EEA responds to "reckless" FSA over life settlements

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EEA Fund Management has written to the Financial Services Authority (FSA) after the regulator described traded life policy investments as “high risk, toxic products”.

In a written response to the regulator, EEA says the use of the term “toxic” in relation to traded life policy investments (TLPIs) as an asset class “is without merit and reckless”.

In the letter signed by chairman Simon Shaw, the firm claimed the word “toxic” implied the products were harmful to investors.

It also objected to the word “Ponzi”, which was “commonly understood as being fraudulent” and “highly damaging, will undermine market confidence and potentially lead to consumer detriment”.

The firm agreed that TLPIs should not be mass marketed to retail investors. However, it did believe the products are suitable for some retail investors, such as sophisticated investors and “certain high net worth individuals”.

The firm claim other investments investing in alternative assets could be as risky as TLPIs, adding that any ban or sale would deny sophisticated investors an “opportunity to diversify risk where this is suitable”.

The company says it did not believe there was “any sound basis” for the regulator to treat the fund any differently to any other unregulated collective investment scheme.

EEA says the FSA could have taken other measures to ensure IFAs do not recommend the investments to mass market retail investors, by increasing the minimum investment level, introducing a limit to the percentage of a total portfolio, or limiting the level of fees paid to advisers.

EEA Fund Management is the marketing agent for the EEA Life Settlements fund.

The fund was forced to suspend redemptions at the end of November after receiving large numbers of redemption requests from advisers and institutional investors.

 

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Readers' comments (6)

  • I am not defending EEA Life Settlements as an investment but I do think they have made a fair point. They are being punished because feckless commission chasing IFAs sold them to everybody they could because of the "safe high returns"

    This investment has often been in the top ten selling funds of wraps such as Nucleus, the home of IFAs for years.

    However as I believe the product is not FSA regulated how else can they stop IFAs selling it apart from heckling?

    This UCIS farce needs to stop. No product should be allowed to be sold by any IFA in the UK unless the product is regulated and approved by the FSA.

    However the FSA should take more responsibility and approve products before they are launched not heckle or blame the sales force afterwords. This is like a drug being allowed on the market before being tested

    More than anything though it proves to me IFAs cannot be trusted with the keys to the sweety shop. Another case for banning product commission?

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  • Feckless? High commission? Really!

    What about those of us who are fee charging and have done full fund audits on the product; visited the firm on several occasions to grill them and have analysed the workings of the fund including a full detailed analysis on the underlying policies, maturity dates vs expected dates?

    I cannot speak authoritatively, as you apparently can, about the motives of other IFAs as I do not have access to such personal information and wonder how you derived it.

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  • Some of Tony's points are apposite, but it is those with which Justin disagrees that are "feckless". As in "f reckless" - see article.

    It seems to be the season for mounting indiscriminate attacks. Come on, Tony, retract - maybe it will catch on.

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  • @tony slimmings. What a self opinionated piece of rubbish. You make sweeping, derogatory statements about people you know nothing about. I have previously used the EEA product WHERE APPROPRIATE for a clients circumstances. You have no knowledge either of those clients, or their circumstances, yet you spout unfounded opinions, criticising situations you know nothing about. Shameful.

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  • @justin thomas. Following your full fund audit and detailed analysis do you really feel you fully understood the underlying liquidity of the asset class and the valuation method being employed within the fund? Did you also conclude that a performance fee of 75% over an 8% hurdle was appropriate and fair for your clients? Did you also not think there may be a conflict of interest in giving half of that performance fee to the company providing the valuation? And was there not a futher conflict of interest in the portfolio manager also being the CFO of the company providing the valuation?

    The true recklessness illustrated here is the poor level of due diligence being conducted by some investment advisors.

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  • Focusing on the wrong thing old lad. The return premium on the risk is just about right.

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