View more on these topics

There’s still life in Teps

Shepherds Group chairman Mike Abraham says having fewer firms in the traded market will mean less pressure to push up prices and better returns.

With Policy Portfolio, Beale Dobie and Irish Policy Exchange leaving the traded endowment policy market, it would be easy to assume that the Tep market was on its last legs but is it really that simple?As a traded policy pro-vider, it would be naive to argue that the market is anything other than finite but, equally, it is premature to say that it is nearing its end.

Like many other investments, Teps have been on a bit of a rollercoaster. What is frustrating from an adv-iser’s point of view is that endowments were sold on the basis of smoothed, secure returns without huge volatility.

Sadly, it was not poss-ible to predict the unprecedented collapse in the stockmarket or how life offices would deal with it.

However, the fact is that endowment policies have always been a good long-term investment, relative to inflation and interest rates, but the expectations on which consumers bought them and the basis on which life offices mark-eted them have left many policyholders with a far diff-erent opinion.

The problem is that many people are selling or surrendering their policies, perceiving that they will offer poor value. They are often just crystallising losses on policies that have not yet matured, many of which will generate ongoing if smaller than historic bonuses but bonuses that could still grow.

The consumers’ reaction is partly fuelled by the negative media coverage but mostly by the kneejerk reaction that we all know too well – selling an investment when it is low and buying when it is high.

Surrender values will remain low as life offices must protect existing customers. By surrendering a long-term contract, the exiting customer could disadvantage customers who remain within the fund.

The institutional market can and is taking a longer-term view, seeing the current low market values as an opportunity to buy at a discount to long-term value.

It is for this reason that funds should be buying policies at a price just above or very close to the current surrender values.

The table below shows what Shepherds is currently buying for its fund andI believe this is a representative sample of policies that are being invested into other Tep funds run by our peers.

We believe that the funds investing in the traded market will increasingly offer better returns due to fewer market-makers pushing up prices and the realisation by life offices that the surrender values need not be as competitive.

The gap may not widen by too much but, coupled with an almost guaranteed neutral or positive return, regardless of life office machinations in the future, the prospects look fairly good for the traded market.


Creeping unrest

Information technology has revolutionised the way that business is carried out all over the world but how has it changed the way that protection IFAs do business with their clients and are advisers happy with the new online environment they find themselves operating within?Some IFAs are rubbing their hands together with glee at the thought […]

Julian Gibbs

Now that the American elections are over and President Bush has been given a strong mandate, with increased majorities in both the Senate and the House of Representatives, the outlook for the world’s stockmarkets looks to be fairly good, with the UK, Japan and the Pacific markets leading the way.

Cause for complaint

I recently listened to an address by the AMI’s Chris Cummings, someone who is closely involved in the mortgage market. He quoted some interesting statistics. There are 37,000 mortgage intermed-iaries. In 2003, there were just 98 complaints against them, of which 49 were upheld.This tells us a few interesting things. First, such a small ratio […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm