If you receive a shortfall letter, can you complain? If so, should you?

Remember, I cannot offer individual advice. Think about what you read in the light of your own individual circumstances. Some of these points may not be relevant to you.

Mis-selling Background

The Financial Services Authority (FSA) has stated

In 30% of cases, we have reason to question whether the advice on the suitability of an endowment was correct.

The FSA has told the industry to take measures (summarised here) which are estimated to cost £100m. They have decided not to do a full mis-selling review as they think it might have cost £5 billion.

They will also launch a review to see whether specific groups of people, such as those approaching retirement, have been mis-sold endowments.

Even in 1999, it seems mis-selling was widespread in one company at least. So don't assume things must have been right in your case.

What companies must do when you buy an endowment

• Tell you how your savings will be invested and explain the risks involved
   
• Explain that most endowment policies do not guarantee to repay a mortgage loan
   
• Explain that an endowment is a long term commitment which usually gives you a poor return if you cash it in early
   
• Make sure that an endowment is suitable - for instance, that you are likely to be able to keep up the payments throughout the term of the policy
   
• Explain any fees and charges. If you bought an endowment on or after 1 January 1995, your adviser should have given you a Key Features document setting out the fees and charges. The adviser should have explained to you how these fees and charges affect the return you get on your savings.

Mis-selling Complaints

You can't complain about how your endowment has performed. The regulators can't help you if the adviser gave you sound advice at the time and you are simply unhappy about the investment performance - this is not guaranteed.

But you may have grounds for complaining about how it was sold to you.

The main questions are

Was the product suitable for you at the time?

Did you understand what you were buying?

Did you understand the risks?

Some possible grounds for complaint

The salesman did not explain that endowments are based on stocks and shares, and the final payout is not guaranteed

The salesman said the policy would definitely pay off the mortgage and give you a surplus, but now it is forecast to fall short

You were single and did not need life cover, but the salesman did not make it clear that you were paying for life assurance

You had enough life cover already

The endowment matures after you retire

The endowment matures after you retire and the salesman did not make this clear, or actually told you the policy would be worth enough to pay off your mortgage when you retired

The salesman knew the mortgage might well be repaid early - for instance, you were expecting to go abroad to work

The salesman persuaded you to cash in one endowment and take out another.

Whitechurch Securities (who are IFAs) suggest people should complain if an intermediary such as an accountant or solicitor recommended an Equitable policy. They say the adviser should have known the free asset ratio was dangerously low and so the adviser should be sued for the loss of growth.

Do you really want to complain?

But remember ... the policy may have been missold to you, but still have turned out to be a good investment.

It may have done better so far than a repayment mortgage.

If you had had a repayment mortgage, would you have been in a better or worse situation? That is your choice - to be put in the situation you would have been in with a repayment mortgage.

The projections you are being given are merely standard example projections. And they may take no account of any terminal bonus, which is often considerable.

Click here for a link to the FSA's Guide to complaining.

Lincoln - an example

The Sunday Times of 13 August 2000 headlined "£20,000 for victim of endowment scandal". This is misleading. In fact the complainant said he had too much life assurance and had therefore been missold his endowment (which in nine years turned nearly £13,800 into £9,800). What the company (Lincoln) have done is to offer to repay all his contributions plus interest, a total of £17,800. He says, "I'm not happy at the end of the day. Really all they've paid me back is what I've put in". I agree with him fully. They should have put him in the position he would have been in if they'd given him best advice. Lincoln are getting off lightly.