Independent, The (London): OUTLOOK: Tiner shoots from the lip as endowment sellers run for cover

THE REGULATORY mindset has moved on a long way from the early days of the Financial Services Authority when its then chairman Sir Howard Davies memorably likened endowment mortgage salesmen to burglars who broke into houses and left money behind.

Yesterday the FSA's new chief executive came up with a rather different soundbite, telling MPs that the self-same endowment sellers were playing Russian roulette with the reputation of the financial services industry.

It is rarely a good idea to shoot your customers and it is never a good idea to shoot yourself so you can see what John Tiner was driving at.

By the time Sir Howard coined his turn of phrase, the halcyon days when an endowment was enough to pay off the mortgage and buy a pad with a sea view on top were long gone. The stock market had already started to turn down and the bad news was beginning to drop through letter boxes. Nevertheless, the point Sir Howard was making held good - anyone who had taken out an endowment was still better off, pound for pound, than had they opted instead for a standard repayment mortgage at the same point in time.

Today, there is no such crumb of comfort. Of the 4.5 million or so households with endowment-linked mortgages, perhaps two-thirds can expect a red letter day next April telling them how much more they need to cough up when the latest "reprojection exercise" has been completed.

The insurance industry insists the problem is much smaller than that and reckons the number of policies which may not pay off the mortgage could be as low as 1.5 million out of the 11 million issued.

Partly, this is because a lot of endowments were taken out as top- up policies when people moved home. Partly it is because rising equity markets have taken some households out of the pain zone. Partly it is because a fifth of endowment policies are no longer attached to mortgages at all but are kept on as low-cost life insurance policies.

So far 500,000 customers have been compensated and the bill for this has reached pounds 800m. Calculating how much more the industry will have to fork out is tricky because most policyholders tend not to realise they have been mis-sold until they receive their first red letter. But it is hard to imagine it reaching the proportions of the pensions mis-selling saga which cost the industry pounds 11.5bn in compensation and a further pounds 2bn in costs.

The Treasury Select Committee, which provided the forum for yesterday's Tiner soundbite, cannot decide whether to flail the FSA for being asleep at the wheel again or reserve its ire for the insurance industry.

The FSA's new chairman, Callum McCarthy, a bankers conference yesterday that the ultimate responsibility for preventing mis- selling will always rest with the financial services industry itself and not the regulator. It can only make the consequences more costly, in terms of fines, compensation and bad PR.

What he did not say is that the first line of defence against mis- selling is commonsense. Endowment mortgages were sold as a cheap way of buying a house with tax deductible life cover thrown in and the added kicker of a nice fat nest-egg on maturity. Anything which looks too good to be true generally is.