Mr & Mrs A and their Aviva endowment policy - Greg Vaughan

Mr & Mrs A and their Aviva endowment policy

Memorable Cases

In this occasional series of blogs, I recall some memorable cases which I have dealt with.

Mr & Mrs A and their Aviva endowment policy

The very first step in any complaint case is to identify which firm has potential liability for the failure of a product. And secondly to make sure that, having identified which firm to complain to, the right issues are raised.

Three different firms, for example, could potentially sell an endowment policy from a well-known insurer. It could be sold by one of the insurer’s own salesman. A bank as the means of repaying an interest-only mortgage could sell it. Or, it could be sold by a firm of independent financial advisers (IFAs).

Mr A’s case was an example of how a product provider (in this case, Aviva) will do its best to deflect responsibility for the failure of a product onto another firm (in this case an IFA), if it possibly can and even when it should not. And that an IFA will do likewise, and pass the buck back to the insurer if it can. It is a practice that leaves customers with their heads spinning, as everyone denies responsibility for everything.

Mr A complained to Aviva about his endowment policy falling short of its target amount. Mr A was unhappy that Aviva had not given him any prior warning before the policy matured that it was performing so poorly. Aviva had in fact failed for more than 10 years prior to maturity to send Mr A any of the shortfall warning letters that regulatory rules demanded it send.

However, rather than admit its failing, Aviva told Mr A that he must complain about the shortfall on the policy to the IFA that sold it. So, that is what Mr A did.

It is worth pointing out here two important points. Firstly, a shortfall on an endowment is normally the responsibility of the firm that sold the product (not the insurer administering the policy). If the firm that sold the policy actually mis-sold it (i.e. sold it to someone unsuited to an endowment) then it follows the consumer would not have ended up facing a shortfall if that mis-selling did not occur. Complaining about mis-selling is legitimate and can lead to compensation being paid.

In contrast, a complaint just about poor investment performance is the responsibility of the firm administering the policy. But crucially, poor investment performance on its own cannot be compensated. The industry regulator states that unless a firm has given a guarantee that a certain level of performance will be achieved, it cannot be held liable if the uncertainties inherent with investing have led to a lower level of performance than was hoped for or estimated.

So, back to Mr A. His complaint was a bit confused (not too surprising) and his IFA was astute (or devious if you prefer) enough to use that to their advantage. They skirted around the mis-selling angle of it and concentrated on the poor performance aspect. Consequently, they offered to help Mr A make his complaint about this back to Aviva! Although they knew how pointless this was, as it would never lead to compensation being paid, it enabled the IFA to keep Mr A at arms length as regards mis-selling.

Unfortunately, Mr A was not sufficiently knowledgable to spot the sleight of hand. He just got more and more confused as the case went round and round in circles between the IFA and Aviva. In the end, Mr A was helped by the IFA to take his case against Aviva to the Financial Ombudsman. Now the Ombudsman won’t consider poor performance complaints at all (because they cannot lead to redress) and promptly informed him that if he wanted to pursue compensation he must complain to the IFA! Mr A of course said he already had!

It was at this point that Mr A asked me for some help. I could see immediately what had been going on. For Mr A

there was no difference at all between complaining about a shortfall and complaining about poor performance. It was one in the same to him. After I explained the difference, he began to see how both the IFA and Aviva had both been exploiting his lack of awareness to deflect his case.

At Mr A’s request, I agreed to try and help. Pursuing the mis-selling angle against the IFA I told him was unlikely to lead to compensation. There was hardly any paperwork available from the point of sale and Mr A’s circumstances at the time did not suggest that an endowment mortgage was likely to be considered wholly unsuitable.

The only option was to pursue Aviva. But crucially, not on the question of poor performance. That was not going to lead to compensation being paid. The only route open was to argue that Mr A had been denied the opportunity of dumping the endowment earlier by Aviva’s repeated failures to warn him about the impending shortfall. If he had ended the endowment earlier, he would have cut his losses sooner. Aviva admitted its errors with the letters but offered just a few hundred pounds in redress. The shortfall it maintained was due to potential mis-selling by the IFA.

Taking the case to the Financial Ombudsman Service, I found little sympathy from the first adjudicator. She endorsed the Aviva offer and view about his need to argue mis-selling by the IFA and, for good measure, told me in no uncertain terms that the Ombudsman was most unlikely to reach a different decision.

Undaunted, I decided to take the case further, through to the full Ombudsman hearing. It took nearly 12 months of hard debate and argument before the Ombudsman came down on our side and told Aviva to pay Mr A nearly £13,000. It is the only case of which I am aware that compensation for a shortfall was paid by a firm other than the original policy seller.

It was an excellent result from an unpromising case. But I include it here as an example of how important it is to know whom you need to go up against and what you must (and equally importantly, must not) complain about.

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