By Ben Marquand
The Financial Services Authority (FSA) has said there is still a long way to go in improving sales standards for endowment mortgages, following initial investigations.
The FSA has said that although there have been significant improvements in endowment selling since they began their investigation in January, ‘mystery shopping’ exercises conducted on leading lenders and IFA groups throughout the summer have found that further improvements in selling standards are necessary. The exercise will act as a guide for forthcoming supervisory visits, which will advise on current practice and future selling.
Michael Folger, director of investment business at the FSA, said: “When we find that there has been mis-selling and firms are culpable then there will be more than just a slap on the wrist.”
Penalties will include an unlimited fine, a public reprimand or even action to limit a firm’s business. The regulator has imposed fines of up to £900,000 on firms in the last two years.
Ray Boulger, senior technical manager at John Charcol, said: “I think that it is perfectly reasonable to throw the book at firms who are even now not explaining the risks properly to customers.”
The FSA has revealed that around six million households are still waiting to receive re-projection letters which will tell them whether their endowment will reach its target, and it is predicting that 60% will face a shortfall. Christine Farnish, director of consumer relations at the FSA, said: “People may have to take top up action, but they are not necessarily going to be worse off than with other options, and it does not mean that they are automatically eligible for compensation.”
Research conducted by the FSA found that on average, even where there is a projected shortfall in the future, existing endowment customers have to date spent less on their mortgage than they would if they had selected a repayment mortgage. Graham Storrie, assistant general manager at Standard Life, said: “There should not be a full review into endowments because, despite the panic caused by re-projection letters, most policyholders today are better off.”
Customers will only be eligible for recompense if they feel that they were badly advised during the sale of the endowment and they find that they are now facing a shortfall. But Boulger said this is easier said than done: “This will be a problem for both customers and advisers in that it is virtually impossible to remember exactly what occurred around ten years ago.”
Jane Hewin, senior external affairs consultant at Zurich Financial Services, said: “We are supportive of the FSA initiatives to improve selling standards and to help consumers understand the value of their investment as well as their moves to dissuade them from a potentially rash and costly response to re-projection letters.”