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.

MONEY BOX

Presenter: Paul Lewis

TRANSMISSION 29th SEPTEMBER 2001 1200-1230 BBC RADIO 4

Endowment Mortgages

Lloyds Call Centres

Long Term Care

Past Performance Data

LEWIS: Hello. In today's programme Millions more homeowners could be left with a debt at the end of their mortgage

MAN: It's red alert time endowment policies are not meeting the promises that were made

LEWIS: The bank that is losing customers because its call centre cannot help them. From Monday the Government will pay for nursing costs in care homes. But will the homes pocket the cash which is meant to help residents? And the financial watchdog refuses to ban useless information in adverts.

LEWIS: Just over a year ago insurance companies sent letters to five million homeowners warning them that their endowment policy may not be enough to pay off their mortgage, leaving them with a huge debt at the end of their loan. The insurers assumed that stock market investments would grow by 6% a year. In fact, over the last year shares in the biggest hundred companies in the UK have fallen 25% creating more worry for those with endowment mortgages. Last August Alison Grainger got a letter from her insurer warning her that there was a strong possibility that her endowment would be �24,000 short of the amount needed to pay off her mortgage. A year on with the stock market falling she wants to know what her position is now.

GRAINGER: Watching what's happening on the stock market we would imagine that the situation is now even worse. I think we would like to actually know what is going on, rather than just be left wondering. I would think that were it has been identified that there's been a problem, as has been the case for our situation, then I would have thought that perhaps we should have been informed more frequently, perhaps annually.

LEWIS: But insurance companies do not have to write again until 2002, and research by Money Box has found that most major companies will stick to that timetable. Paul Cooper runs an organisation called Claims - which helps people get compensation for mis-sold financial products. Did he think people like Alison should be worried?

COOPER: Yes a lot more worried, of course they're all long term policies but if your policies drop by a �1000 in value it's not going to be any easier to pay off your endowment ten years from now is it?.

LEWIS: And what should people do?

COOPER: Well one of the things you should do is run a complaint, far too few people are complaining. If you want to run a complaint there is a strong chance you'll get compensation. You might be able to get out of the endowment altogether which is the ideal situation.

LEWIS: And this is a complaint that you were mis-sold the product?

COOPER: Absolutely. Millions of people were mis-sold products

LEWIS: All of this of course is regulated - very heavily regulated by the Financial Services Authority , they've told us they're doing nothing at the moment they don't want to cause what they call panic. What do you think they should be doing ?

COOPER: Well I think they should be giving people sensible advice but then they don't do that . They control the bits of paper the life company send out but I don't think they do it very well. About a year or two ago the companies said were not going to hit the target give us another �50 a month or a �100 a month - that was criminal advice and I think people who put more into their endowmentS which are even now not going to hit the target have got another claim. Allowing companies to say give us more money for an under performing policy was permitted by the FSA I think that was wholly negligent.

LEWIS: And what about insurance companies that provide us with endowments - what should they be doing?

COOPER: I think for them they should have a hard look at what's happening and recognise that they've made very serious mistakes, it's red alert time for them, endowments just aren't meeting the promises that were made.

LEWIS: Paul Cooper of Claims. Now let's talk to Patrick Connolly who's with the Bristol based independent financial adviser Chartwell Investment Management. Patrick first do you agree people should be worried - they should be taking some action?

CONNOLLY: Yes I certainly do. I think they are a lot of people out there especially those with policies that are coming up to maturity who are going to be a fair way short of the targets they were expecting to reach.

LEWIS: Though these are long term investment - aren't they? Alison was only 9 years into her mortgage so at least 11 to go and this week the stock market has risen again for five consecutive days up by more than 10% so we've got to take a long term view of endowments.

CONNOLLY: Yes you have. There's been a lot of talk about endowments not reaching their targets. I think it's sensible now for investors not to rely solely on an endowment to reach those particular target and if they can to have a back-up plan. A safety net and some other form of investment running along side it.

LEWIS: O.K. lets talk about that back-up plan What should people do?

CONNOLLY: Depends on their risk profile, the sensible option would be to look at something low cost like an investment trust or unit trust savings plan perhaps in an ISA wrapper.

LEWIS: But isn't an easy way to simply pay more off their mortgage because that means they're going to owe less and it doesn't matter then if the endowment doesn't provide the full amount.

CONNOLLY: If you can afford that - that's an option as well it's a sensible option in a lot of cases and certainly we've got a number of clients that are doing exactly that.

LEWIS: Yes but it's not just a question of affording it- is it ? Because if you can afford an investment you can afford to pay off your mortgage as an alternative. I'm saying that the first thing to think about is to put that �50 or �100 into paying extra off your mortgage.

CONNOLLY: That depends as well on the mortgage provider and how flexible they are and if you've got �100 a month whether they will actually accept another �100 payment off the mortgage with no penalties.

LEWIS: Yes so check about penalties, and check when that is credited to the account it could be another year - couldn't it. Now some of the investment companies, the insurance companies did say a year ago that although your investment may not produce the right amount they offered some sort of guarantee that they'd meet the difference.

CONNOLLY: That's right. Norwich Union and Standard Life are the two major companies that have come out and said that and obviously that's to be applauded.

LEWIS: But that was only a guarantee given certain conditions , which with the stock market falling may not be met.

CONNOLLY: That is the case - it is a step in the right direction , it's not the full blown help that investors probably need.

LEWIS: Now you say investors need help - research earlier this year showed that most people with endowments were actually doing nothing about these worries. Where can people go - who can they go to for advice?

CONNOLLY: This is difficult - sorry a lot of investors probably still aren't aware that they do have a problem the logical answer would be to go to an independent financial advisor, but then bear in mind that they're probably going to have to pay for any advice they get.

LEWIS: Yes so I suppose check with your insurance company first see what they say don't give them more money but think of doing something else.

CONNOLLY: Yes, insurance companies notably haven't been very good at informing investors of what's happening with their policies. So as a first step the insurance companies should be providing more detailed and more often information.

LEWIS: Patrick Connolly from Chartwell Investment Management thanks for talking to us.

LEWIS: Now last week Money Box revealed the exasperation felt by some customers of LloydsTSB when they try to contact their bank branch. The only phone number they could ring was a call center - and that was staffed by people who could not make decisions or often sort out their problems. Well as we were broadcasting that item e-mails carried on arriving - they haven't stopped. Money Box's Chris A'Court has been monitoring them - Chris

A'COURT: Yes, our story certainly struck a chord with a lot of Lloyds TSB customers who've brought up more tales of deep dissatisfaction and downright disarray. First take Freddy from Farnham he told us how he wanted to open a new business account. He had a helpful discussion with a local Lloyds manager at his local branch. But when he tried ringing the branch to discuss more of the details the system simply blocked him out.

FREDDY: The call center asked for my account number I explained that I didn't have an account number I was a new customer. They then said well I'm afraid we can't put you through because without an account number the system doesn't work. Which is a bit like Marks and Spencer opening for business and then saying sorry unless you've got a key to open the door you can't come in.

LEWIS: Another story of disaster came from Claire. She told us that the process of buying her house had been disrupted, again because of a call-center cock-up...

CLAIRE: On the day of completion of my house purchase I found out that the CHAPS payment which is the balance money for the completion hadn't been made and I phoned the call center. I tried three times and three times the phone went dead on me. I actually had to go to the bank and physically take the money from the bank to the solicitors myself.

A'COURT: And it wasn't just customers who e-mailed us either. Some Lloyds TSB staff have been keen to tell us how poor they think the system has become and what it's like to work in a branch now...

WOMAN: With only four staff incoming calls go unanswered, fax messages pile up because there is no one to deal with them, as a result when customers finally get to speak to staff they're angry and are often downright rude. They have to be placated and offered compensation for errors made by the bank. On top of this daily stress staff are expected to provide leads for selling opportunities - in fact annual appraisals reward selling rather than customer service.

LEWIS: And another listener e-mailed us to support those claims that service is being sacrificed to selling

MAN: The reason you can't get through to your branch is that the role for all staff in the branch network is now totally focussed on sales. In this context a customer with a query is quite simply an unwelcome diversion from the task of selling. Relationship Management in Lloyd's TSB simply means getting more from my wallet.

LEWIS: Well just a selection of the complaints we've had and with me to respond to these criticisms is the man who runs Lloyds TSB's branch network, John Spence. John just a few of the comments and we've shown you even more in the week - what are you going to do about it ?

SPENCE: Well I'm responsible for the branch network and the call centres, so you can get me on everything

LEWIS: Well you're obviously the right man to talk to then - tell us what you're going to do?

SPENCE: Well what we are doing about it - we've reviewed the policy and were quite clear that the end game is the right one. As a customer I get angry if a member of staff dealing with me has to pick up the phone while dealing with me - no retailer does it so we will carry on rolling out our call centers - but we know we've got to get the implementation better, we've set up review committees and we are introducing improvements all the time as we speak.

LEWIS: But - does it mean that people will no longer have to go through the call center - will they be able to speak to their branch manager directly if they want to ?

SPENCE: The answer is that you should be able to go through the call center efficiently and smoothly and still talk to the branch manager if you need to. The great advantage of call centers is that 99% of our customers are getting through, which is something that we couldn't achieve in the branches. Calls to branches have been rising at 15% per annum and the burden of that has just been getting too much for staff who've had to turn one way then the other.

LEWIS: But of course what those staff are saying to us, and some customers, is that the reason calls are a burden to them is all they want to do is sell us more stuff they don't want to deal with problems on our existing products.

SPENCE: Well Paul I can only be here as a customer myself and I don't buy things from people who don't give me the service. I've got to have the service right for our customers to be willing to buy financial services products from us.

LEWIS: No I understand that you're speaking as a customer but you're also the man in charge here. What I'm saying to you is if your staff are concentrating on selling things and are appraised on selling things they're promoted on the level of sales not on the level of customer service - isn't that why customers are being ignored ?

SPENCE: Well if it were true - I'm delighted our staff have been talking to you as they talk to me all the time because they care and they want this to be better and I'm sitting here saying that's it not right and we will make it better. They are not solely appraised on sales and only this year we've introduced a new incentive absolutely based on good examples of customer service with direct rewards for individual members of staff.

LEWIS: So you're telling your staff now as much as your customers that if they give good customer service that will help them get promotion, keep their job.

SPENCE: Every time I look at the correlation I find good service and good sales in a branch go hand in hand.

LEWIS: But you see you say the end game as you called it, the rolling out the call centers, is obviously the right way but one of your rivals RBS/Nat West is actually putting back 6,000 staff having planned to get rid of 18,000 in order to give better customer service. Have you got rid of too many staff - is that where it gone wrong.

SPENCE: Far from getting rid I've increase the numbers of staff across my retail distribution the call center's and the branches. There are about 5,000 more staff now, there are 2,500 more staff in branches than there were there in the start of the year absolutely because we knew we had to insure customer service was right and that we need to make it better than it is today.

LEWIS: But that only helps if when people ring the call center they can be put through to the branch. We've heard from customers and we heard last week from one of your colleagues that that wasn't always happening. People were told they would ring back and the never did.

SPENCE: And I've got every sympathy with our customers exasperation is a word you used and I'd share it. I sympathized with Freddie his business account - do you know it's daft to have any rule or design fault that stops a new customer from opening their account, we will sort that out. Independent research is telling us now that our call centres are doing well in terms of the things they can do, the problem is that it is not sufficiently joined up - customers can't then be transferred to branches or have their instructions carried out when that needs to happen. And this week I'll be sitting down with senior management across the group to urgently introduce further improvements to make this better.

LEWIS: So you are responding directly to these complaints that we've heard on Money Box you will be changing the system to make sure those things don't happen again.

SPENCE: I want to retain good customers, all customers for the bank, and the only thing I can do is listen and make sure I'll meet their needs.

LEWIS: John Spence from Lloyds TSB. And I should say thanks for coming on the programme John because it is a pleasant contrast to some other banks who have respond to requests for interviews after complaints with nothing but a wall of silence. So John Spence from Lloyds TSB.

LEWIS: Now from Monday 42,000 elderly people in nursing homes in England should have their fees cut by up to �110 a week as the NHS picks up the cost for their nursing care. But there are fears that the money won't find its way into the pockets of the elderly residents. It will be paid by the local health authority to the home - and there is nothing to make the home pass it on in lower fees. Let's now talk to Helena Herklots, who's Head of Policy at Age Concern. Helena before we come to these worries just explain how the new rules will work in England from Monday.

HERKLOTS: Well what's intended to happen is that if people are living in a nursing home and currently paying their full nursing home fees they're now going to have what the government now calls free nursing care. In fact what this means is that they will be placed on one of three bands high, medium or low band according to what the nursing co-ordinators think is the care that they need.

LEWIS: How much will they get - at those three bands ?

HERKLOTS: On Those three bands they'll get �35 at the low band �70 at the medium and �110 at the high band.

LEWIS: So this is really saying that nursing costs can be split quite discretely into three levels - is that realistic?

HERKLOTS: We don't believe it's realistic at all. I mean it's saying two things in fact - first that you can split the difference between nursing care and personal care - and we've argued for a long time that that's impossible to do, and secondly that you can then place people in certain bands, of course peoples' needs change over time and it's quite likely that peoples' need will fluctuate between bands. So it's a very strict system that's coming in in a sense and one that we think is going to cause quite a lot of confusion particularly because it comes in on Monday and the final guidance on how all this is going to work only came out this week.

LEWIS: So it will be hard for people to know what band their in initially will it ?

HERKLOTS: Well it will be - initially in fact people won't be assessed there's simply not time . They're going to be placed on a band and it will be a guesstimate really - what's not clear is if they're placed for example on the low band �35 and actually when they have their assessment it's found that they are on a higher band - it's really not clear what's going to happen about any back dating of money that they might be owed for that.

LEWIS: So they might not get the back dating when they're finally assessed but there are also concerns being expressed in some of the papers this weekend that this money won't be passed on. If the home gets �70 for Mrs Bloggs that Mrs Bloggs bill won't actually go down by �70 per week.

HERKLOTS: Well of course we very much hope that it does but the system is so complex that it quite likely that certainly people won't initially see that reduction. There is a number of reasons for that, firstly the Health Authority has got to get the money to the homes quickly , I mean really from Monday and that's just not going to be possible. So that nursing homes themselves are going to be in quite a difficult position here because they won't know what band their residents are on, they won't know how much money is coming in and yet they ought to be dropping their fees from Monday. Now the danger is, as we see it , that that may not happen as quickly as it ought to do.

LEWIS: And Helena this rules only apply in England because of devolution what's going to happen in the rest of the United Kingdom.

HERKLOTS: Well in Scotland the situation is really going to be quite different , the Scottish Executive has just recently agreed that it will fund both personal care and nursing care so it's going to fund things like helping people with dressing with eating with bathing as well as nursing care tasks. And from next April if you're in residential nursing home care or indeed living in your own home your personal care and your nursing care will be free. So if you're assessed as needing help with dressing or nursing tasks that care will be provided to you free - it's a much better system. In Wales they're looking to introduce free nursing care but have decided that the idea of having three bands is really too complex and it's likely they are going to go for one band at �90 a week.

LEWIS: Helena Herklots from Age Concern thanks for explaining that to us. And if you have a questions on long term care and how to pay for it and of course those complicated rules around the U.K. You can call our phone in Money Box Live on Monday when I'll have two guests to answer you questions on long term care 3. 00 pm here on Radio 4.

LEWIS: And now a word from our sponsors

(Examples of financial services advertising.)

LEWIS: Well this weekend, like every other, the financial sections of the newspapers have adverts trying to sell us investments on the basis of how well they have done in the past. And this week the Financial Services Authority has decided not to ban those adverts. There was some speculation it might after its own research showed that how a fund has done in the past was no help in predicting how well it would do in the future. The FSA itself said a year ago "Retail investors cannot increase their chance of choosing a fund that will perform well in the future by picking one that has performed well in the past." So if the information is so useless why hasn't the FSA banned it ? The person who took the decision not to do so is Christine Farnish, Retail Director at the Financial Services Authority.

LEWIS : Christine this information is of no use, so why should we be forced to look at it in adverts.

FARNISH: We're not saying it's of absolutely of no use we're saying it's of little use, actually if you look at what exactly what we've said, we've said that there is evidence that past performance does persist very faintly for very short periods of time. You can't say in a categorical way it's absolutely of no use. I think the problem with current ads is they are not balanced and you see these past performance headline figures screaming at you. Often based on periods of time or calculations which aren't particularly representative, they're not showing that information in context compared with other funds in the same class or peer group and all the information about risk and about charges is often buried away in the small print and I think those are the problems.

LEWIS: Well indeed ultra small print - I was looking at one advert this morning and I honestly couldn't read the warnings that past performance is not necessarily a guide to future performance. But your research was much clearer than that and I just quote from it again "information on past performance cannot be exploited usefully by retail investors". So surely giving us that information is in effect misleading us ?

FARNISH: But one of the problems we've got here is that this information is publicly available information and we know rightly or wrongly that consumers want it. And consumers for their own misguided reasons perhaps think �.

LEWIS: Is'nt it your job to guide them Christine - it's you're job to say this information is useless ignore it.

FARNISH: Well I think if we made the changes we've said we're going to make in our announcement this week - and insure that past performance is used in a far more balanced way and that you don't just see those big headline numbers but instead consumers will also see how likely it is that they could lose their money along side the past performance data you will actually get a much better healthier marketing environment.

LEWIS: And are you going to have a standard form of words and indeed a specified size of type to say something like past performance isn't a guide to future performance.

FARNISH: We need to find a way of getting those messages across to consumers of how likely it is that they could loose their money. One of the things the task force has recommended is that we come up with a relative risk measure which would do just that. And that's one of the very interesting ideas that we are going to do more work on, because it's quite clear that that information about the likelihood of losing your money is critical and it's just not coming across at all in current ads.

LEWIS: You mentioned the task force which came up with some recommendations which you've now followed - it does seem to me it's another example of the FSA concentrating on it's objective to promote the market rather than protect the customers because you had insurance companies on this task force- didn't you ?

FARNISH: We had two members, two individuals with industry backgrounds - yes, but we also had two individuals representing consumers. One from our own consumers panel and one from the Consumers Association and the rest of the people on the task force were quite neutral. For example we had someone from the Advertising Standards Authority and we had a psychologist who could actually look in a different way at ads and say what sort of messages do people take from some of this stuff.

LEWIS: Indeed- and some of those people of course disagree and they wanted this information banned from adverts.

FARNISH: A couple of people disagreed. Well the Consumer Association actually I find their position somewhat ironic because although they were saying we should ban this information they publish it themselves of course in Which.

LEWIS: O.K. Christine Farnish we must leave it there - thanks for talking to us we will wait to see what adverts are like in the future.

LEWIS : And Chris, some other news from this week, and first, perhaps inevitably, Equitable Life...

A'COURT: Yes Equitable Life has begun a new series of policyholders meetings this weekend Paul , they're designed to give people a chance to tell the Chairman and Chief Executive what they think about the proposed compromise deal published last week. Now they're being held in selected cities and towns, the next ones are in London on Monday and Tuesday and other places, but if you want to go you must apply for a ticket, because space is limited and details on how to apply are with our helpline and on our website

LEWIS: I'll give those details later, meanwhile Chris no point in complaining to the Ombudsman about Equitable Life ...

A'COURT: No both the Financial Services Ombudsman and the Parliamentary Ombudsman have now said they won't pursue any new complaints against Equitable. They'll wait for the results of the compromise vote and, in the case of the Parliamentary Ombudsman, until after Lord Penrose's independent inquiry. Now that won't be published until perhaps a year from now.

LEWIS: And finally, Chris, what to me anyway was a rather amazing idea for paying state pensions .

A'COURT: It does sound amazing - the postal service regulator, Postcomm, has suggested this week that postmen and woman could deliver state pension in cash to people on their own doorsteps. It already happens in some European countries and it'll be seriously considered here now, particularly for rural areas where Post Offices are closing down at an alarming rate.

LEWIS: But security to sort out I think with all that cash on the move. That's all we have time for today. If you would like more information about any of the items on today's programme, you can call the BBC Action Line 0800 044 044. Calls are free on 0800 044 044. or you can look at our website - www.bbc.co.uk/moneybox.

As I said, I'm here on Monday with our phone-in Money Box Live on paying for long-term care. Our email address is [email protected].

I'm back with Money Box next week.

Today the producer was Penny Haslam and I'm Paul Lewis.

Lloyds Customer Care Line Tel: 0845 3000 033