investment case round-up

a selection of some of the complaints we have dealt with recently on a range of investment matters

30/9
mortgage endowment policy – firm gives customers written guarantee that policy would pay off mortgage

When a flat in the block where Mr and Mrs L already owned a property came on the market, the couple applied to the firm for a mortgage. The firm advised them to take out a unit-linked mortgage endowment policy.

Four years later, the firm wrote to the couple to say that their policy might not produce enough, when it matured, to pay off the mortgage. Shocked by this news, the couple immediately contacted the firm. In their view, the firm had given a specific assurance that the policy would pay off their mortgage in full. The firm denied this. It said it had pointed out at the time of the sale that mortgage endowment policies do not include a guarantee, and that their performance is largely dependent on the stock market. Unhappy with this response, Mr and Mrs L brought their complaint to us.

complaint upheld
The firm’s representative had completed the ‘fact find’ correctly and the couple confirmed that, at their meeting, he had had given them a brochure setting out the risks associated with mortgage endowment policies. However, when we looked at the letter he had sent them a couple of days after the meeting, giving details of the policy, we found that he had he also noted:

‘You will appreciate that the forecast tax-free surplus of £18,288 cannot, of course, be guaranteed. What is guaranteed is that the mortgage itself will be redeemed after the period, which is unique to us and cannot be matched by any other insurance company at the present time with their own endowment policies’.

It is very uncommon for a complaint claiming an alleged ‘guarantee’ to succeed, as the terms and conditions of the policy usually over-ride anything the adviser has said, or any written statements. However, in this case we considered the firm’s letter constituted an unequivocal guarantee that the policy would produce enough to repay the mortgage.

We therefore required the firm to provide redress, in line with the regulatory guidance for circumstances where the firm has given a guarantee.

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30/10
mortgage endowment policy ‘paid up’ – adviser wrongly told clients’ death benefit remained in force

Mr and Mrs E took out a mortgage endowment policy as a means of paying their £20,000 interest-only mortgage. The policy included death benefit of £20,000, to cover the cost of the mortgage if either spouse died before the policy matured.

When, some years later, the couple inherited some money, they decided to pay off their mortgage early. After meeting the firm’s adviser, they agreed to follow his recommendation to make the endowment policy ‘paid up’ – in other words, to stop making any further contributions, but to wait until the policy had reached its maturity date before they cashed it in.

Mr E died three years later and Mrs E claimed the death benefit she thought she was entitled to under the endowment policy. She was shocked when the firm said that because the couple had made the policy ‘paid up’, the death benefit no longer applied. The firm told her that if she wished to cash in the policy, she could do so – its current value was £7,600.

When the firm refused to uphold her complaint, Mrs E came to us.

complaint upheld
The firm sent us a copy of the original policy document that it had given Mr and Mrs E when they took out the policy. This stated that: ‘in the event of the policy being paid up, the Guaranteed Minimum Sum Assured, (in this instance £20,000), will no longer apply and the surrender value, death benefit and maturity benefit will be equal to the value of the units remaining allocated to the policy’.

However, Mrs E claimed that when the adviser had recommended making the policy ‘paid up’, she and her husband had specifically asked whether this would affect the death benefit of £20,000. She said they were told the benefit would remain in force. She sent us a letter and an attached compliment slip that the adviser had sent them after the meeting. The letter confirmed that the policy had been made paid up, but made no reference to the death benefit. However, the adviser had written on the compliment slip: ‘Life cover in force for the remainder of term - original as requested’.

We thought that, in the circumstances, it was reasonable of the couple to have believed the £20,000 death benefit remained in place after the policy was made ‘paid-up’. We upheld the complaint.

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30/11
endowment policy – delay in proceeds of policy being paid – whether delay the firm’s fault

In early November, a couple of days before Mrs T’s ten-year endowment policy was due to mature, she wrote to the firm to say that she had moved to Saudi Arabia.

She had assumed that the firm would pay the proceeds of her policy straight into her UK bank account. But a couple of days after the policy’s maturity date she contacted her bank and found that the money had not been paid in. She then wrote to the firm to ask what had happened.

The firm said it had not yet released the money. It was waiting for Mrs T to sign and return the ‘discharge documents’ it had sent her some weeks earlier. Mrs T said she had never received these documents. So to help speed things up, the firm said it would send her a declaration form to sign instead. It told her it would then pay the money into her account as soon as it received the signed copy.

The firm faxed the form to Mrs T in Saudi Arabia on 7 December. Mrs T signed it and posted it back, but it did not reach the firm until 23 December. The firm paid the proceeds into Mrs T’s account on 3 January.

Mrs T then sent a letter of complaint to the firm, blaming it for the delay of over a month before she had access to the money. She said the firm’s actions had prevented her from re-investing the money at the end of November, as she had planned to do.

complaint rejected
We did not think the firm was responsible for the delay. In keeping with its normal practice, six weeks before the policy was due to mature, it had written to Mrs T explaining what she had to do before it could release the proceeds. It also enclosed documents for her to sign and return, authorising its payment of the money.

The firm had sent this letter to Mrs T’s UK address, since at the time it was unaware that she had moved. It was not the firm’s fault that the letter never reached her. Mrs T had asked her son, who was still living at her UK address, not to forward any mail to her as there had been a number of anthrax scares, especially with mail going to or from the Middle East.

When the firm became aware that Mrs T had not seen the letter and the discharge documents, it had agreed to release the proceeds as soon as she signed and returned the declaration form that it had faxed to her. Since the firm did not receive the form back until 23 December, some delay was then inevitable because of office and bank closures over the Christmas/New Year period. However, we considered that the firm had processed the release of the money as quickly as it could. We rejected the complaint.

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30/12
individual savings accounts – suitability of firm’s advice to switch funds

Mr and Mrs C each had an individual savings account (ISA) invested in a UK equity fund. Disappointed with the performance of these investments, they decided to consult a firm of independent financial advisers. They thought that if the adviser agreed it was a sensible move, they would invest instead in a European fund, as a friend had told them this would be more profitable. The adviser recommended a transfer into new ISAs invested in a European fund, and arranged this for the couple.

However, 18 months later Mr and Mrs C were concerned to find that the value of their new ISAs had gone down substantially. When they raised this with the firm, it said they had no grounds for complaint, as the recommendation had been ‘suitable for their circumstances’. Unhappy with this response, Mr and Mrs C came to us.

complaint upheld
The firm justified its rejection of the complaint on the grounds that the European fund was a suitable choice, as Mr and Mrs C were ‘medium risk investors’. It also said that as its adviser had provided the couple with a ‘key features’ document and other product literature, it had done all it could to help Mr and Mrs C make ‘an informed decision’.

The European fund presented more risks than the couple’s former investments because of currency fluctuations and the fact that a large proportion of the fund was invested in technology shares. But we found no evidence that the adviser had discussed risk with Mr and Mrs C. In fact, he later admitted that he had told them there was very little difference between the two types of fund.

We therefore upheld the complaint.

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