Find out why we think traded life policy investments – or ‘death bonds’ – are unsuitable for most investors.
Traded life policy investments (TLPIs), which are sometimes called ‘death bonds’, are complicated products generally unsuitable for the mass retail market.
They are also known as ‘death bonds’ because the ultimate investment is in life assurance policies, normally of US citizens. Investors hope to benefit by buying the right to the insurance payouts upon the death of the original policyholders.
They are sometimes also known as ‘traded life settlements’ or ‘senior life settlements’.
TLPIs may pay a regular income or can aim to grow in value over time. Most death bonds are sold as unregulated collective investment schemes (UCIS), but some take other legal forms.
Our review of sales in the TLPI market revealed high levels of unsuitable advice. We are worried that this market could grow and cause more customers to lose out in the future.
As a result, we have recommended that these products should not reach ordinary retail investors in the UK. This would mean that firms should not be marketing, recommending or selling these products to the mass retail market.
Why we are concerned about TLPIs
TLPIs are usually marketed as offering strong returns that are unrelated to stock market performance, which makes them appear attractive at a time when more traditional investments are not doing well.
In actual fact, TLPIs are high-risk investments. This is because:
- they use complex investment strategies based on calculations about how long people will live. With medical advancements and people living longer and longer all the time these calculations can easily be proven wrong, meaning that the strategy may not work as promised and returns may be lower than expected
- if the investment manager needs to raise extra funds by selling some of the life assurance policies before the death of the original policyholder, they may struggle to do so. It might not be possible to sell them at all or they may only be sold at a significantly reduced value. This might happen at any time because it is important for TLPIs to maintain a certain amount in cash to keep the investment running. Where this becomes a problem, it can place significant strain on the investment and might mean that investors are prevented from withdrawing money for a time or face significant falls in the value of their investment
- they often involve several firms in different countries working together and taking responsibility for different aspects of the product. This makes it difficult for firms to manage the product in a way that ensures customers are treated fairly, and it is generally difficult for investors (and even those selling the products) to fully understand how these products work and what the risks are
TLPIs can fail entirely and customers can lose a significant amount of money.
What to do if you invested in a TLPI
If you were advised to invest in a TLPI, your financial adviser should be able to explain why they thought the investment was suitable for you. If you invested in a TLPI without advice, you may wish to seek independent advice on it and on what your options may be.
If you no longer think your TLPI is the right investment for you, speak to a financial adviser to discuss your options.
If you believe you were mis-sold a TLPI, you should contact the firm that arranged the investment for you and raise your concerns. They should have a procedure to follow to resolve matters with you. If you are not satisfied with their answer or the resolution they propose, you can take your complaint to the Financial Ombudsman Service. If the adviser’s firm has gone out of business, the Financial Services Compensation Scheme (FSCS) might be able to help – but see below for more on why the FSCS might not cover your investment.
How ‘death bonds’ are protected
Protection for an investment in TLPIs depends on where the firm that holds the customer money is based.
Most of these products are offshore and so are outside of our regulatory scope. This means investors are unlikely to be protected by the Finacial Services Compensation Scheme if things go wrong.
For this reason, investors may also not have access to the Financial Ombudsman Service. It may still be possible, however, to complain about advice given or marketing material produced in the UK by an authorised firm.