THIS TRANSCRIPT IS ISSUED ON THE UNDERSTANDING THAT IT IS TAKEN FROM A LIVE PROGRAMME AS IT WAS BROADCAST. THE NATURE OF LIVE BROADCASTING MEANS THAT NEITHER THE BBC NOR THE PARTICIPANTS IN THE PROGRAMME CAN GUARANTEE THE ACCURACY OF THE INFORMATION PRINTED HERE. Tape Transcript by JANE TEMPLE MONEY BOX Presenter: Paul Lewis TRANSMISSION 29th MAY 2004 1200-1230 RADIO 4 ________________________________________________________ ANNOUNCER: Now it’s four minutes past twelve and time for MONEY BOX with Paul Lewis: LEWIS: Hello. In today’s programme mortgage endowments – new hope on compensation for some people who’ve been mis-sold. Scrap commission, improve training and end mis- selling – a stark message to financial advisors but from a financial advisor. Savers benefit as banks raise rates to compete for business – will new plans for charities lead to more professional fund raisers on our streets? WOMAN: It’s unfortunate that people can find things irritating but face to face fund raisers are just going to become part of the street furniture. LEWIS: And building societies fight government plans to take over forgotten money. But first, insurance companies have been told this week they must warn customers about the time limit for making a complaint if they think they’ve been mis-sold a mortgage endowment. Up to now no warning has been given by insurers even though many do not allow claims after three years. From next Tuesday customers have to be told clearly that a complaint must be made within three years of getting the letter which warns them their endowment would probably not be enough to repay their mortgage. And they must be warned again six months before that three year time limit comes to an end. The new rules are being imposed by the Financial Services Authority. Anna Bradley is the FSA director responsible for this change. I asked her why they were acting now? BRADLEY: Consumers have not all recognised that they will run out of time to complain if they don’t do it within a certain time. LEWIS: The reason that a lot of people have been confused about this though is that the letters they were originally sent didn’t tell them there was a time limit? BRADLEY: The letters didn’t tell them this but the letters went along with a leaflet from the FSA explaining about the situation with mortgage endowments, explaining to people how to complain and what time limits applied. I think we all hoped that that would be enough of a warning for consumers but it’s clear that some have not caught on to this and it’s very important that people understand that there is a time limit and they’re given the opportunity to complain within it. LEWIS: And what about the people who’ve already run out of time? BRADLEY: There are going to be a maximum of around 700,000 consumers who might already have been timed out. They won’t all have been mis-sold but happily many of the big firms have already agreed that they will voluntarily waive the time bar and allow these consumers to complain. That’s not enough and that’s why we have sat down in fact only this week with the industry bodies and a number of the key players in the industry to talk with them about what else they will do in order to allow consumers to complain. LEWIS: But there are only seven companies that are operating the time bar – are they going to insist on that time bar for people who’ve already passed the limit? BRADLEY: We have gathered them together and asked that they consider their position. LEWIS: But do you have the power to make them? BRADLEY: We might have the power to make them in due course but what we’re hoping for is that they will implement a voluntary agreement in order to facilitate this process and we understand from the firms that they are on the whole willing to consider this course of action. LEWIS: But if they don’t do that you might force them to? BRADLEY: If they don’t do that we will clearly consider the position but our preference is that firms take voluntary action. LEWIS: Anna Bradley. Well with me is Chris Kenney who’s head of life and pensions at the Association of British Insurers. Chris, are your members going to do the decent thing by these 700,000 people? KENNEY: Well Paul, as ever, individual firms have to make their own decisions. The regulator doesn’t prescribe a general rule. People will look at the new position in the light of the enhanced code that we’ve issued and the rule change. LEWIS: Yes but she did say that if they didn’t she’d prefer voluntary action but if they didn’t take voluntary action she may impose it on them. Surely it’s better to do it voluntarily? KENNEY: The important point is that people are treated fairly. A number of firms who imposed time bars have had cases referred to the financial ombudsman’s service. The ombudsman has upheld the fairness of their practice. What people can be sure about is that there’ll now be clearer communication, more comprehensive communication than ever before about how to cope with an endowment shortfall and about how to complain. LEWIS: Yes, you’ve agreed new letters and new wording and I’ve looked at them and certainly they’re much better than the old ones but Money Box research this week found that only one insurance company said it would follow these letters word for word. Are you concerned they might change the wording before they actually go out to customers? KENNEY: We’ve worked very hard with the regulator, with the Consumers’ Association, with all our members. What we’re doing is giving people the tools they need to do the job. If people believe they can be communicating better that’s up to them LEWIS: but they might communicate slightly worse mightn’t they? Why is there a time bar anyway? I mean if somebody’s been mis-sold they’ve been mis-sold. Why should they have to have a time bar to when they can make a complaint to get compensation? KENNEY: As with any goods or service the quicker people complain the sooner action can be taken to put it right. LEWIS: Well also with us is Louise Hanson who’s head of campaigns at Consumers’ Association. Louise, are these clear warnings, these new warnings going to be enough? HANSON: I think it’s a really great step forward, particularly for people who are going to be timed out from the 1st June onwards because everybody then will get a personal notification that time is running short. However, you know the fact that there are up to 700,000 people who may be already timed out we really do think this is the key opportunity for this industry to come forward very quickly and say we will not impose time bars. LEWIS: Cos of course some of the biggest – I must say HSBC, L&G impose no time bar and told Money Box this week they didn’t intend to. Pru and Standard Life also don’t impose a time bar and have no plans to impose one so some of the big companies as Anna Bradley said already have taken this step? HANSON: And that is great because I mean if you think about it people have been treated badly already by being mis-sold – can you imagine in terms of ruining customers’ confidence in this industry even further if hundreds of thousands suddenly actually get time barred? And I think just going back to a comment that Chris made about the new reprojection letters – you know they are an improvement on previous letters but we really do want to see companies following them word for word because we’ve seen bad practice in the past where we think that some companies have used them as another selling opportunity. LEWIS: Yes, I mean Chris Kenney, they do for the very first time and this is four years in isn’t it – use the words red, amber and green which we’ve all used as shorthand – red meaning do something now. For the very first time that word is on the letter. It’s taken a long time to do it hasn’t it? KENNEY: I think we can rely on the fact that many consumers read the letters carefully and took the necessary action. We’re doing more research with the FSA to establish just the numbers behind it. But we’re not complacent. We can always communicate better. We’re looking at the layout. We’re looking at the wording. As Louise says it’s a big step forward. LEWIS: But you can give no definite hope to the 700,000 people already time barred that your members will definitely allow them to make a claim? KENNEY: There are a large number of firms who are going to do that. We know as Anna said that most of those 700,000 have either chosen not to complain, were not mis-sold in the first place. The numbers involved are very small. The vast majority of endowment policy holders are getting a better deal as a result of this code, as a result of the FSA rule change than ever before. HANSON: But we believe up to 5 million people may have been mis-sold and only a handful of those people have complained to date so we do urge consumers look at the letters, look at the fact sheet, consider your grounds for complaint and make that complaint now. LEWIS: Louise Hanson from the Consumers’ Association thanks and also Chris Kenney of the Association of British Insurers. Well the quality of financial advice and indeed financial advisors was called into question this week not by a consumer group or even journalists but by financial advisors themselves. Best Invest a London based independent financial advisor asked can we trust financial advisors? And the answer it gave was generally no we can’t. Public confidence it said is at rock bottom, mis-selling is common place and training standards are what it called lightweight. Best Invest says the commission which is paid on a sale should be scrapped and replaced with smaller commissions paid annually and related to the performance of the investments that are sold. Well John Spiers is the managing director of Best Invest. John, it’s a bit disloyal to all your colleagues isn’t it? SPIERS: Some people will obviously think that but it’s borne out of deep frustration. Confidence in our industry is at all time low. That’s causing problems for all of us and it’s really causing problems for the public because the government’s making far more of their own decisions to secure their long term financial security and they can’t do that in a climate where they have no confidence in the advice that’s been given. LEWIS: But is commission really at the heart of this? You seem to be saying that in the document you’ve published? SPIERS: I think initial commission leads to all sorts of conflicts of interest and I think if you can align the interests of the advisor and the customer, you’re far less likely to have these problems. And the trouble with initial commission is it rewards a sale and so most, a lot of advisors frankly, are nothing more than selling organisations. They’re not in the business of giving any advice at all. They just want the customer to make another transaction and that goes to the heart of what’s wrong. LEWIS: But commission is an area in most industries isn’t it – cars, hi fi, furniture, people get commission for selling. It’s how they’re motivated. It’s how the industry works. Is yours really that different? SPIERS: Yes because the really important thing with investment is it’s not just the initial decision you take but it’s the on- going service and the monitoring and making sure that you’ve still got the right balance of investments. And so having a remuneration structure that’s very much geared towards rewarding that initial transaction and has very little to do with how a customer feels in two, three, four, five or ten years’ time is completely wrong. LEWIS: And how would you do that? You’d have to give people smaller amounts but every year and that could end up as being more commission eventually could it? SPIERS: Yes but it could be but the point is the customer at any one time if he’s not satisfied with the service he’s getting from his advisor can switch those payments to somebody new that he finds. That gives the advisor another big incentive to carry on looking after that customer and of course in some cases the advisor’s going to incur some costs up front and he’s going to want to charge a fee for that. I’ve got no problem with that whatsoever. LEWIS: No though of course a lot of people don’t want to pay fees do they. Look stay with us but with us here is Paul Smee who’s director general of the Association of IFAs which I think you have nearly three quarters of the UK independent financial advisors in your organisation. Do you agree that this high initial commission leads to mis-selling and should be scraped? SMEE: There’s already been a move away from high initial commission to commission paid over the lifetime of a product and I believe that is the right way to go and I think that trend should be encouraged and continued. LEWIS: But it still happens doesn’t it? I mean a 20 year endowment – the advisor gets 80% of your first year’s premiums – nothing virtually is going into the investment? SMEE: I think the key issue is to be clear when you’re taking advice, the basis on which you’re paying and what you’re getting for the service of the advisor. LEWIS: And what do you get though because with the initial commission often you get very little – they sell you the product and they move on to the next customer to sell them stuff? SMEE: That is exactly why we came up with the idea that every customer should be given a menu of advisors services at the beginning of the relationship setting out what the advisor was going to do and then saying this is how you can pay for it. And I do believe that will help put a renewed focus on continuing service. LEWIS: And we’ve talked about that of course on Money Box. I mean the other big point that Best Invest made was about training. They called it lightweight. They say after three or six months someone in their early 20s can be selling people products. Do you have a problem with the training that your members have to undergo at the moment? SMEE: What I’d like to see is this becoming an aspirational industry where there is a steady staircase towards higher qualifications. I’d love it if the Society of Financial Advisors got chartered status for example. LEWIS: So you’d have chartered advisors as you have chartered accountants for example? SMEE: I think that would be a really good step forward – should be a staircase – you don’t need to have an enormous initial step. LEWIS: Yeah so that would be something and how would that work John Spiers? – cos I know you’ve got some proposals on that as well? SPIERS: Well we believe that the current examination of structure needs to be a lot more demanding and we do think there needs to be a minimum level of experience and investments are pretty complicated business and the only way you can really learn about it is to spend time in the industry LEWIS: But that’s an investment by advisors isn’t it? – you’d have to keep people virtually as apprentices. Are people really going to put that level of commitment into the future of the industry? SPIERS: Well they’re not going to unless they’re forced to and that’s what we’re calling on the FSA to do. LEWIS: Okay we’ll see if they will. John Spiers of Best Invest thanks and also Paul Smee of the Association of IFAs. Now in the last few months the government has finally taken an interest in the billions of pounds which lie forgotten and unclaimed in the coffers of banks, building societies and other financial institutions. In the budget the Chancellor said he wanted this dormant money which couldn’t be reunited with its rightful owners to be handed over to charity for the greater good. The financial industry is not terribly happy with this idea and this week building societies have been explaining their concerns. Well Jennifer Clarke’s been looking at this. Jen, what’s their objection? CLARKE: Well essentially Paul they say that because building societies are mutual organisations owned by and run for the benefit of their members they don’t have complete freedom to do what they want with the money. Adrian Coles is the director general of the Building Societies Association: COLES: There are clearly legal issues about building societies’ rights to give away their customers’ money to other institutions albeit with very charitable aims. It is not clear that building societies have the right to do that. There is always the risk that a customer who had a dormant account or a building society has lost touch with reappears, challenges the building society in court and establishes that the building society should have not given away the money to a charity or some other use. CLARKE: Adrian Coles also identifies a more fundamental problem and that’s defining exactly what a dormant account is in the first place: COLES: 63 different building societies have 63 definitions – some institutions say a dormant account is one that’s not been used for three years or five years or the Irish definition under their legislation is 15 years. Other institutions require not only there to have been no transactions on the account but for post to have been returned with gone away written on it. So although it sounds a good idea, it’s not as easy as it actually sounds. LEWIS: But Jen, the government is going to take action. The building societies are going to have to take this seriously? CLARKE: Well they would say they already take reuniting customers with their cash very seriously. Now the BSA runs a free scheme to track down lost money and they’ve told me they’re keen to improve that. They also argue that dormant money held by building societies does benefit the community by for instance helping to subsidise cheap mortgage deals but yes I think they do realise they will have to move on this as long as their concerns can be resolved. LEWIS: And how much unclaimed money is there in building societies? CLARKE: Well partly because of all those different definitions Adrian Coles talked about no-one really knows. He thinks though that the amount is much smaller than some estimates. He reckons less than 100 million pounds. Now although that sounds like a lot it’s pretty much small change compared to the amount languishing in bank accounts. HSBC has already admitted it has four times that – 400 million pounds in its dormant accounts alone. And that’s why MP Martin Jones, who’s long campaigned on dormant accounts, wants the banks to follow their building society colleagues and engage with these issues openly: JONES: I’m very pleased that the building societies are being proactive on this issue. The banks on the other hand have been both reluctant and complacent in equal measure. They are the plum to get at because there’s an awful lot of money there which should go back to the people who own it and also an awful lot of money which could do an awful lot of good if it was redistributed and I hope that the banks are now realising that the jig is up for them and they are going to have to do something. CLARKE: MP Martin Jones and in the meantime remember there are free schemes which will help you trace forgotten money in banks, building societies and national savings. LEWIS: Well thanks Jen and there’s more information on all of that with the help line and on our website. Now the battle for our savings is hotting up. Spurred on by rises in the Bank of England base rate, banks and building societies are offering better and better rates to savers. But you have to be careful. In their struggle to hit the best buy tables companies are introductory deals that often don’t last, for example out of the current top 12, instant access and Internet savings accounts, 8 have introductory bonuses which disappear after a few months. Only 3: Alliance & Leicester, Cahoot and ING Direct offer a good rate on the first pound with no strings. ING Direct launched exactly a year ago and was the best buy. But now that spot has been taken by Alliance & Leicester which pays 4.85% from the first pound with no restrictions. I asked Nathan Barber-Kebby, savings manager at Alliance & Leicester if this product would stay a best buy? KEBBY: We certainly hope it will – yeah I mean we basically LEWIS: We all hope it will – you’re the ones who can decide? KEBBY: Yeah absolutely. I mean the rate we’re offering isn’t guaranteed like most savings accounts in the market – it’s variable, but we are committed to offering a good value competitive product. It’s certainly the intention that it’s going to remain in the best buy tables for as long as it possibly can. LEWIS: Right, the danger is though I mean people recognise that they’re often charmed into accounts like this with promises or with market leading rates and then when you’ve got enough customers you bring the rate down or even close the account altogether to new customers? KEBBY: Savings customers have become very proactive and it is a very competitive market and we know that we lose a lost of customers really if we quickly cut the rate and they’re unlikely to come back to us in the future so that’s really no good to Alliance & Leicester. We’re trying to look at it as a long term thing. LEWIS: The anticipation is interest rates will go up – there’s even talk of them perhaps going up next month again. If they do will your account be offering a higher rate of interest after that rise? KEBBY: We want our account to be the best available so I wouldn’t say the rate offered is guaranteed. It is a variable rate but we basically wanna do whatever we can to make sure it’s the best. LEWIS: Well also with us is Gina Fusco of ING Direct. A year ago it launched its own market leading savings account but now that offer’s just 4.5% -4.7 from June 1st next week. Gina, you’ve just been trumped by Alliance & Leicester? FUSCO: 4.85% sounds like a good rate and we welcome anything that means that savers overall get a better rate. From the 1st June our rate will be going up to 4.7% - it’s a really good rate and LEWIS: Well it’s not as good as Alliance & Leicester’s. The point is though that the base rate, the Bank of England base rate went up by .25%. You’re only putting yours up by .2%? FUSCO: Well what we believe in doing is giving our customers a good deal over the long term and to us a good deal means that we offer a great rate – that it’s delivered consistently which it has been and that there are no hidden surprises and no catches and I think we have successfully delivered that. LEWIS: Yes but as Nathan said people have no loyalty. If they see a better rate they’ll go to it. Do you anticipate losing customers to Alliance & Leicester for this higher rate of interest? FUSCO: No, to be honest I don’t because when we’ve spoken to our customers they’re with us because they know that we give them a good rate. They come to us because we’ve got a really simple easy to use product that’s not just on the Internet – it’s over the telephone. Every single one of our customers is going to get our rate whether they’ve been with us a day or a year or however long – doesn’t matter how much money they’ve got or how they intend to use their account. LEWIS: Nathan, Gina has raised the one point where she perhaps can trump you hasn’t she? – you’re Internet only, yet a third of your own customers – Alliance & Leicester customers don’t have Internet access? KEBBY: There are natural differences in the products. I mean most of our customers understand that if the on-line channel and the direct channels are a lot cheaper for us to run so that’s how we’re able to pass it on to them. LEWIS: Nathan Barber Kebby of Alliance & Leicester and earlier Gina Fusco of ING Direct. Now there are to be new rules to control paid fundraisers who stand on the street and encourage people to sign up to direct debit donations. In future they’ll need permits to operate, just like those collecting cash for charity. The change was unveiled this week by the government as part of a major overhaul of charity law. Money Box’s Chris A’Court has more on this A’COURT: Yes Paul, the draft charities bill includes measures to control professional street agents who some have dubbed chuggers – short for charity muggers. They’ve gained this tag by sometimes being pushy in the way they try to persuade us to sign up and they often work in large groups in city centres. This week the Charities Minister herself Fiona MacTaggart acknowledged to Money Box that she thinks the public is besieged by chuggers in some places and this risks damaging our goodwill towards giving to charity. LEWIS: So what exactly is the government proposing to control this? A’COURT: Well unlike now, local councils will be able to tightly license against having too many paid charity street agents at work at any one place on any one day. The Charities Minister told me she believes that’ll be to everyone’s benefit: MACTAGGART: If we make sure that we can regulate the number of fundraisers in an area and that in addition there can be real clarity about what I’m giving goes to and what sorts of costs are involved in raising that, then I think that we can make sure people stay confident in charities’ ability to do good. A’COURT: Fiona MacTaggart’s referring there to another issue Money Box has highlighted before – how and what the paid street agents tell people about where their donation goes. In the first year the vast majority of most donations actually go to pay the agent and their firm. The charity employing them’s investing in the hope that you’ll keep donations going for many years. Then it really begins to benefit. It’s controversial fundraising that can’t always be guaranteed to pay off for the charity. But the minister’s now clearly giving it the green light to remain: MCTAGGART: I think that there’s this kind of myth that things are free. I’m keen to educate the public that it does cost money to raise money and that it might cost 90 pence in the pound in the first year or something like that. It’s right so long as you know what the cost is. A’COURT: Now despite such words these proposals don’t yet insist that the street agents reveal exactly how much they cost and exactly how much or how little of a person’s donation is going to help the charity initially and Sue Brumpton of the Public Fundraising Regulatory Association which represents paid fundraisers doesn’t think street agents will ever say that: BRUMPTON: It will never be possible because it depends on how much you give and how long you give for. A sensible way to think about it is that the person stood on the street is being paid around about £6-8 an hour so some of your money is obviously going to pay their wages and to pay the overhead costs of that fund raising agency. But if you think it’s an investment – medium it’s at least a three to one return on the charity’s investment. A’COURT: The paid street fundraisers are very pleased with these proposals seeing them as an overdue vote of confidence in their work. They also believe that while the new licensing system might mean fewer street agents in existing hot spots, they’ll now be freer to spread out across the country. BRUMPTON: In areas where there hasn’t been any yet fundraising will start in those areas. It’s unfortunate that people can find things irritating but face to face fund raisers are just going to become part of the street furniture trying to help charity do their good work. A’COURT: Sue Brumpton but do remember the best way to give money to charity is to contact the organisation you want to help and make your donation directly. That cuts out the agents and the charity gets every penny you give and there’s more about these charity proposals in the draft charities bill through our website. LEWIS: And Chris, more news for the 50,000 investors who lost their savings in the split capital investment scandal? A’COURT: Yes and not particularly good news I’m afraid Paul. The 21 firms that sold them have collectively either failed or refused to come up with the 350 million pounds that their industry regulator was demanding so it could compensate investors some of whom lost everything. This week the Financial Services Authority said talks with most of the firms are now at an end and it’s having to start to take action that would force them into paying up and paying fines too if found guilty. The wait for any investor compensation might be a very long one. LEWIS: Thanks very much Chris. That’s all we have time for today. There’s more information with the BBC Action Line 0800 044 044 And of course on our website – bbc.co.uk/moneybox where you can also contact the programme. There are personal finance stories on Working Lunch BBC-2 weekday lunchtimes. I’m back next weekend with MONEY BOX. Today the producer was Louise Greenwood and I’m Paul Lewis.