The couple, Arthur and Irene Pearson, were advised to take out the investment seven years ago, according to the Daily Mail.
The resulting debt includes a £200,000 mortgage they can’t pay off. They could lose the three-bedroom home in Nottinghamshire where they have lived for 52 years – and which was built by Irene’s uncle. They moved in two years after they married in September 1959.
They have no one to complain to, as the independent financial adviser who convinced them to take out the investment, and the firm he worked for, are no longer in business.
The banks that approved the loans for this deal – Bank of Scotland and GE Money – are under no legal obligation to help them.
In 2006, the Pearsons were mortgage-free, but wanted to boost their income and try to cut the inheritance tax liability for their children.
So, friends pointed them in the direction of Julian Blair Goodyear, a financial adviser from Newark, Nottinghamshire, who at the time worked for Kilminster Financial Management Limited, which had its head office in Bristol.
The adviser visited their house on a number of occasions, and then recommended they take out a series of loans and investments cobbled together to make one deal. The scheme involved taking out an interest-only mortgage worth £201,700 from lender GE Money.
Goodyear then arranged a further loan of £159,856 with Bank of Scotland – now part of giant Lloyds Banking Group. The two loans totalling around £360,000 were put in to one scheme, called Integrity Financial Solutions Maximiser portfolio, and the money was invested in 17 traded-endowment policies.
Such savings plans have become notorious because the investment returns on them failed to live up to expectations. Normally savers pay monthly premiums on endowments – but here they were added to the Bank of Scotland loan. The monthly interest on the mortgage was paid directly from Mr Pearson’s pension.
The Pearsons were told they would get £22,000 annual income from the investments and when the plans matured the mortgage and the loan would be cleared. For setting this up, commission of £14,394 was paid.
It worked well for the first couple of years, but then the income payments stopped. Then it transpired that – contrary to what he had been told – Mr Pearson was not getting an income from his investments. Rather, the money he had taken was just more debt and was added to his loan.
Justin Modray, from independent financial adviser Candid Financial Advice, says: ‘Taking out a mortgage in your 70s is seldom a good idea. Borrowing to invest the money has disaster written all over it – especially if the investments are neither diversified nor robust.
‘Sadly, it seems the financial adviser was motivated purely by sales commissions, with the client’s best interests nowhere to be seen in the advice.’
Since 2010, Mr Pearson has been paying £368.10 in monthly interest on the mortgage from his teacher’s pension. The debt with Bank of Scotland has ballooned to £259,574. They also still owe £201,000 on the interest-only mortgage.
Even in 2006, endowments were considered a rotten investment. Millions of savers who had loyally put money in these plans were being sent red alert letters – these warned that the policies may pay out far less than first thought. Any professional adviser would have known this.
In many cases the premiums the Pearsons have paid on the policies now maturing are greater than what they have got back. Other endowments have also paid out only half the expected amount.
Bank of Scotland estimates the value of the remaining policies is £325,986. If the Pearsons get all this, their debt with the bank will be paid off and they’ll have a little left over – but they will still have to pay off the £201,000 mortgage. Even with the leftover cash, the couple will still need to find an extra £135,288.
In May 2010, then regulator the Financial Services Authority issued a warning over Integrity Financial Solutions, which earned £1.6m in arrangement fees on selling these plans. It ruled Integrity had misled investors and financial advisers over the risks of the schemes.
It would have fined Integrity £350,000, but the firm had no money as it went into voluntary liquidation in October 2009. The Pearsons knew nothing of this.
Mr Goodyear did not reply to inquiries from The Daily Mail. He has also not responded to a letter sent by Mr Pearson. The Pearsons cannot take their case to the Financial Ombudsman Service because the firm they need to complain about no longer exists.
They can ask for assistance from the Financial Services Compensation Scheme – the lifeboat service for people making claims against firms that have gone bust. However, it is likely any compensation they get will be limited to £48,000 – which would still leave them owing around £100,000.
Bank of Scotland has offered to refund all interest and fees on the loan – this has been accruing by as much as £560 a month for the past seven years. It will also let them cash in the policies for the current value.
A spokesman for Bank of Scotland says: ‘We take very seriously our obligations to lend responsibly and to treat customers fairly.
‘We weren’t involved in the financial advice given to the Pearsons and we do sympathise with the difficult financial circumstances in which they have found themselves and will offer to refund interest and fees paid as a goodwill payment.
‘This is in addition to the current security value surplus over the loan balance. We believe this will put them in a better position for their financial future.’
GE Money said it needed more time to investigate.
