedy television series Only Fools and Horses, has been roped in to boost the campaign by adapting his character to symbolise the dodgy endowment advisers who mis-sold endowments in the mid-Eighties and early Nineties, and handing over a giant compensation cheque to a house-owner in north London.

The campaign is aided by a website,, which answers such frequently asked questions as "What is an endowment mortgage? and helps would-be complainants to construct a letter to the adviser who may have mis-sold the product to them.

But the Financial Services Authority (FSA) was quick to play down the significance of the campaign. A spokeswoman said this week: "I am not sure what they can give endowment holders over and above what we have done.

"Endowment providers are required by us to issue reprojection letters giving up-to-date estimates of how likely an endowment is to repay a mortgage, and these letters are accompanied by a fact sheet which tells the public how to complain. If they want to repeat all our messages we have already got out, that's great."

Ms McKechnie said: "It is an indictment of the FSA that we have had to launch this campaign. Some companies will fight complaints every inch of the way, so why shouldn't we know who they are? The FSA won't tell us.

"I am very proud of what we are doing today. We are at our most effective when we can get consumers to do things for themselves. You can tell regulators and government what you want them to do, but there is nothing like getting consumers to do it. They are becoming a lot more savvy, but they have a long way to go to match the cynicism of the financial advice industry.

"This is nothing to do with the fall in the stock market. It's about people given bad advice. Advisers knew what they were doing and they should pay."

Up to now, 100,000 investors have complained, and about 30,000 have received compensation averaging £3,000 a time.

When endowments were first used to finance mortgages, the guaranteed sum assured was selected to match the debt, and so paid it off automatically. The policyholder kept all bonuses, which could be as much as four or five times the sum assured. Not surprisingly, this was known as the Rolls-Royce way to buy a house, especially as there was tax relief on the endowment policy and the mortgage.

But many people could not afford to pay the interest on the mortgage and the premiums on such an endowment policy. So, to cut the premiums, advisers suggested policies with lower sums assured, on the assumption that the bonuses would make up the difference. In uncertain stock markets, those assumptions have proved misplaced, and in the meantime successive governments have removed the tax reliefs.

The FSA said no one knew exactly how many endowment policies were tied to mortgages, because no matter what the arrangement, over the years borrowers often remortgage and decouple the endowment policy.

The CA has drawn on the British Market Research Bureau's Target Group Index Summer 2002, which says 8.26 million have endowment mortgages. The CA interviewed 690 who have an endowment mortgage or have had one within the past three years. The 61 per cent of this sample who claimed they had been assured their endowment would pay off the mortgage was then applied to the 8.26 million figure, giving 5.04 million possibly mis-sold.

One problem is that the rules have changed as new regulatory regimes have been introduced in the past 14 years. Consequently, those borrowers who started their endowment policies before 1988 have no protection beyond the common-law entitlement to a duty of care on the part of the provider and adviser. But the main insurers have signed a voluntary jurisdiction agreement, which applies the post-1988 rules to pre-1988 cases.

Where a provider or adviser refuses compensation, the complainant must go to the Financial Ombudsman Service (FOS). Even if there is no written evidence of mis-selling, the FOS said that it could often reconstruct the circumstances by establishing how much the borrower was earning at the time, and whether he or she had had a mortgage before.

"We are urging consumers to get even," Ms McKechnie said. "You have nothing to lose. Complaining is free and easier than people think."

If you think you have been misled ...

Consider whether you have grounds for complaint and find as much of the paperwork you can. Your adviser should have made sure an endowment was the best way of repaying your mortgage depending on your financial circumstances at the time and your attitude to risk.

You should complain if the adviser:

* Did not discuss fully other options for repaying the mortgage;

* Did not explain how your endowment would be invested and the risks involved;

* Did not explain that an endowment policy is a long-term commitment that gives a poor return if you cash it in early;

* Did not check you were comfortable with the risks of stock market investment, and that the amount you would get back depended on the performance of the policy;

* Said the policy was guaranteed or would definitely pay off the mortgage;

* Did not complete a fact-find during the sales process.

If your mortgage and endowment was set up to continue past your expected retirement age, your adviser should have checked that you would have enough income in retirement to continue to pay the premiums.

Any adviser who told you to cash in an existing endowment, and sold you another to replace it, was guilty of "churning". This contravenes the Financial Service Authority rules.

Write to the company who employed the adviser who sold you the endowment, explaining your complaint. You will need the policy number of your endowment and the provider's address.

During their investigation, many firms will ask for more information from you and may ask you to fill in an endowment mortgage questionnaire which the Financial Ombudsman has put together.

If the adviser or company who sold you the endowment has gone into receivership you should contact the Financial Services Compensation Scheme. If you can't find the company, you should go to the Financial Ombudsman Service to make your complaint.

You should receive a final response from the company within eight weeks. If the company upholds your complaint, they will offer you compensation.

Visit the website for full details. To receive a fact sheet by post, send a 27p, A4, stamped addressed envelope to Department Z, Castlemead, Gascoyne Way, Hertford, SG14 1LH

The Financial Ombudsman Service is at South Quay Plaza, 183 Marsh Wall, London E14 9SR, or phone 0845 080 1800.

Financial Services Compensation Scheme: Helpline: 020 7892 7300 Website:

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