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The mortgage
endowment complaints assessment guide, illustrates our
current approach to complaints where it is alleged that a firm
guaranteed an investment would perform in a certain way –
even though the policy did not include any contractual guarantee.
The
legal issues that can arise in such disputes were given careful
consideration when we drew up this guide, which we hope will
prove a helpful indication of our general approach. We would
stress, however, that it is not intended as an authoritative
statement of the law, or as a substitute for legal advice on
individual cases.
In
our experience, when customers have been told something inaccurate
about an investment policy before they enter into the contract,
they generally react in one of the following ways when they
discover the true position. They may:
- take
the view that they never really believed what they were told,
accepting it was just sales talk;
- consider
that the product provider should honour whatever the adviser
said; or
- consider
that while what was said was too uncertain to amount to a
promise, it was nevertheless misleading; and that if they
had known the true position, they would not have entered into
the contract.
Our
guide deals with the circumstances of two potentially successful
forms of claim involving alleged guarantees. These are:
- where
customers are, in effect, claiming they were given a guarantee
about investment performance; and
- where
customers claim that, while what the financial adviser said
was too uncertain to amount to a promise, it was nevertheless
misleading; and that if they had known the true position,
they would not have entered into the contract.
If
this first type of complaint is successful, this may well mean
that the appropriate redress is for the firm to be required
to pay the amount ‘guaranteed’ when the policy matures,
providing all payments are kept up to date.
If
the second type of complaint is successful, the outcome is achieved
on the basis that the advisor’s statement constitutes a
misrepresentation in the legal sense. The legal remedy for misrepresentation
is either the voiding of the contract (leading to the return
of premiums paid with interest) or damages.
As
our mortgage endowment complaints assessment guide sets
out, although voiding the contract is a possible remedy, in
many cases we may consider it more appropriate to award damages.
In any event, voiding the contract is not an option where the
misrepresentation was made by an IFA, since the IFA is not party
to the investment contract.
Damages
for misrepresentation are calculated to return customers to
the position they would have been in if the misrepresentation
had not been made, not the position they would
be in if the false statement had been true.
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case
studies – mortgage endowment complaints
alleging guaranteed investment performance
These
cases illustrate the response of firms to windfalls,
the Taber case and the publication of Regulatory Update
94.
11/04
Mr S and Miss K complained that the endowment mortgage
policy sold to them in October 1989 was inappropriate
for their circumstances and that the adviser had not
discussed any other options with them. They also alleged
that the adviser had told them the policy would provide
a lump sum over and above the amount they needed to
repay their mortgage.
We rejected the complaint. The firm had provided sufficient
documentation from the point of sale to make it clear
that it had not guaranteed the amount the policy would
produce. In addition, the endowment mortgage questionnaire
that we asked the couple to complete confirmed that
their attitude to risk at the time of the sale was compatible
with the degree of risk the policy presented.
.............................................................
11/05
When Mr and Mrs G were sold a mortgage endowment policy
in 1986, the adviser gave them a handwritten ‘quotation’,
setting out the amount they would receive when the policy
matured.
They were therefore very surprised when they recently
received a letter from the firm saying the policy might
not enable them to pay off their mortgage in full. The
couple said they expected the firm to honour the amount
on the ‘quotation’. The ‘quotation’
was on company headed paper and said
Further to your request for policy
maturity figures, here are the terminal
and reversionary bonuses, together
with the basic endowment figure.
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£
|
| Endowment
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7,875 |
| Reversionary
|
|
| Bonus
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12,624 |
| Terminal
Bonus |
17,625 |
| Total
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38,124 |
| Less
balance of mortgage |
17,500 |
| Cash
back at maturity |
20,624 |
The figures were based on the value of similar policies
maturing in 1986 and there was no evidence that the
adviser had provided any disclaimers to suggest there
was any doubt about the figures quoted.
The firm did not consider that it had provided a guarantee.
There was little documentation available from the time
of the sale. There was also no evidence to suggest Mr
and Mrs G could reasonably have been expected to question
the validity of the information they were given, or
to know that the firm did not give guarantees for endowments.
The ‘quotation’ was clearly expressed and
there was no evidence that it was not part of the contract
terms. We ordered the firm to guarantee that, provided
the couple continued paying the premiums to the end
of the policy term, they would receive £38,124.
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