IFAs fear that the recent stockmarket slump could mean many high-income and stockmarket-linked bonds fail to reach their investment targets, leaving policyholders out of pocket and triggering claims of misselling.
The fall in stockmarket indices to which many of the bonds are linked could mean that some policyholders lose their entire investment, as many bonds contain clauses which only allow a 20 per cent decrease in their values. Many of the world's indices have fallen by 30 per cent or more, triggering total or partial loss of capital.
The FSA had issued a second warning over the products in August. It had been concerned the bonds had been bought by consumers not fully aware of their risk profile.
Plan Invest joint managing director Mike Owen says: “I think that stockmarket-linked bonds will be a hot issue in the coming year as many will be failing their terms. Undoubtedly, many will have been bought by people who did not fully understand the risk involved.”
Industry commentator Julian Gibbs says: “You need to watch these products very carefully. IFAs need to be aware of what they have sold. Those investments linked to the FTSE100 should be ok but those linked to individual shares or to the Nasdaq are a disaster.”
An FSA spokeswoman says: “If they have been sold properly, then it is just a performance issue. If they were missold,it becomes an issue for us.”