The momentum behind the endowment story will continue to pick up over the coming months, as further revelations are exposed in the media and insurers start to feel increasingly pressured.
Despite the work of the Association of Independent Financial Advisers (AIFA) and the Financial Services Authority (FSA) to encourage insurers to keep professional indemnity (PI) insurance at affordable levels, it seems as if the tide has turned and compensation claims will continue to rise, forcing premiums up and possibly putting some advisers out of business.
Or will it?
Despite the hype, the consumer press seems to be missing the point that a lot of borrowers with endowments were not mis-sold these policies by independent advisers. Even though there has been an increase in the level of complaints, AIFA claims only around 10% of claims are being made against independent advisers, with the majority complaining about direct sales forces and estate agents.
The latest story to break concerns an oversight under the Life Assurance and Unit Trust Regulatory Organisation (Lautro) rules in the 1980s and 1990s when life insurers and endowment providers quoted rates based upon a standardised charging structure, when the true rates were actually higher. This is not the fault of the advisers, but does mean that compensation levels from insurers will be pushed upwards.
Added to this was the FSA’s decision to allow borrowers more time to make their complaint if they are facing a loss. This will mean the problem is likely to drag on into the foreseeable future with neither insurers nor advisers knowing where they stand over compensation claims.
The only reason advisers can be found guilty of mis-selling is if they gave a guarantee. If the complaint is performance related advisers cannot be held accountable.
While there are obviously some serious problems over endowments and advisers cannot all be innocent of mis-selling, the blame needs to be apportioned fairly. The FSA needs to instigate a full investigation as it did with pensions rather than this piecemeal approach or the reputation of independent financial advice will continue to be dragged deeper into the mire.
This is one story that will run and run.
