Would financial advisers have known as far back as 1995 that endowment mortgages were heading for the buffers, or were there still reasons to recommend them to customers?
In response.
I have been a financial adviser since 1972. I worked for a well known firm from 1972 to 1980, and we did deal with a large number of endowment mortgages. During this period, I saw that birth of the "low cost" endowment etc. Basically, they were all "conventional with profits" policies, usually from mutual life companies. This meamt that the policyholder was an owner of the company and entitled to a share of all of the profits (and losses) of the company. With very very few exceptions, they were a very good thing and clients enjoyed very good returns.
In 1988 / 89, three things happened.
(a) The banks and building societies realsied that they could make a bit of money flogging endowments.
(b) Life companies geared up to demutualise, and conventional with profits was replaced by "unitised" with profits. This removed gradually the rights of policiyholders to "own" the company.
(c) Investment return began to drop. Most endowments before this time were sold on the basis that if annual bonuses were paid at 80% of their present level, the policy would cover the loan (leaving the othe r20%, and any terminal or capital bonus as a safety margin). But this meant that endowment mortgages were a tad expensive. Inconvenient. So the providers began to offer policies using 100% of the current bonus rate, and then developed a range of "unit linked with profits policies" which assumed various levels of investment return, and pretty high charges. .
This meant that they could offer endowment mortgages that looked cheaper than repayment loans, but were much less safe.
As all life companies quoted using the same formula, based on a standard set of notional charges, the true cost was hidden from the consumer.
By 1989, I was running a small IFA firm (and continue to do so). We did our sums and our due diligence on the new breed of endowment policy, and decided at that time not to touch the things with a barge pole, and to advise all clients to use anothe rmethod of repaying their mortgage - usually a straight repayment one. That has been our advice since 1989.
So yes, advisers should have been able to see the "writing on the wall" since 1989. I can see no valid reason to have recommended them since then.
If you want any more info, get in touch. My email address is snipped-for-privacy@fponline.co.uk
Regards
Peter Taylor