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An IFA has written a scathing open letter to Financial Services Authority chief executive Hector Sants, calling for his resignation over the closure of an EEA life settlement fund just days after the regulator said it wants to ban the investments.
EEA suspended dealing in its £600m Life Settlements fund on Wednesday, due to "unprecedented" levels of redemption requests, after the regulator announced on Monday it would seek to ban TLPIs.
Chartered financial planner Terence P O'Halloran of London-based O'Halloran & Company, has accused the FSA of acting with 'no regard for the consumer'.
See O'Halloran's letter in full below.
You have deigned to ignore me for virtually three years and even if you don't agree with my view, one would have hoped that you would take some note of my experience and qualifications before totally ignoring me.
The actions taken by your staff in respect of ‘Life Settlement Funds' is irresponsible and born of almost total ignorance of the marketplace.
I now notice that EEA Life Settlements have suspended dealing which merely creates concern and worry in the marketplace unnecessarily. Pre-emptory withdrawals following your colleagues ill advised comments is the cause.
The situation with life settlement funds, where you are once again at the centre of creating a run on the market is the equivalent of the queues outside of Northern Rock; and for whose benefit?
The FSA appears to have no regard for the consumer whatsoever and yet it is in the consumer's name that you purport to issue statements, the result of which is the travesty we are now witnessing.
Where was your action in 2007 following the ‘arrow' check on Key Data and their Life Settlement Fund? Where was your action against the man who allegedly, fraudulently took money from the fund for his own purposes?
The most important question that I should ask you is: "How are IFAs suppose to know so much about these financial instruments when the FSA, the ultimate guiding body and supposed "leader in world regulation," (there is a joke if ever there was one) does not know sufficient to take action to protect consumers before they get involved with the product provider that is so clearly sailing against the wind.
Northern Rock were ‘borrowing short' and ‘lending long' for twenty five years.
Yet the head of the FSA department that was responsible for that organisation, prior to its collapse, walked away with hundreds of thousands pounds not only in salary but with compensation for loss of office.
Yet you and your organisation have the temerity to seek to fine IFAs who, with the best will in the world, are merely trying to do their job for their clients in the knowledge that your umbrella is supposed to be open sufficiently far to protect us all from the fall out that such poor business practices create.
I read recently that you "need to pay more for your staff to get quality staff."
Mr Sants; I have applied for eight positions within your organisation; all managerial positions, all at lower salaries than you are currently offering and all that I have received is a letter from your recruitment agency telling me that I am too cheap and you do not need my expertise. You do me an injustice Sir.
It is not IFAs who should be held to account: it is you and your cohort within the FSA who should be fined personally for failure to serve the public as you were mandated to do. You have let IFAs down.
If I could think of one point where the FSA have actually protected the consumer I would punctuate this letter with some applause but, "you know what," as Simon Cowell would say: "I can't find a thing." Not one. In how many years of your existence and the PIA before you?
I think you need to explain, in detail, ‘from the top,' why EEA Life Settlements is a risky environment for retail investors?
I think you need to explain how something as carefully calculated as the incidence of death on a Whole Life Policy coupled to close medical examination is more risky than overpriced gilts or exposure to the stock market.
You and your organisation are a disgrace and to think that you personally will head up the successor organisation does not bear thinking about in terms of value of money for the salary that you are paid, by my industry.
I am not alone in my thoughts or my condemnation of your senior management's action. The suspension of EEA Life Settlements dealing really should be the nail in your coffin (metaphorically speaking of course).
You should do the decent thing and resign, and take your unthinking managers with you.
Yours
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| Comment | 'Irresponsible': One IFA's open letter to Hector Sants on life settlement funds |
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Total agreement
The FSA has completely misunderstood how this asset class works. Who on earth has supposedly looked into life settlement funds and came up with the statements made? Whoever sanctioned this bears a heavy responsibility today. The FSA needs to readdress the matter and quickly. It has not acted in the interests of consumers in this instance and I can only agree with much of what has been said by Mr O'Halloran.
Posted by: John Simpson
Total authority / no responsibility
While I believe that more intrusive regulation is inevitable and, in some senses, justified, it is essential that the FSA is capable of explaining and justifying comments & actions which, as in the case of EEA and life settlements, leads directly to consumer detriment & corporate difficulties. In the case of Wills and Co., the FSA barred the directors not because of consumer detriment, but because of the risk of consumer detriment. Perhaps they ought to consider this and suspend the employee, or indeed their ultimate CEO,for the significant risk of consumer detriment that their so far unjustified and, in my opinion, unwarranted statements cause.
Posted by: Anon
FSA incompetents strike again!
In general agreement with what Terrence has written - and what a 'response' from 'Swanny', where we see the FSA in their full glory! The FSA gives no real thought for the consumer outcome in their pronouncements, and I would venture to suggest that, if an IFA thought merely along the tunnel vision lines that the FSA seem to do, ignoring other possible outcomes, then the IFA would be heavily censured (as an absolute minimum). Why is the FSA always so far behind the curve (as in they should have made theor feelings known on EEA years ago)? I suspect it's because they are all counting their big fat salaries and bonuses and expenses and ........
Posted by: CONFFA
Civil Action
Sorry but callig Life Settlements 'Toxic' and 'Ponzi Schemes' is acting well outside of her role and civil action against the person should be taken. This is going to ruin thousands of individuals lives and was totally unnessary.
Posted by: John Smith
To Terry
Dear Terry Although I’m sure many (including me) would agree with the general thrust of your argument, but there are some issues. 1. I would have thought that some figures being included would have been a good idea. Can you or EEA show how well the fund had done and how well clients have done? Figures would help. I also believe that life settlements are still big business in the USA and that the US Regulator seems to be fairly relaxed about them. How about some figures showing the size of this market and the returns it has produced for investors? How about some figures on the actuarial calculations showing that (according to my information) the calculated and expected yield on this is around 14%. (Before all expenses etc.). 2. Much as I sympathise with your anger and frustration, like it or not we need to remember that we are dealing with the Patrician class in our society. Better the steel fist in the velvet glove perhaps. Instead of rhetoric, unassailable statistics wrapped in urbane and polite terms is more an arrow to the heart – I would have thought. Just my own observations, which I freely admit are often wide of the mark! Kind regards
Posted by: Harry Katz
FSA Mission
For those that still have not got it yet. The FSA mission is to destroy the IFA sector and will use any means to do so. If it takes down consumers and destroys their assets at the same time tough they are just collateral damage and worthless. They know full well that proclamations of the sort made would lead to reaction and the failure of other funds in the sector but they don't care. As Phil C. points out those with discretionary powers had time to act IFA's in the main would not and this again is fully understood by the FSA.
Posted by: Mr Fisher
Toxic Regulator
Terrence 10/10 for hitting the nail on the head once again... What is interesting to me is that many have thought this for several years. But now the FSA's increasingly desparate attempts to justify its existance is causing the industry to rise up against the ridiculous antics of this unaccountable monolith. When the regulator loses the confidence of the regulated its days should surely be numbered.
Posted by: Simon Webster
Method acting
Quite agree with the letter but not the tactics. 1) I have never advised on life settlements but can certainly see the consumer benefit (after all life assurance companies run in much the same way; yes, I know we could debate life companies v consumer benefit). However, I believe there have been instances of policy packagers (US based) being probably not short of fraudlulent with regard to pricing (dodgy life expectations etc) which caused some funds to fail. So, nothing inherently wrong withthe concept but scope for abuse of the process. Hence not entirely unreasonalbe concern. 2) Re the tactics. Terence's letter reminds me of the military equivalent of "advancing slowly on a broad front". First World War tactics didn't get far either. Better to focus on one narrow isssue and hit it with facts but keep some in reserve to hit it again when the rebutal comes. Save teh spleen venting for the pub
Posted by: David
fsa
Well done on your comments your a brave man and I think you could expect a compliance vist from the FSA.Their handling of the Sub Prime market was a disgrace and there has never been any blame levied at their door, they virtually can do as they please and then take their big bonus's for making a mess and sitting back watching other people struggle to sort it out
Posted by: michael
Totally Agree
Totally agree Mr O'Halloran. But they are the Regulator that is happy for us to buy clients 10 yr gilts by the bucket load. Happy for us to buy an instrument that [if held to redemption] is GUARANTEED to lose our clients money - oh and by the way, lock into a deeply negative real yield along the way. If bond markets turn against the UK like they have Spain, Italy and now Germany and yields go out to c.7%+, our clients could lose 30%+ in capital terms. Are we now going to have them write to us and state that gilts are "toxic" and fine us for buying them for clients!!!!
Posted by: A confused IFA!
In Total Agreement
Thank heavens somebody has had enough balls to say it as it is. The FSA has clearly waved its magic wand without so much as a cursery look at what this asset class is. It was where KeyData operated its fraud & so it must be wrong - deep & penetrating research by the FSA! I do hope that they take Mr O'Halloran's comments positively - & I hope he keeps us posted!
Posted by: Neil G
Hooray
At last, somebody with the education and nerve to tell the truth. Our whole industry should get behind Mr O'Halloran, and let the public know what is being done in their name. However, EEA isn't the only issue.
Posted by: Bob
EEA
I have in front of me the February factsheet for the Henderson [formerly Gartmore] Multi Manager Absolute Return Fund. A 3.2% weighting towards EEA Life Settlements. Tony Lanning is a very, very bright fund manager - yet held EEA! I trust Hector is going to write to Multi Managers too!
Posted by: A confused IFA!
Judge, Jury, Executioner
It appears the FSA believes: - (1) That it knows better than 1,000+ professional firms what is good for their clients; (2) That the great mass of the investing public ("retail clients")is too stupid to be allowed to invest in TLPIs, (3) That (by definition) the integrity of EEA and all other firms operating in this area might be questionable; (4) That it alone should determine who is allowed to invest in what; (5) That destroying the savings of existing investors without a care is justifiable to "protect" potential future ones. Grim tips of a very grim iceberg?
Posted by: Andrew
Champion
Terence, over many years you have done more campaigning in the interests of IFA's and consumers than any of the trade bodies. All power to you and dltbgyd!
Posted by: Sean Reynolds
robwebb
the only toxic thing about this situation is the FSA. some of the risks associated with investment into these types of instruments are set out in the FSA guidance consultation. If you read the EEA factsheets you will see a list containing very similar statements.The EEA fund is well managed and is perfectly open about some of the possible negatives. Not good enough for the FSA who have decided to decimate the whole sector and penalise the very people they are supposed to protect--the consumer. the removal of those responsible for this decision in the FSA and the FSA itself cannot come a day too soon. Sants must consider his position having sanctioned this fiasco
Posted by: robwebb
robwebb
sorry forgot to mention Mr O'Halloran. a great letter and deserves the support of every IFA in the UK
Posted by: robwebb
Agree
Terry's letter really struck home and I urge other IFAs to join me in writing to Hector in his lair in Canary Towers.
Posted by: Bruce Bulgin
Agree
Terry's letter really struck home and I urge other IFAs to join me in writing to Hector in his lair in Canary Towers.
Posted by: Bruce Bulgin
ABSOLUTELY
I am in total and complete agreement with Terrence = both in style and content. Harry Katz wants morw 'substance' but it should not be incumbent upon any one of us in the iFA fraternity to produce such evidence. The FSA have acted blindly and thoughtlessly. It is for them to justify THEIR actions, or get out.
Posted by: Grosvenor
Brave
Well done Mr O'Hallorran. A brave letter although no doubt the FSA will perform an arrow compliance visit on your practice within the next three months. They are basically the equivalent of the Mafia. They charge extortionate fees to allow you to stay in business, destroy your business if you don't or if they just feel like it and send the boys around if you threaten them. I hate Hector and his House of stupid muppets.
Posted by: Chippy Minton
Bad Language and The Status Quo
I can understand how the language used by the FSA this week has got up the noses of IFA's, many of whom know that underlying this type of investment is a basically sound investment principle. Not all life settlements funds are the same and of course there are a number of risk factors to be taken into account. What would have been better would have been a regulated fund. Attention should be paid to why that was not possible. The problem seems to be to do with an unwillingness to roll up the sleeves and get involved. We are told that this is to protect the client but too many now think it is to protect other parties interests. Who is benefiting from the status quo? Is this sort of regulation we really want?
Posted by: Andrew
Government Enquiry
It is obvious that there should be a government enquiry into the whole Keydata saga. Keydata had built up a good reputation in the market and won various awards. Leading banks such as HSBC and RBS had business relationships with the firm. Its structured products never used Lehmans as a counterparty, and many of their plans produced good returns for clients. The principle of investing in life settlement funds, funds that base their revenue on actuarial calculations and the American death rate remaining stable, is a sound and understandable principle. The public need to know why structured products based on this investment principle went wrong if they are to have any confidence in any investment company that is regulated by the FSA and covered by the FSCS. It is a good case study. As for misselling: if a bank or building society customer presents with money for a deposit account and is guided to this type of product in the belief that their capital is as safe as a deposit - in these cases I can understand IFAs anger at having to pay extra to the FSCS. But when investors study the brochure, accept what it says about the investment and its risks, and decide that they would like to reduce their exposure to equity markets by having this type of investment in their portfolio, that is completely different. It is not our job as IFAs to say this brochure is a pack of lies when we are talking about the produce of a regulated firm of good standing that submits quarterly returns to the regulator. What sort of impression is that going to create about our financial services industry? One of the regulator's responsibilities is to create trust for clients dipping into the financial market. If we cannot trust the brochures of regulated firms, and if we cannot say to clients - if this goes wrong because it has not delivered what it says it will deliver, your investment is covered by the FSCS - then financial regulation is failing in this important area. So, a government enquiry into how the regulatory system is working in the UK will help to restore confidence. And one important further point – RDR to be delayed until the enquiry has delivered its results and the new regulatory system has had time to establish itself.
Posted by: Ken Durkin
Anythingh to add?
Not really, it has all been said by the posters above. The FSA never listen or if they do, they plow on regardless. Oh yes, perhaps.... Traffic light system Green, Blue, Amber, Red, NO banning, the LAW is the ban. FSA are continually putting itself above the law.
Posted by: Phil Castle
Bravo
Bravo Sir Not that it will do any good. If the FSA had any brains then a financial product levy would have been introduced years ago. However, they haven't but they do have self-interest, so sod you (& me) and your (our) clients. Rocket Scientist BSc(Hons) Chartered Financial Planner Lecturer in Personal Finance and All Round Good Guy
Posted by: Rocket_Scientist
Government Enquiry
It is obvious that there should be a government enquiry into the whole Keydata saga. Keydata had built up a good reputation in the market and won various awards. Leading banks such as HSBC and RBS had business relationships with the firm. Its structured products never used Lehmans as a counterparty, and many of their plans produced good returns for clients. The principle of investing in life settlement funds, funds that base their revenue on actuarial calculations and the American death rate remaining stable, is a sound and understandable principle. The public need to know why structured products based on this investment principle went wrong if they are to have any confidence in any investment company that is regulated by the FSA and covered by the FSCS. It is a good case study. As for misselling: if a bank or building society customer presents with money for a deposit account and is guided to this type of product in the belief that their capital is as safe as a deposit - in these cases I can understand IFAs anger at having to pay extra to the FSCS. But when investors study the brochure, accept what it says about the investment and its risks, and decide that they would like to reduce their exposure to equity markets by having this type of investment in their portfolio, that is completely different. It is not our job as IFAs to say this brochure is a pack of lies when we are talking about the produce of a regulated firm of good standing that submits quarterly returns to the regulator. What sort of impression is that going to create about our financial services industry? One of the regulator's responsibilities is to create trust for clients dipping into the financial market. If we cannot trust the brochures of regulated firms, and if we cannot say to clients - if this goes wrong because it has not delivered what it says it will deliver, your investment is covered by the FSCS - then financial regulation is failing in this important area. So, a government enquiry into how the regulatory system is working in the UK will help to restore confidence. And one important further point – RDR to be delayed until the enquiry has delivered its results and the new regulatory system has had time to establish itself.
Posted by: Catherine Airey
What next?
As an adviser who has used EEA for the last 5 years as part of a balanced portfolio I have always been happy with the returns and risk element of this particular Fund. As part of my due diligence process I actually inspected some of the life policies at the Bank of New York where they are held. The actions of the FSA in this whole issue is nothing short of slander/libel and it has had an immediate negative impact to everyone involved from the top of EEA down through the company and the whole financial services sector through to the smallest single investor. My main concern with using this Fund was always the fact that EEA were too good at what they are doing initially choosing only to buy policy’s based on very specific underwriting criteria. As time moved on I felt that they were starting to struggle to invest the new business cash inflows into the type of policy's they were buying in the early days. I have it on good authority that the present status of the EEA fund is in the region of 20% cash and therefore very strong indeed. I also know that 80% of the policy’s on the books are due to mature/die within 2 years, with the remainder due within 4 years. IF this is true then the Funds suspension could actually be a positive step for existing investors. On the provision that EEA have not been “cooking the books”, the assets of the fund which are circa £600m includes cash of circa 20% with the rest being life policy’s which have a GUARANTEED value to them. The liability side of the fund only has to pay the premium of the life policies until they mature/die. It would not take more than a few days for EEA to produce an audited account showing the precise assets and liabilities of the fund combined with premium due information, accompanied with a timeline chart of when each policy is predicted to mature/die, and what the return in cash terms to the fund will be. When a policy matures/dies it has a double benefit to the Fund. One being an immediate cash injection into the Fund (the maturity/death payment), and Two being the liability of future premiums ending. Once this data is available (which realistically it already is), anyone would be able to understand if it is a viable investment or not. If the fund stops accepting new business forever then over the next 4 years the majority of assets in the funds will turn to cash unless a cure for death is found. Annual returns would certainly fall from the usual /9%pa due to the cash drag effect, but it certainly won’t be a disaster for existing clients. Redemptions could be handled in an orderly manner allowing investors to exit if desired over the next 5 years treating older investors as a higher priority over new investors to benefit those who have been invested for longest period. This could be combined with proportional redemptions allowed across the board and a whole host of other “fair play” measures being implemented for redemptions. It will be interesting to see how EEA manage this position as they could easily come out looking like Champions and show the FSA to be exactly what they are which is a fat overpaid parasite doing irrecoverable damage to a once buoyant retail financial services industry. So come on EEA. Advisers and clients have put our faith in you, and you have had our trust and money along the way. Don’t let us down Having said all that, and although the FSA’s statement, in its own words “could cause investor losses”. It was the IFA’s and Institutional investors that would have faxed off the selling trades that turned this story into a story.
Posted by: David. C
Love it
Well good to see others having a justified go at the oh so righteous FSA. Sadly I suspect it will just pass over Mr Sants head as he ignores it just like he did to the Treasury Select Committee. He has no need to answer to anyone least of all an IFA who he clearly regards as his inferior, god forbid, he and Mr Hoban seem to have a goal of destroying the financial advice sector and bringing in "simple products" so the vast majority will not need advice. Simplz! We know different of course but by the time they have destroyed many innocent and good adviser businesses the need for independent advice will be even greater, but how many IFA practices will still be around by then, who knows? We are too small an industry to be able to fight back and product providers are I suspect dreaming of all the new business they will do online without advice and without paying commission to anyone and my bet is their profit margins will increase as a result as I am not convinced their charges will fall by much as a result of not paying any commission. Sadly this letter will be like water off a ducks back to Mr Sants, he probably gets them every week. He may even have a ghost writer to reply as Mr Cameron was reported to have.
Posted by: Michael Fallas
In Total Agreement
Once again the FSA proves itself to be about as useful as "Tits on a Bull"
Posted by: Singapore Adviser
Humble investor
I'm just a humble investor who was about to make a significant pension investment in EEA. I've just pulled out of a Standard Life product that made me just 0.8 pct return in the last 12 months despite the fact that SL breezily assured me that a 6 pct return would be no problem. In the event I was lucky to get all my capital back. EEA results speak for themselves. Perhaps the FSA would like to tell me where I CAN invest my pension that will make a return that will at least keep pace with inflation if nothing else.
Posted by: Richard Thomson
To - Humble investor
The FSA will never tell you where to invest. They haven't got the authority, the experience or common sense to make a recommendation. As they say "those who do - do, those who can't - REGULATE"!!!
Posted by: Richard Williams
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Totally agree
I totally agree with your comments this was a completely irresponsible action for the FSA and should result in mass sackings, without any golden handshakes. But as we have only recently heard none of the problems faced by the Financial Services industry has ever been the incompetent Sants' fault so not much chance of him going.
Posted by: Stephen Guess