Put a match to old charges and clean up the industry

But it is certainly not reflected in the back books that provide such rich pickings for the vulture companies and other insurance firms.

Take the case of a reader I have been helping recently. In 1988 he bought what he thought was a 25-year mortgage endowment from Provident Mutual.

His belief was no doubt sustained by the fact that it was called a flexible mortgage plan.

He says he was told the flexibility came because he might be able to pay off his mortgage early.

In recent years Aviva – Provident Mutual’s owner – has sent illustrations showing the shortfall for what he believed to be the maturity date of 22 June 2013.

Imagine his horror when he discovered this was in fact a whole of life plan written to age 80.

The surrender value of £40,412 was well short of the underlying value of £43,847, which itself was miles short of the mortgage target.

The poor man had never heard of whole of life and had no idea what it was.

His financial adviser, of course, would have known exactly what he was selling and would have known full well that his client had no hope of getting full value from the policy until he was 80.

Why? Well because of the way the charges were structured.

Hold on I hear you saying. This all happened 25 years ago.

But that is not true. He has been fleeced by charges for 25 years and must continue to live with the consequences.

His first two years’ payments went into initial units which have been charged 4.13 per cent a year for each of the subsequent 25 years.

What of Aviva? It may not have designed or sold this policy. But it has been collecting the charges on it ever since and will continue to do so.

Aviva portrays itself as a modern consumer-friendly company. But these charges are neither modern nor consumer-friendly.

My gut feeling is that the investor has a strong mis-selling claim against the financial adviser, which is still in business.

But that does not let Aviva off the hook. It should be leading the way in creating a bonfire of these old, rapacious charges and policies.

Instead it seems content to sit back and collect the money, leaving investors to suffer the consequences.

Until every last investor is given an amnesty from these investments and charges, the financial industry cannot claim to have cleaned itself up.

Until every last investor is given an amnesty from these investments and charges the financial industry cannot claim to have cleaned itself up.

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Cut down the range of funds

Could a cull of investment funds finally be on the horizon? Many of us have long felt that there are far too many investment funds.

Often they seem to have been launched to satisfy the latest fad rather than because the firm had any special expertise in a market or sector. Marketing has regularly taken precedence over investment sense.

Now Ernst & Young’s ITEM Club has suggested that asset management houses could cut down their fund ranges to improve efficiency.

Rising stock markets have helped to disguise many out-dated business models but flatter markets could force a rethink as profits are squeezed. And that would mean closing underperforming funds.

I see no problem with this. Competition is good for consumers but this market has been so saturated with funds that the only possible result can be confusion.

And if fund managers concentrate on what they are best at, it might just help their performance figures.

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Disguising costs for clients

No matter how hard regulators and the industry itself tries there will always be some who attempt to buck the spirit of honesty and openness.

In its six-month review of RDR the FCA put its finger on some decidedly dodgy practices by some advisers.

Sadly it is a fact that many people struggle to understand percentages. So why are firms using them to describe charges rather than putting these in cash terms? It can only be to cause confusion and to disguise how much the client is paying.

And what of those who describe themselves as independent while only offering a limited number of providers or products? This is plainly lying – and if you cannot operate in this business openly and honestly perhaps you are in the wrong business.

As for those not clearly explaining what service their customers will receive: well let us hope this is an oversight. It should certainly be easy to rectify.

But the only conclusion to be drawn from this report is that the FCA still has some work to do.

Tony Hazell writes for the Daily Mail’s Money Mail section. He can be contacted at t.hazell@gmail.com