The investigations cover pensions, endowments, investment bonds and life insurance policies that are estimated to be collectively worth about £150 billion. The concern is that they may carry terms and conditions that are unfair, particularly if the company now holding them is not the same one that sold them.
This probe, however, is slightly different to previous ones into the mis-selling of mortgage endowments, personal pensions, and payment protection insurance and which have resulted in millions of people being given billions in compensation.
There are two concerns. One is that many of these policies are no longer sold and hence are in funds that are not active in terms of receiving premiums from new subscribers. Somewhat disturbingly, some in the financial services business call them “zombie” funds.
So the concern is they may not be as well looked after, and not performing as well, as funds that are active, either through neglect or through more deliberate malpractice such as overloading them with heavy management costs. The original subscribers may be losing money when these older funds are compared with newer active funds. Any financial company whose older funds are found to fit an accusation of mismanagement will be liable to pay compensation to give the subscribers better returns.
The second concern is that people who have decided that they are not getting the return they expected often face stiff penalties if they try to move them to another management company. In a few cases, they may be liable to lose half their money.
If these were the penalties that applied when the contracts were originally signed, then there is little the FCA can do. But there is a suspicion, especially where the original provider has been taken over by another firm, that the penalties may have been changed. If so, it may not lead to compensation, but at least it may liberate some imprisoned savings and thereby benefit the owners.
This investigation will be long and difficult. Some in financial services may regard it as exactly what they don’t need in a time of recovery. They would becompletely wrong.
The public has little faith in the financial services industry, which, apart from selling people products which were never going to deliver the claimed benefits, caused a crisis, the costs of which are going to be felt for years.
The financial Augean stables have had some cleaning out, but there is a pile of muck still to be shifted. Only when every corner has been given a clean bill of health will public confidence return.
World may ‘like’ this Facebook plan
Even for Facebook, a famously ingenious company, its latest move sounds a bit bizarre. It intends to pour lots of money into developing drones, satellites and other technologies which it can use to beam internet connectivity to people in underdeveloped and remote parts of the world.
Facebook is a social networking business, not an internet service provider, so this is a leap into a business and technologies where it has no expertise – rarely a great move in business.
So why is it taking this leap into the dark? Because it can afford to is one answer. It is a huge company. Its market capitalisation is
£90 billion, equivalent to about three-quarters of Scotland’s onshore GDP, and it has huge cash reserves of £6.5bn.
Still, some of it looks distinctly science fiction – the use of solar- powered drone aircraft sending internet connections by laser, for example. And as Facebook is talking about underdeveloped parts of the world, will the intended customers be able to pay for it? Indeed, their priorities might well be food, fresh water and healthcare, rather than chatting online to friends far and near.
But, on the other hand, another priority is education. And this might turn out to be the means to deliver an awful lot of learning, knowledge that might lift them out of poverty far faster than any other form of aid.
If it doesn’t turn out that way, at least it is private, not public, money that will be wasted. Whether the shareholders will be happy about this investment is another matter. At least they will have novel ways of quickly sharing their concerns on Facebook, no doubt. So although this service might not be a priority, there might be some benefits.