Endowment Shortfall - New questions (2)

wrote

One quick question: Why did you decide to take out an endowment mortgage instead of, say, a repayment mortgage?

How much wood would a woodchuck chuck if a woodchuck could chuck wood? An endowment would pay out as much dosh as an endowment would pay out dosh, which in the absence of guarantees leaves one wondering about the target of the subjunctive. I.e. "would" if what? If it does well, of course, and oh yes, Sir, we believe it will do very well, certainly for us even if not for you.

Does the absurdity of what you write not leap out at you? If, as you admit, you were told there was no guarantee, then clearly you were made aware of the risk, and you took it.

Because the monthly payments were lower.

- Mark

The point is that the adviser said two contradictory things:

• There is no guarantee (it may not pay out the full amount).
• It will pay out in excess of the required amount.

I don't know what woodchucks have got to do with anything :-)

wrote

When you questionned this at the time, what did he say? You *did* question it, didn't you?! :-(

Those aren't two contradictory things. They're one empty promise with a disclaimer.

It's the uncertainty principle.

snipped-for-privacy@home.com said

When I got my mortgage I was more-or-less told the same thing - but I decided to go with the safer repayment option.

Why should you get "compensation" when you have paid less in yet you might have done better by it? Just because you didn't?

Yes. I can't remember his exact words now, but he implied that the only way it could not pay out the full amount is if the whole economy had collapsed and we had gone back to bartering!

Because I was given bad advice?

Which uncertainty principle? The only "uncertainty principle" that I have heard of is Heisenberg's and I can't see the relevance of this. :-)

It's not widely known, but Heisenberg's brother's grandson runs a training establishment for endowment salesmen, but for obvious reasons he uses an assumed name.

You were told there is no guarantee. Therefore there is risk, and performance is uncertain. He can have implied what he liked, inducing you to infer that the chances of underperforming were so miniscule that they amounted to a "virtual guarantee" that you'd end up quids in.

It's not what he implies that matters, it's what he said, preferably in writing.

Well, obviously, as I said before, like, all credit to your repartee (which is well up to insurance executive standard), but at the end of the deah, are you seriously suggesting that persons seeking financial advice should have to work out the difference ?

(uk.legal added)

Naturally.

Which part of "there is no guarantee" do you expect the prospective punter to misunderstand? OK, it makes a difference how skilfully the salesman papers over the cracks, but so long as "no guarantee" is at least said, and said in writing, he'd be in the clear.

It's much like selling a holiday and "promising" you'll have a great time but being unable to guarantee the weather.

At the risk of getting off line because of lack of context:

Why should anyone regard a representation by a financial advisor that a product would 'pay out in excess of the required amount' as an empty promise? Is it such a statement that no reasonable person would believe (mere puff)?

Because of the notorious hard-sell misrepresentations of "financial advisors" in this jurisdiction (Australia) they are now heavily regulated, but in any case, one would expect the courts to construe every representation a "financial advisor" made strictly against the representor.

Secondly, if it was said "there is no guarantee", this could have (at least) two distinct meanings:

• there is no "guarantee" in its technical sense, as a contract by an independent party (bank, insurance company, etc) to answer to and recompense the client for a default or failure of the financial service provider or product to, for example, pay the required amount or pay in excess of the required amount. This meaning would probably be accurate, but would not be taken to imply that the "pay out in excess" representation was other than the truth;
• there is no general assurance, as to the amount of pay out or otherwise, while this might be taken to modify the representation about "pay out in excess" its hard to see how a "financial advisor" would be allowed to get away with making an outrageous false representation, then getting off the hook with a sort of general disclaimer.

I'm with Rhoy on this one. Certainly legislators in this country have got fed up with "financial advisors" bamboozling clients out of their savings, then walking away.

All of it. Guarantee may have a technical legal meaning as discussed above. The statement may be intended to mean "I personally do not guarantee, nor warrant, nor even believe in the truth of what I have just said" or any number of other things: depends on exact words and context .

Sounds like you're advocating further misrepresentations and deception

Nonsense: see above.

John

Yes, it is. People know what salesmen are like. Kitchens, double glazing, mortgages, they're all the same. Yet still they fall for them. They've only their own stupidity to blame.

You're paddling up the wrong creek, matey. In practice, "there is no guarantee" would be phrased in more precise terms, such as "this investment is not guaranteed to repay the amount you borrow, but based on [specified] market growth estimates it will not only repay the amount borrowed, but enough extra on top for you to fund the weddings of both your daughters."

The key issue in this country in deciding whether a policy has been mis-sold is simply whether the investor was made aware of the fact that such investments carry risk. Any suitably-worded "no-guarantee" disclaimer would normally be a full defence against a mis-selling claim.

No way. I'm not excusing the salesmen. I'm just saying that, so long as they played by the rules, you can't touch the bastards.

Quick trawl around the Financial Services Authority's website indicates to me that there are numerous industry codes of practice which indicate that the financial services industry sets itself above the double glazing and shonky kitchens arena.

Would you have any reported legal cases that indicate that misrepresentations about financial products are treated leniently by the courts?

I did have a disclaimer of my own : "subject to context"

OK, and how might the representation that "It will pay out in excess of the required amount be phrased so as not to be directly contradictory to this?

Even if there is a fraudulent or negligent misrepresentation? I don't think so. The FSA doesn't think so.

I can't see how a 'no guarantee' clause can provide protection against misrepresentation. It's one thing to say "this is an investment with some risk, and you should consider carefully and take necessary advice" and to say "this investment will have .... [certain stated attributes]."

Yair, but I'm thinking that the rules are a bit more complicated and onerous than you describe them. (not at all like the IRPCAS and RRS: oops, forgot you aren't interested in RRS).

See ya in uk.rec.sailing.

John

That's hardly surprising because that, after all, is what regulation was designed to achieve. If things get bad enough, perhaps we can look forward to regulation of the double glazed kitchen sector too.

Of course not, that's not what I'm trying to say at all. I'm just saying that to say "it will pay out etc" and "there is no guarantee" in one breath fails to make the first part a misrepresentation, because it is qualified by the second part.

Easy. By not making it out of context. By presenting it as a conclusion subject to a whole raft of conditions. For example by saying something like "If it does well, then it will pay out in excess etc. There is of course no guarantee that it will do well, but we think it will, etc. We're an established company with impeccable credentials, and in our 24 year history there hasn't been a single case of a 25 year endowment sold by us ever having paid out less than the target value." :-)

Nor do I. But in the presence of cast-iron evidence that the client has been made aware of risk of underperformance, it will be extremely difficult to establish that optimistic predictions amount to misrepresentation.

Indeed, that's why it's important to get the "suitable wording" right. You must make sure that you don't say "this ... will ..." except when you make it subject to something: "If ... then this ... will ...", or "We believe that this ... will ...".

"Ronald Raygun" wrote

Tee hee!!

This is nothing to do with stupidity. It is impossible to be an expert in everything. I'm certainly not.

Really isn't the point that the people who sell these policies set themselves up as financial advisers and not as salesmen. Therefore they should be judged as such.