FSA plans ban on retail sale of 'toxic' life settlement funds

We keep horses and I have always understood it to be good practice to close stable doors whilst they are in the stable.

Perhaps I should send the FSA a note about our seemingly revolutionary livestock keeping methods as I wonder if this approach may have applications in other areas of life?

I think that the FSA will find that not all Traded Life Policy funds are the same. It is important to understand how the funds are constructed and the processes in place to ensure consistency of returns.

This broad brush approach is not fair to all TLP fund providers.

Let's supply some subtitles to the FSA's announcement -

"We don't know how to regulate sales of this product or the literature supporting it, so we're going to ban it. Next!"

Traded Life policy funds operate better as closed-end funds rather than open-ended funds, as liquidity is less of an issue.

Why ban one product and not another? Do they regulate products or advice, or both? Why now? What a shower.

I think I am starting to see the picture........

Let's approach this with an open mind.

A Life Settlement plan, is simply a pool of life insurance policies, so an actuary who runs a life insurance company should be capable of producing a model which is as accurate as their calculations of risk for an individual life insurance policy. Yes or NO?

The life expectancies of purchased life settlement plans should in fact be MORE accurate than for the initial policy taken out. This is exactly the same as for impaired life annuties, except in reverse. It should be possible to work out the amount of potential profit of maintaining a policy on standard life premiums, when in fcat they woudl be impaired or uninsurable due to their current health or age. This policies might otherwise be allowed to lapse, which would save the orignal insurer a lot of money. Is this why the FSA are stepping back from regulating these investments rather than doing what they were paid to i.e. REGULATE.

Surely banning is NOT the answer, it is just that the model being used needs to be accurate and then someone needs to police the firm running the model to ensure they follow it.

With the collpase of Kedyata and ARM on the Life Settlement side and Arch Cru, the question is WHO was policing what?

Does the FSA even know?

Does the FSA even care so long as the average pay of an FSA member of staff is higher than the national average and they have their redundancy and a new job to go to?

That should have read "national average for an IFA, let alone their support staff ...."

Baby - Bathwater!

Whilst early versions of Keydata's Secure Income did not, their Plan 12 outlined ALL six key risks presented by the funds as stated by the FSA and more.

If all the risk are explained and then the models are policed properly (custodians, actuaries and FSA actually do what they are paid for), then whislt things can still go wrong, at least people will know WHY.

At the moment the FSA is talking about banning something when they haven';t actually shown who didn't do what in the food chain that they were contracted to DO. Until we kknow that, how can we know what should be done in the future?

Surely the FSA must be basing this on exhaustive market research? or is it? This is like banning all '2 seater' sports cars because one went wrong! It just doesn't make sense. However, with all the noise surronding their track record to date with Arch Cru and Key Data to name 2, the FSA need to show they are taking action, but I feel this will just high light the inconsistency in their approach when it comes to regulating investment product. They are off course remarkably consistent in their treatment of other areas of financial services!

l despair of these people.

In about 5 years from now, l expect them to realise that not all "execution only" SIPPs were non-advised, having probably travelled through compliance, UCIS and VAT loopholes on the way.

Whilst this may seem as a step in the right direction from the FSA, its seems ill thought through, particularly when one looks at the six points raised:

Longevity:

Actuarial calculations may be wrong - ok, so on this basis the FSA immediately need to consider banning all protection policies and annuities.

Liquidity:

Limited secondary market - property investment is illiquid and, in times of crisis, there is a reduction in the secondary market, so the next step is to ban all property funds and, of course, home ownership.

Structure:

Yields are only sustainable by utilising new investors' money - so that's any investment in Gilts, Treasuries, Bunds and any other sovereign debt you may think of next for the chop (they're ALL Ponzi schemes).

Location of underlying asset:

Exchange rate risk - pretty much every company in the FTSE 100 generates some of it's income in currencies other than sterling, so of course, no more investment in equities.

Offshore distributors:

Lack of recourse to FOS/FSCS - so get on with it and ban unregulated collective investment schemes.

Counterparties:

Failure of an insurance company - so that's an end to structured products.

So, if the FSA carry this 'logic' through we'll shortly see then end of:

Protection

Annuities

Sovereign Debt

Property

Equities

UCIS

Structured Products

As most of those make up the definition of retail investment products for RDR does it mean that the last 4 years have been a complete waste of time???

This really is ridiculous. What is more certain, mortality or company profits? You can't legislate aginst bad markets, bad fund managers or Lehman Brothers backed structured product, but you can legislate against a logical portfolio diversifier. It makes you want to shake them.

The liquidity is understood by most if not all advisers. It only becomes a problem if stories like this cause panic selling. If everyone sells at once, there will be a problem. Just as if every investor wanted to dump their M&S shares at the same time.

This is going to upset fans of the EEA Life Settlements Fund

Whilst the adage Better late than never springs readily to mind, one has to ask if the FSA's proposed action on these products isn't SO flipping late as to be hardly worth the effort,. After all, TLS products now have such a dodgy reputation that I wonder just how many intermediaries would sensibly go anywhere near them and the regulatory systems already in place must surely be adequate to safeguard investors against the consequences of poor advice to invest in them.

Still, it's another opportunity for the FSA to claim to be doing something useful and that's what counts above all else, isn't it?

This is absurd.

One event that may lead to failures in these funds is for a scare story to circulate that could lead to a liquidity issue.

.

Would the FSA really try and justify its actions by telling us they told us so because fo failures arising solely from their hysterical overreaction.

If this happens with Life Settlements due to this sort of ignorance at the FSA do we as advisers sue them for any losses sustained by clients?

Also, what constitutes "marketing"? We have advised clients to invest in these funds, but we have not marketed them to anyone.

Ian Coley

Partner

Medical Investment Services

Its a dangerous road to be on for the Regulator to start blanket-banning products. What next, Asian Smaller Co Funds, 'New World' Funds.

Let the market decide, and investors take responsibilty for their actions.

This does seem an over the top reaction following Keydata. Not all life settlement funds are the same and the FSA should take the time and effort to investigate them before applying such draconian measures.

Their press release is worth reading, if only because they have coined a new phrase "Death Bonds" - just in case we dont get the hint!

Fortunately, we'll all still have to "consider" death bonds post 2012, if we want to be independent!

Just about 15 years too late.

@ You Must Be Joking

Brilliant !

@ Dave Knight

Thank you!

Let's hope my considered but tongue in cheek comment doesn't end up being too close to the mark!!!

YMBJ

Agree with Neil Telford, SLS can be an interesting asset class in a securitised or closed-ended format.

The problem is not necessarily with the asset class, rather the way they have been marketed as low risk investments by providers and some wealth managers.

@you must be joking

On structure you missed out the biggest Ponzi scheme of all with-profits funds. Payouts in the 80’s and early 90’s far too high through massive terminal bonuses to make sure they got to the top of the with profit tables that were lauded by the press each year.

@ Phil Castle

I always find any comment you make on this site well reasoned and constructive, (having read a few on the CF Arch Cru blogs), and your comment above about management of this type of fund is sensible and logical. I have never advised anybody to invest in Keydata or any Traded Life settlement fund, but I would not criticise anybody who has. If managed correctly the TLS funds should perform well as the TLS manager is able to take advantage of the diagnosed early mortality that the insurer offering the insurance was not aware of when offering the policy.

Having seen the vehement action of the FSA not to allow the full facts behind the mismanagement of the CF Arch Cru funds come out, which also seems to be happening with Keydata and the missing £103 million, conspiracy theories abound.

There is no doubt the FSA’s announcement could trigger a mass exodus of investors wanting out of TLS funds which will mean the funds will collapse due to liquidity issues, and even if this does not happen immediately it will be Chinese water torture as the funds are starved of new business forcing sale of assets to generate liquidity.

So the question has to be asked why are TLS funds going to be banned. Why not just ensure advisers who have advised previously have to rewrite to all clients detailing FSA’s fears and reiterate the appropriate risk warnings. The FSA could also try and do their statutory duty in protecting consumers by placing adverts in newspapers saying investors should consult their advisers to ensure they are fully aware of risks.

Could the banning actually stem from pressure from the life assurance companies in the United States after all these insurers are probably now having to pay out millions of dollars in life assurance whereas previously policies would have lapsed when the life assured became ill and could no longer pay the premium or the life assured accepted some paltry payment from the assurer to pay early, let’s face it these funds would not have materialised if the assurance companies had offered reasonable terms for early payment on diagnosis of critical ill health.

I suspect when setting the premiums for the whole of life policies the actuaries not only took into account mortality tables but also factored in a percentage of lapsed policies especially in later years of policy or when people fell ill and could no longer afford premiums, thereby keeping premiums artificially low to attract new business. The TLS funds have taken that built in profit away from the assurers and they are unhappy, it will also mean the assurers will have to increase future new business premiums, which discourages sales as TLS funds mean they will have to pay out the death benefit.

This may seem a little farfetched but when a fund manager is being taken to court over misappropriation of funds (as in CF Arch Cru), yet the responsibility according to FSA is with advisers, and the fund managers receive no censure nothing surprises me anymore.

As I said I write this having never advised on TLS funds, but it seems to me the adviser community has to start taking some sort of combined action against an out of control regulator instead of the usual infighting and I told you so comments just because one firm recommended a fund and another did not. AIFA have been about as effective as a chocolate fireguard, I would suggest anyone who does want to start to defend the IFA community should contact Joe Egerton at Justice in Financial Services joe@justiceinfinance.org about funding an organisation who is willing to stand up to the FSA.

I am of course delighted to have achieved fame to the S A names me.

As a general point, it seems to me that the financial system including the regulatory system needs to be structured so that advisers are expected to take responsibility only for matters on which this is reasonable. The issues round TLF are of course complex but that points to the need for careful evaluation of what may be complex issues as sa suggests

@ s.a.

You make a very good point regarding with-profits....

They would, of course, be banned under my original comment due to the pending ban on any investment in Fixed Income, Property and and Equities...

YMBJ

The FSA has to make a name for itself, it seems.

This is a childish incomprehensible over reaction to the facts. Where were they when money was being moved fraudulently? The FSA is like the untouchables. Northern Rock goes down the pan; the FSA man in charge walked away with more cash than most IFAs could sell their life’s work for.

The fiction of Key Data's status and the FSA’s two faced remedy in proposing to outlaw all similar funds merely creates rather than avoids consumer detriment. They should engage in proper ‘due diligence’, if, of course, they have anyone who understands the expression, or has the expertise to carry it out.

A vote of no confidence is called for in this sea of arrogance. Where will it all end?

Philip

I don't think you are right on this. I believe life settlements are not for the retail investor. First can an actuary determine the life expectancy with precision ? The answer is No. Are the funds big enough pools ? No.

The answer is on the 21st Services website: 'from an actuarial perspective life settlement are still in infancy' says their chief actuary Mr Vincent Granieri. He said 'we work with borrowed data'.

But the main problem is the 'mutual fund'. Life settlement are illiquid assets. Their place is not in a mutual fund where investors can request their money back at any time. Not only that but comparing with commercial property it is a big difference: propety funds get rent but life settlements needs to pay premiums.

There is another problem, prices in the second market are poor if you need to re-sell a policy. The buyer thinks there is something wrong with it, you have discovered the insured person has a longer life epectancy than the documents show.

And the last problem are high charges, brokerage cost, administration cost etc. The internal rate of return requested by a wealthy buyer or a pension fund in US are around 15%. An investor in UK gets around 8% taking all the risk, everything else remain in the hands of people not taking any risk. The trade off between risk and return is not right.

FSA is right to ban them, the only problem now is there will be lts of redemptions and the funds will need to close. I don't want o be the advisor of a client who needs to wait to get his money back , one or two years.

@ Ian Coley - you make a very good point and this should be a massive concern for anyone currently invested in an SLS fund as a "run" on the fund could have disastrous consequences, particularly when premiums need to be serviced and policies may not be so easily off-loaded in the secondary market.

There have been instances where large institutions have pulled out large tickets from an SLS fund in the past, nearly bringing the whole fund down in the process. You have to question whether the FSA, whether they believe an asset class is dangerous or not, is acting in the interests of the investor!

@ Eugen - All good logical points. Why aren't the FSA making sensible comments like yours instead of just saying what they are doing rather than justifying WHY.

Banning anything is mad. Education, education, education.

Plus FSA releasing the report to 10 lareg insitutions and not telling anyone else give sone group an advantage over another which is to all intents and purposes insider dealing. If you pay your OWN people to do research, that is fine, but if you get your banking mates to give you info not given to others.....

An interesting point that Advisors recommending funds that invest some of the funds in such products is the Boorman doctrine - as enunciated in his recent Arch cru Provisional Decision. Even though the LSF is bought by a fund manager the Adviser according to Boorman is responsible for any losses that result. The fact that the fund manager buys it AFTER the advice is given is not, one suspects, a defence.

Eugen,

You are right. These are not not for open-ended funds.

These are long-term investments (as morbid as it sounds) and should only be available via Investment Trusts or other closed-ended structures...

These are things you buy and hold for the long term... I hold them and I'll sit panic this out...

@ Eugen you state, quote; "I don't think you are right on this. I believe life settlements are not for the retail investor. First can an actuary determine the life expectancy with precision? The answer is No. Are the funds big enough pools? No."

There are over 6000 funds of highly volatile shares and fixed interest contracts, not to mention commercial property, that all answer less favourably to your question than traded life policies. Get a grip.

The problems in the past have invariably arisen out of fraudulent or inappropriate activity. The law and a useless regulator have been almost exclusively responsible for the success of the miscreants and the detriment to the consumer. You Eugen , and the rest of us are the FSA 'fall guys'. Life settlement banning is just another manifestation of PR gone wild.

The world of financial planning is ALL about risk, and that includes the deposit accounts that in 2008-2009 (3 months) lost 93% of the income payable to depositors.

Utopia DOES NOT EXIIST!

It would help if those advisers who don't understand how life settlements work and draw a blanket conclusion on the bass of suspicion did the same as what the FSA should do. i.e. Do the research and come up with a rational analysis.

The claim that the risk of getting the longevity wrong is a substantial risk. In other words actuaries don;t understand mortality or the statistics of various medical conditions. This is what protection is about. This is what with profits was about. There may be an issue in relation to term assurance. EEA does not invest in term assurance.

How much of a pool would be enough ? The pool for EEA for example is $ 1billion on total sum assured $1.6 billion in other words $600 million is provision against future costs and premiums. The future cost of premiums is a very small proportion of this provision.

It would also be useful to consider what the trigger for this hysteria was - keydata. Keydata's roduct was not rigorously tested, they mass marketed via banks, building societies and all sorts of selling orgainsations who sold them as low risk deposit alternatives.

The problem is not advice related it is purelydw to salesman selling to inappropriate people in an appropriate manner.

We invest in this product for selected advice situations and cover every aspect of the scheme for every client.

I will be objecting strenuously to the FSA at the way in which this has been potentially sent out of school.

The EEA fund has a a relatively short collective maturity-term which would allow all investors to receive their full value in less than three years so the best protection any advisers can give is reassurance to investors who pick up on these scare stories.

In the meanwhile advisers and life settlement providers need to stand up to the FSA and insist on a proper sensible regulatory framework covering advice in relation to such funds.

Respond to the FSA statement to Jason.Pope@fsa.gov.uk

Ian Coley

Partner

Medical Investment Services

Best of luck with your strenuous objections to the FSA, Ian. Let us know how you get on.

Julian

Will do.

I've sent a strongly worded e-mail to Jason Pope.

I will let you know what the response is.

Ian Coley

Partner

Medical Investment Services

I never advised anyone to invest in any Keydata product, but I believe the publishing of this list is a disgrace and the fact that this scandal even got to the FSCS is an even bigger disgrace.

If I am not mistaken £103 million was fraudulently taken from this FSA Authorised fund by the fund manager. A fund that the FSA had concerns with as far back as 2007 but chose to share those concerns with only 10 firms and allowed the product to continue to be marketed to the retail market.

Advisers have the right to believe what an FSA authorised fund manager tells them (what if Neil Woodford runs off with £500 million from INVESCO does that suddenly make the high Income fund unsuitable for the investor?).

No one can say how Keydata would have performed if £103 million had not been stolen from the fund, and do any of the holier than thou commentators seriously believe another adviser would recommend a fund that said fraud will be committed in the future so risk assessment is pointless.

If an adviser cannot trust the word of an FSA authorised fund management group what is the point of authorisation at all, let the whole industry revert to a wild-west mentality where nothing is authorised, and caveat emptor.

It would appear to me that there needs to be a separate mechanism from the FSCs where the fund management industry alone pay an insurance premium to some P.I insurance conglomerate that will pay out full consumer redress in the event of fraud by a fund management firm. After all the FSCs is meant to be the payer of last resort not the payer of first resort every time high level fraud takes place. The FSCS would still be there to pick up the low level liabilities conveyed upon investors by misdeeds of errant advisers.

However I repeat having never advised on Keydata – there may be a few cases of misadvise out there but when high level fraud comes into play that misadvise goes out the window loss was not caused by mis advice but by the fraud, and the fund management industry should start to put its own house in order.

Keydata is not the first fraudulent action of a fund manager and it will certainly not be the last.

Advisers need to start to unite and stand up for themselves against an out of control regulatory system, what have AIFA done to defend advisers here, nothing, they are too busy being wined and dined by the fund management industry.

If advisers on the FSCS hit list really are serious about uniting and fighting back may I suggest they contact Joe Egerton of Justice in Financial Services at joe@justiceinfinance.org and start to fund an organisation that is not scared to stand up to the FSA’s bully boy tactics. His work over the last 5 months as reported by Jeff Prestridge in the Sunday Mail to bring about justice for both investors and advisers in the CF Arch Cru scandal (that has similar connotations to Keydata in terms of fund management and FSA’s awareness) has been outstanding and with proper funding JIFS would be a true ally of advisers.

Sorry everyone posted above on wrong articles blog

Ian Coley, I do not know you but wish I did. You take the words right off my tounge.

There is so much instant reaction and so little in depth investigation that it is frightening.

Please forward your letter and I will follow through with mine. tpo@ohal.org . Many thanks.

At last a few 'tin hats' are coming off.

Thank you Ian. We will be writing to the FSA too over this situation.

It is interesting to see the divergence of opinion in these situations. Whilst I do not agree with the FSA's proposed action, they too are entitled to an opinion.

Perhaps if the bad advisors that consistently advise on such products did not exist the FSA would not have to act in such a manner.

I have seen one gentleman that put his entire pension fund into such an investment upon the advice of a particular firm. This action has caused the FSA to review such funds and advice in the manner which they have.

Do we want products or advice regulated or both? The FSA are in a no win situation and the only thing they are guilty of is being behind the game line all the time. But then again they are'nt front line troops like the rest of us so you would always expect them to be regulating through the rear view mirror. With the type of regulator we have they will never ever be on top of their game and everything will always be done with hindsight.

Sorry one final thought is that it is up to the investment companies to fight this one they deeper pockets than IFA firms.

@Bob the FSA staff are not paid the incredibly high salaries that they are to have "an opinion": they should have the expertise and experience to 'KNOW'.

The problem is that they apparently have neither the experience nor expertise. Also they do not know, or understand what the cause and effect of their actions are or will be.

Posturing is blind.

Bob

1 Of course the FSA can form an opinion. They should then be careful what they do with that opinion. Issuing absurd statements based on that opinion, that may impinge on markets and disadvantage clients is never a good idea for a regulator.

2 Having formed an opinion they should then research, analyse and seek the views of relevant parties to reach informed proper conclusions.

3 These conclusions should then be subject to proper scrutiny by all interested parties in the design and distribution of them i.e. the providers, and the advisers who are expected to consider them in the formulation of advice

4 The issue is with the adviser, who should be subject to an investogation and if his advice was poor then he should be dealt with. It is not a good idea to blame the fund for the failings of an adviser.

5 I happen to think products should seek clearance and be subject to stringent due diligence by the FSA oin advance of launch, not subject to hysterical condemnation after the event..

6 But the main thrust of ongoing regulatory monitoring should be directed towards advisers, that way, the advisers who recommend outting a whole portfolio into a Life Settlement fund would be assesed on the basis of the real possible culprits actions.

e.g. If I recommended putting 100% of a client's money into Blackrock Gold and General you wouldn;t ban the fund would you?

Ian Coley

Partner

Medical Investment Services

I posted or thought I'd posted the reply from the FSA yesterday. Has it been removed or deemed unsuitable?

If the fault was mine then I will summarise the response, which was basically thanks we will add your coments to the pile of comments for consideration when the FSA decide on how they wish o deal with this in April.

Whilst this was disappointing, I have to note that one can;t expect more than this for fairly obvious reasons and one has to hope that they do indeed give the comments they receive due consideration.

What we advisers and providers need to do is to ramp up the pressure on the FSA to ensure that their conclusions are properly formed and that they conduct their business in the manner they expect us to conduct ours - or better.

I will be regularly contacting the FSA to ascertain their progress and enquire how they intend to communicate their progress. I will also be asking them to avoid issuing statements which will have the potential to affect those they seek to both regulate properly and protect.

I would also propose that providers and adviser repres4entative bodies lobby hard with lega advice on how to deal with uinintended consequences of FSA gaffes.

A real IFA representative body would be commenting on the issues on this topic and looking at how they intend to put the case for those IFAs who will be clobbered for compensation or affected by increased levies due entirely to the FSA's highly dubious vocal reaction.

Ian Coley

Partner

Medical Investment Services

To Bob Donaldson ~ For as long as the FSA continues to do damn-all with information such as that uncovered in its 2007 arrow visit to KeyData, of course it'll always be late in taking any action on anything.

So the damage goes on being done for years longer than any half-competent regulator would have allowed it to and when the brown stuff eventually hits the fan, blame for the whole fiasco gets dumped onto everybody else, with the FSA trying to get everyone to look away from its own culpability.

It's exactly this sort of thing to which Andrew Tyrie is trying to put a stop and about which the IFA community is up in arms.

To Ian Coley ~ And that's the last that you or anyone else will ever hear of that.

Hope I am wrong,but the FSA could well be creating another Keydata.

@ ian Coley perhaps you can forward the following letter to Jason Pope:

PERSONAL AND CONFIDENTIAL 1st December, 2011.

Mr H Sants

Chief Executive Officer

Financial Services Authority

25 The North Colonnade

Canary Wharf

LONDON E14 4HS

Dear Mr Sants

You have deigned to ignore me for virtually three years and even if you don’t agree with my view, one would have hoped that you would take some note of my experience and qualifications before totally ignoring me.

The actions taken by your staff in respect of ‘Life Settlement Funds’ is irresponsible and born of almost total ignorance of the marketplace.

I now notice that EEA Life Settlements have suspended dealing which merely creates concern and worry in the marketplace unnecessarily. Pre-emptory withdrawals following your colleagues ill advised comments is the cause.

The situation with Life Settlement Funds, where you are once again at the centre of creating a run on the market is the equivalent of the queues outside of Northern Rock; and for whose benefit? The FSA appears to have no regard for the consumer whatsoever and yet it is in the consumer’s name that you purport to issue statements, the result of which is the travesty we are now witnessing.

Where was your action in 2007 following the ‘arrow’ check on Key Data and their Life Settlement Fund? Where was your action against the man who allegedly, fraudulently took money from the fund for his own purposes?

The most important question that I should ask you is: “How are IFAs suppose to know so much about these financial instruments when the FSA, the ultimate guiding body and supposed “leader in world regulation,” (there is a joke if ever there was one) does not know sufficient to take action to protect consumers before they get involved with the product provider that is so clearly sailing against the wind.

Northern Rock were ‘borrowing short’ and ‘lending long’ for twenty five years and yet the head of the FSA department that was responsible for that organisation, prior to its collapse, walked away with hundreds of thousands pounds not only in salary but with compensation for loss of office whilst you and your organisation have the temerity to seek to fine IFAs who, with the best will in the world, are merely trying to do their job for their clients in the knowledge that your umbrella is supposed to be open sufficiently far to protect us all from the fall out that such poor business practices create.

Where is the umbrella? It does not exist.

I read recently that you “need to pay more for your staff to get quality staff.” Mr Sants; I have applied for eight positions within your organisation; all managerial positions, all at lower salaries than you are currently offering and all that I have received is a letter from your recruitment agency telling me that I am too cheap and you do not need my expertise. You do me an injustice Sir.

It is not IFAs who should be held to account: it is you and your cohort within the FSA who should be fined personally for failure to serve the public as you were mandated to do. You have let IFAs down.

If I could think of one point where the FSA have actually protected the consumer I would punctuate this letter with some applause but, “you know what,” as Simon Cowell would say: “I can’t find a thing.” Not one. In how many years of your existence and the PIA before you?

I think you need to explain, in detail, ‘from the top,’ why EEA Life Settlements is a risky environment for retail investors? I think you need to explain how something as carefully calculated as the incidence of death on a Whole Life Policy coupled to close medical examination is more risky than overpriced gilts or exposure to the stock market.

You and your organisation are a disgrace and to think that you personally will head up the successor organisation does not bear thinking about in terms of value of money for the salary that you are paid, by my industry.

I am not alone in my thoughts or my condemnation of your senior management’s action. The suspension of EEA Life Settlements dealing really should be the nail in your coffin (metaphorically speaking of course).

You should do the decent thing and resign, and take your unthinking managers with you.

Yours

Terence P O’Halloran BSc FCII AIFP

Chartered Financial Planner

Before I start. I will just remind everyone I have no client in EEA (that I no of of course, but a fund manager I use may have strayed in there for the RIGHT reasons, i.e. instirutional or sophisticated and not retail).

I thorougly endorse Terrenece O'Halloran's letter and would suggest it is posted after slight amendement as a petition to the PM.

It is always easy to eb critical, but TH invariably offers potential solutions and as he says, has been ignored by HS and the FSA. WHY? Evan Owen has been listened to, but his ideas ignored. Alan Lakey has been listened to but his ideas ignored. I have been listened to but my ideas ignored.

WE are INDEPENDANT. Wars have started when there has been no taxation without representation.

WAKE UP, just because war has not been declared, does not mean it is not happening as the American's will remember from Pearl Harbour, Iraq will remember from 2003 and Afghanistand will remember since about 1979 (I think as 2001 was seen as just a change of invaders for some)

I knew I had forgotten something.... potential solution.

Traffic Light

Green - Satisfied risk category descriotion is accurate, medium risk or below, full FSCS protection for product and advice.

Blue - As above, but has not been reviewed by FSA for sometime.

Amber - Medium risk or above, limited FSCS cover.

Red - You are on your own. No FSCS cover, FOS does not apply, but common and contract LAW still does.

For the EEA funds, these would have fallen in to Amber, were it not for teh fact they are not for promotion to retail investors but many others, the FSA could have labelled anything they wanted to as RED if they justified it and then only banned where they had significant concerns.

Keydata's Arrow visit could have colour coded at launch and then changed up or down at the arrow visit.

KEEP IT SIMPLE STUPID.

Terence

It may be better going direct. Just e mail to jason.pope@fsa.gov.uk.

You might want to edit it otherwise the force may be lost somewhat in the angry rant. ;-)

Only trying to help.

@ Phil Castle

Traffic Light system absolutely spot on, especially the red light. Don't ban things from being marketed just because they carry risk, just make sure that investors appreciate the risk and that they can't go crying to the regulators when they get their fingers burned.

@ian, please send non rant version. tpo@ohal.org

Phil

I am afraid this will be a ' red ' . I don't know why FSA made so much noise. UCIS funds were already subject to different rules. Yes, there were a few advisors who didn't pay attention for the rules but you don't need to make noise, you only need to change the rules regarding UCIS.

Make these UCIS funds available only to sophisticated clients and make the definition clearer, how much wealth they need etc.

I am not willing to pay a higher FSA fee so they can employ more people to color code all the products.

Should the FSA like the idea of colour-coding, decide to employ more staff to implement it and raise their levies accordingly, we'll not exactly have much choice in the matter, will we?

Gentlemen

Before we give the FSA/FCA any more hairbrained ideas, there needs to be some serious thought on Phil's traffic light system.

If it's merely a code for covered by the FOS/FSCS or not that's fairly straightforward, BUT there would have to be a change to certain aspects of both the FSCS and FOS 'rules'.

For example, UCIS are NOT covered by either the FOS/FSCS in their own right, BUT the advice to invest in them is...

Now, if we then start talking about a traffic light system for INVESTMENT RISK, that's a different kettle of fish altogether.

Investment Risk changes continually.

For example, there's less investment risk in equity backed investments when world stockmarkets have fallen 50% than there is when the same markets have been on a bull run (anyone remember those?).

Similarly, there's more investment risk in gilt backed investments when base rate is 0.5% and even the BoE think they're too expensive than when interest rates are at 'normal' (whatever that is) and expected to fall.

Be very careful what you all wish for, particularly when the 'body' you're asking is irrational, not inclined to listen and appears not to understand many (most/all) well established investment principles...

Eugen I believe I said it would be coded red if you remeber as it is not for retail clients.

As default would be red, there would not need to have to be an immediate additional cost.

I would rather pay the FSA to use some common sense than make a complete mess as they usually do.

I kept an eye on EEA for a while. Is someone very knowledgable to explain why the life expectancy has increased between September and November from 45 months to 51 months. Half a year is quite a lot movement in 2 months, there were only 12 policies out (worth $12m) and one in.

Initialy I thought is because they changed the mortality tables but these people were suppose to have impaired life, where the life expectancy is not afected by mortality rates changes.

Let's have an answer, look first at September and November factsheet.

Life settlements are not normally impaired lives. They are bought from older people. Thus there is a realistic chance of death from natural causes within a reasonable time, rather than relying on an impaired life.

It may well be that they have changed their mortality assumptions or they are simply making the growth rates more achievable by budgeting to cover more premiums.

All policies are underwritten before purchase to ascertain how they fit into the portfolio as it would be planned for a regular stream of maturities to have a consistent cashflow within the fund.

Of course, this has all been mucked up by the announcement from the FSA which will have caused a significantly higher level of redemptions than would have been the case under normal business conditions and thus the cashflow will be under pressure.

EEA portfolio was made mainly from people with short life expectancy which suffer from an illnes. There is in their marketing material a pie with the illnesses they suffer. The majority of them are in long term care if I believe their prospect.

Any other ideas why the life expectancy has increased?

Euden/ Tony

The EEA fund is based around imparment. The basic idea is to provide money now to people with whole of life policies which are likely to pay out much earlier than originally thought.

The average life expectancy will change due to a nuber of factors and whilst sales and purchases of the life policies will clearly change the average there are other aspects such as the changing medical condition of the fund demographic - the prognosis for some people will change i.e. worsen or improve which will become apparent through the continuous medical assessment of the individuals involved.

Another isue affecting it will be the weighting - if you have ten policies paying ut for an aggregate value of $10 million with an expected average life expectancy of 1 year whilst you acquire one policy for $10 million with a five year expectancy then the averae expectancy of the ortfolio will increase - rather simplistic example but hopefully you appreciate the point.

Do you study the PortfolioStatistics?

Interesting to note that the original life expectancy may have increased but the average life expectancy now has decreased - in fact by net death benefit the proportion of death benefits expected to pay out in 24 months or less is almost 50% of the fuund (in line with the average life expectancy at current date). This will help maintain the cashflow of the fund of course in organising a good practical wind up.

I must stress that my concerns are entirely with the EEA fund and I have not stidied any of the other offerings in anything like the same detail as EEA.

There is a thread running alongside this one on this thread here (NMA "EEA fund suspnded after....") link below

http://www.citywire.co.uk/new-model-adviser/eea-fund-suspended-after-wave-of-redemptions/a547911?re=17011&ea=142730&utm_source=BulkEmail_NMA_Weekly&utm_medium=BulkEmail_NMA_Weekly&utm_campaign=BulkEmail_NMA_Weekly

This is the important post from Chris Warren.

"I am personally invested in this fund and have been for some time. As I advised myself I cannot see me making a complaint to the investment adviser (and why should I anyway!!)...

I am meeting with my firms solicitors on Monday (City of London based and clients) to seek their advice with regards to making a formal complaint to the FSA about the FSA's announcement and indeed Ms Cole's absolutely irresponsible, foolhardy and damaging statement.

We will be reviewing my options regarding the issuance of legal proceedings against Ms Cole personally for any financial and material damages I may incur from my investment in the EEA LS fund.

We have initially discussed the situation over the telephone and it would seem there may be a case for redress against Ms Cole.

I also have friends and family invested in the EEA LS fund and they have agreed to share the cost of issuing proceedings.

I have spoken to clients regarding the statement and have explained the consequences that may befall their investment in the fund due to the statement, they too have agreed to discuss the possibility of funding a case against Ms Cole as they are sophisticated investors who may be financial damaged also.

Should the fund's NAV be adversely affected by Ms Cole's statement then I would counsel that you too have a chat with your clients along the same lines...

Class action...

Whether their is virtue or vagary in Ms Cole's statement it is still wholly irresponsible and may cause legitmate investors to lose money. At the extreme one could argue market manipulation."

What am I going to do?

I am going to suggest running this as a class action with all advisers invlved perhaps stumping a few £000 to fund it. Seems to me a worthy legal case and as long as some consideration about what the im is before charging into it then I believe it would have a fair chance of success. From my point of view the aim should be to have a pre-emptive ruling to the effect that the FSA would be liable for meeting successful claims brought about as a result of the FSA actions and that these costs would be ring-fenced from any ability to effectively set those costs against future levies on advisers.

I wil raise this now on the other thread with Chris Warren

Ian Coley

Partner

Medical Investment Services

My e-petition on this case has now been published and can be seen here

http://epetitions.direct.gov.uk/petitions/24825

Please take the trouble to have a look and sign it if you support it.

to : Dave Knight

I am tempted, but worried about using my full name for anything that the FSA might see as criticism. They are, after all, unnacountable, vindictive and demonstrably not bright to put it politely. A dangerous combination.

Chris

I'll be signing.

We might of course see one or two "FSA targetted me because..." eventually of course, but this is worth it, to get some accotunatbility going on.

Ian Coley

Partner

Medical Investment Services

Come on guys and Girls, we need our voices heard, whether or not we are directly involved with this particular issue. If we made such statements publicly and caused the same outcomes, I have no doubt that we would be stamped on very quickly. The FSA needs to be seen by the public as being accountable, if they are to stand any hope of being taken as a credible organisation that will look after public interest, which is not displayed by this latest action. In other organisations swift action has been taken. Nobody should be above the law!

And yes I have already signed and confirmed!

Ok, I signed it - but don't tell the FSA :)

Sorry I forgot to include the text of my petition in the earlier post. It is as follows -

Inappropriate comment by the Financial Services Authority over Life Settlement Funds.

Responsible department: Her Majesty's Treasury

Inappropriate comments by FSA officials on the subject of Life Settlement Funds (being "toxic") has directly led to the suspension of one fund, and the destruction of good investments along with the bad, as investors now regard all such funds as untouchable. The FSA and its officials should be held accountable for such "market manipulation" which does not meet its objective of maintaining investor protection or confidence in the markets.

Anyone wishing to support it please do so. If worried about FSA reprisals use a non business related email address.

You will recall that I wrote a letter of complaint to Hector Sants following the EEA Life Settlements debacle.

Following my letter I received a copy of the “consultation” document which was basically a statement saying that traded life policy based investments should be banned and I further wrote regarding the response and of course, the definition of ‘consultation.’

I thought you might be interested in the response that I have just had from the FSA which paraphrased reads as below. The arrogance and ignorance of these people is contemptible.

Regards.

Terence P O’Halloran BSc FCII AIFP

Chartered Financial Planner

---o---0---o---

Dear Mr O’Halloran

Your complaint against the FSA

Our understanding of your complaint is:

That you have been provided with the consultation document for Traded Life Policy Investments (TLPIs) but do not believe that a consultation in the strictest sense has taken place.

Further, you are unhappy with the language used in the Guidance Consultation and believe that it makes the consultation redundant.

Our response

Unfortunately this type of complaint is excluded from our Complaints Scheme. This is because your complaint relates to:

You will recall that I wrote a letter of complaint to Hector Sants following the EEA Life Settlements debacle.

Following my letter I received a copy of the “consultation” document which was basically a statement saying that traded life policy based investments should be banned and I further wrote regarding the response and of course, the definition of ‘consultation.’

I thought you might be interested in the response that I have just had from the FSA which paraphrased reads as below. The arrogance and ignorance of these people is contemptible.

Dear Mr O’Halloran

Your complaint against the FSA

Our understanding of your complaint is:

That you have been provided with the consultation document for Traded Life Policy Investments (TLPIs) but do not believe that a consultation in the strictest sense has taken place.

Further, you are unhappy with the language used in the Guidance Consultation and believe that it makes the consultation redundant.

Our response

Unfortunately this type of complaint is excluded from our Complaints Scheme. This is because your complaint relates to:

• The FSA’s legislative functions under Financial Services and Markets Act (FSMA) (including making rules and issuing codes and general guidance).

sorry, It does read more interestingly on the second run through - and you get the punch line.

Terence

Kind of difficult to work out precisely what the response was. Are you saying that they simply had a pre printed computer issued letter with the response entered and then presumably Yours faithfully or was there more.

If that is it then I agree with your reaction and this should be taken much much further.

In essence the FSA consultation document was nothing to do with consultation and a lot to do with a bald statement of breathtaking stupidity.

As I understand it the consultation period is at an end at the end of February and I suggest we all keep our powder very very dry to amalgamate it for presentation to every interested party in the known universe.

What;s more advisers need to follow this through, rather than fold as has happend too often in the past.

I for one will not be meekly accepting any old fall out over this and if there are going to be disadvantaged clients or if we as a firm are disadvantaged then I will do everything in my power to ensure it gets redelivered to the correct recipient.

Ian Coley

Partner

Medical Investment Services

Not that I have strong views one way or the other on Traded Life Settlement funds (our network instructed us not to recommend them, so I never did) but, as we all know, the FSA's consultations are nothing but a hollow token sham, just to be seen to be going through the motions. The responses are never published for all to see and to debate ("an open and transparent regulator"? I think not). Instead, the FSA merely declares blandly to have "taken them on board" in reaching its final decision which, as we all know, was a foregone conclusion before the consultation process was even embarked upon.

Amongst the many issues that Andrew Tyrie ought to be striving to address, the patently phoney nature of the FSA's consultations ought to be high on his list.

@ Ian Coley The letter was fully typed, a personal reply - restating my 'complaint' as shown in the twice repeated insert above (sorry, again) and then boldly stating "Closed to complaints". This from the FSA complaints department attendent to Mr Sants.

If one cannot complain about how the FSA conducts itself regarding a consultation process; what can be the subject matter of a complaint against their service proposition?

The author referred me to the complaints commissioners.

Terence,

When Keydata failed IFAs and victims have complained to the FSA about not regulating products. Now it started to do just that. Let them do their job

‘Don’t confuse me with the facts it is what I perceive that is the truth.’ I coined that phrase some twenty odd years ago when I wrote “Mountains out of Molehills” and it still sounds as good today Eugene as it did then.

The illusion that the FSA is doing anything worthwhile is exemplified by your statement regarding ‘Keydata.’ From what one reads, Keydata was a classic example of fraud or misappropriation or poor governance that should have been picked up by the FSA years before it was. It has absolutely no bearing on EEA and other life settlement funds.

I endeavour, wherever I can, to deal with facts not perception.

What the FSA management have tried to do with EEA and others, is to give the illusion of activity on behalf of consumers and what they have done, once again, is acted in haste, before proper consultation took place and taken a broad brush to clean somebody’s teeth.

I would be only too pleased to let the FSA do its job, and its successor organisations. However, they do not have the expertise; they merely have a licence to kill. Facts beat perception every time. They just take a little bit of digging out of the rubble. Terence P O’Halloran BSc FCII AIFP

Chartered Financial Planner