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IFAs are divided on the future of the Tep sector and some companies are trying to widen their appeal by moving into international markets.

Falling bonus rates and scare stories in the media have seen policyholders in panic-selling mode, flooding the market with second-hand policies.

In the 1980s, Teps were often used by IFAs to diversify high-net-worth clients&#39 portfolio. They are now sold primarily as tax vehicles for rich clients.

Towry Law product research manager Simon Farrant says the firm will not recommend Teps because of the difficulty in accurately valuing them. He says “It is like a poker game which involves dynamic sensitivity analysis to work out the real value of the policy on maturity. The life office actuary is the only one who really has an idea of the growth a policy will generate.”

Farrant describes the number-crunching as a mathematical headache and says he would have to wrap his head in a wet towel before contemplating assessing the value of some policies.

He says he would not necessarily talk to clients about selling existing products and that the individual decision whether to keep or sell always revolves around current value. He says: “At the moment they are not a good investment.”

But RJ Temple research manager Adam Carruthers disagrees with pessimistic predictions. He says: “At the end of the day, if you decide to sell your policy then I believe you will still get a better deal from a market-maker.”

Carruthers believes there has been a significant change in the market since the FSA move to force life offices to inform policyholders of their right to sell their policies on rather than surrender them.

He says: “The interest may plateau for a while and the returns are certainly not what they were six months ago but the Tep market has been going for 150 years and this is certainly not the end of it. You can still get positive returns on your investment – they are certainly a safer bet than equities.”

Arden Court group corporate manager Neil Ruddison says: “I would advise clients to keep the policies if they are with strong companies. But I do not think there is much of a market and this is mainly due to the bad press that endowments have received.

“Clients could still purchase, providing the costs are not too high. But if you look at the projections today compared with what they were, then price decline is universal and clients have to be made aware of that.”

On the wider question of the market, Towry Law&#39s Farrant says: “The majority of the policies were sold to repay mortgages but that market is a fraction of what it was with the increasing popularity of fixed-rate mortgages.

But Argyle Financial service senior consultant Barbara Galvin says: “I sincerely hope the Tep market will recover. We would encourage anyone selling to look at all the options and would look at moving them within a particular fund, which is a less traumatic shift.”

Even market-makers such as Policy Plus predict a 10-year shelf-life for the Tep market but marketing manager Jo Bridger says: “The original policies attached to mortgages did not make their fixed targets because interest rates doubled. But they work differently as investment vehicles and the key thing to remember is that Teps are still a good investment.”

Companies in the sector will have to diversify and may well move into foreign markets. Some are already doing so. In July, Shepherds Financial launched a plan which taps into the lucrative American life policy market. And the fund services arm of Price Waterhouse is offering two niche Tep funds which mix Teps with other investments which are available in yen, dollar, euro and sterling.


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