Hard-sell firm in a hard place

The Financial Services Authority remains undecided on whether to act on alleged tactics used by one of the best-known hard-sell life insurance outfits despite compelling evidence from a Consumers' Association enquiry.

The Consumers' Association's probe centres on City Financial Partners, a tied sales agent of Lincoln National and, in previous incarnations as well as more recently, no stranger to controversy.

Which? alleges "lying to potential customers, sales tactics reminiscent of pre-regulation days, and possible mis-selling by the Centre Point, London branch of City Financial."

The CA says it found evidence of City Financial advisers "giving blatantly wrong information, not supplying details of products' costs and charges before a sale, and being reluctant to allow customers to take away literature with them before agreeing to buy."

Lincoln National, responsible for tied agents who can sell no other products, says the CA allegations concern "just a couple of cases which we take very seriously. Lincoln has a very good compliance record."

Lincoln has some 650,000 customers, nearly half ac quired through City Financial, which employs 500 sales staff entirely remunerated by commision earnings. It is now closed to new business following a "business review" by its American parent of the same name. The Lincoln label also includes policies from former direct operations Laurentian Life, Cannon Life, and Citibank Life.

The Consumers' Association decided to investigate City Financial following reports of sales of unsuitable policies, 10-year Lincoln endowments known as "maximum savings plans".

Undercover investigators were, the CA claims, steered towards these whatever their needs. One said she wanted to save £300 a month for at least five years, but was not sure whether she would need the money before then.

It was a clear case of a unit or investment trust savings plan which would offer the flexibility to start and stop that she might need.

Instead, she was told to put £200 a month into a Lincoln maximum savings plan and £100 a month into a cash Isa. At the end of three years, based on the Financial Services Authority's 6% growth rate used for illustrations, her plan would have been worth £6,240 although she would have paid in £7,200. And even after five years, the targeted £11,840 was still less than the £12,000 she would have contributed. And had she stopped after one year - after paying in £2,400 she would have collected £780.

She was also told to put the other £100 into a cash Isa, even though next year's annual limit is set to be £1,000. Her adviser told her this high commission paying plan was the only way she could keep her investment tax-free, even though endowment funds are taxed.

City Financial customers who complained to the CA included a man who had paid £25 a month for six years, a total of £1,875, but whose policy was worth just £1,533, and a woman who was sold the plan even though she had no need of the life cover.

The CA also found many of the commission-only sales staff, mostly young graduates who are attracted by high earnings promises, were unqualified. They are usually told to start by selling to friends and family.

City Financial is no stranger to unorthodox sales methods. Five years ago, another undercover investigator found City Financial had a unique line. It told prospective customers that the European Union was about to ban endowments.

It was a case of "buy now while stocks last: this great offer will never be repeated".

How many of the firm's youthful sales staff came up with this line, or where they got it from, is uncertain. But the investigator found that his adviser, selected at random, knew it parrot-fashion.

City Financial comes with a controversial pedigree. It was formed out of the staff of the former MI Group (the present and unrelated MI Group is part of Allianz Group and has totally different sales methods) which was run by the colourful Trevor Deaves.

Mr Deaves, who once owned 19 Ferraris, made and then lost a fortune from the sales tactic of persuading young people into an office and then subjecting them to a hard sell.

On his way down, Deaves became Britain's best-known social security claimant when the Department of Social Security paid the mortgage interest on a house then worth in excess of £500,000.

Before the MI incarnation, the organisation was known as the Porchester Group. Last week, Lincoln's US parent of the same name sold the staff of City Financial to Inter-Alliance, independent financial advisers listed on the Alternative Investment Market. Lincoln retains responsibility for the company itself.

The chairman of Inter-Alliance is Vincent Isaacs, who has a 4% stake in the £190m company. Isaacs set up General Portfolio in the 80s.

General Portfolio, later known as Gan Life, had a controversial reputation. Commission-only sales staff used tactics others questioned, and many policies had no value if cashed in during the first five years.

Lincoln says: " We have some 1m policies in force and by far the great majority of those clients will be happy with their Lincoln products and the service they receive, regardless of whether they bought them through CFPL or direct. We have no reason to believe the FSA are unhappy with what we do."