EEA slams "reckless" FSA over life settlements
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EEA Fund Management has hit out at the FSA after the regulator described traded life policies 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 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 traded life policies 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 claims other investments investing in alternative assets could be as risky as traded life policies, 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 (17)
Anonymous | 18 Jan 2012 12:59 pm
fair play to EEA standing up to the FSA but I fear they will get bullied into submission over this & severe consequences will follow. Does anyone out there still recommend offshore funds anymore?
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john | 18 Jan 2012 1:08 pm
i wouldn't want to be in EEA's shoes if it is found out that their products ended up in the hands of retail investors. the big TCF dog will come calling.
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Anonymous | 18 Jan 2012 1:20 pm
I agree with anonymous and the EEA are very bold to contest the FSA who appear to be a law unto themselves.
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Neil Shillito | 18 Jan 2012 1:34 pm
The FSA are supposed to protect the interests of the consumer.
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Simon Webster | 18 Jan 2012 1:48 pm
The FSA are supposed to protect the consumer but their history demonstrates that they are most successful at empire building, self preservation and spending other people's money.
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Anonymous | 18 Jan 2012 1:55 pm
there is no doubt FSA's approach has harmed investors, should have really gone about it another way. Hope they learn from that.
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Anonymous | 18 Jan 2012 2:00 pm
It is a pity that a professional body such as the FSA cannot just stick to the facts but feel the need to resort to producing media soundbites which are totally inapropriate. Best of luck EEA, but don't expect an apology whatever the outcome!
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Dathan Steele | 18 Jan 2012 2:37 pm
Of course the EEA life settlement fund was marketed to retail investors. Why were EEA so keen to cosy up to the compliance support organisations? The beauty, of course of fund management is that its the IFA who kops for the firing squad when things go wrong!
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Anonymous | 18 Jan 2012 2:51 pm
I would love to know how the FSA's use of such language instills market confidence?
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Julian Stevens | 18 Jan 2012 4:05 pm
I've never advised any client to invest in funds of this type, not least because our network made clear that they aren't approved. That having said, it would be interesting to see some clear data showing the track records of a representatively broad sample of such funds. Some of them may be very good, notwithstanding that by their very nature they may be high risk.
If the FSA is going to make dramatic and damning statements of this type, it would be interesting to know on what basis. Did it, in time-honoured fashion, commission at vast expense some outside organisation to undertake a rigorous examination of this particular investment medium? Or did one of its own internal teams conduct its own analysis and decide that all life settlements funds are high risk and toxic? How much data did the team gather? How long did they spend on the task? How comprehensive was the team's report? Was input sought from the likes of EEA Fund Management who, one may presume, has a pretty good idea as to just what these types of funds are all about?
On the basis of broadcasting its opinion that all life settlement funds are high risk and toxic, the few possibly good ones might end up being flushed away along with those that genuinely should be avoided. Perhaps, if I can be bothered, I'll have a trawl round the fsa.gov.uk site to see what I can find.
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