Traded life policy investments - or 'death bonds' - are complicated and risky products. Find out why we think they are unsuitable for most investors.
Traded life policy investments (TLPIs) are complex products that are generally unsuitable for the mass retail market.
They are also known as ‘death bonds’ because the ultimate investments are in life assurance policies, typically of US citizens. Investors hope to benefit by buying the rights to the insurance pay-outs on the deaths of the original policyholders.
They are also sometimes known as ‘traded life settlements’ or ‘senior life settlements’.
TLPIs may pay a regular income or aim to grow in value over time. Many death bonds are pooled investments structured as unregulated collective investment schemes (UCIS), but some take other legal forms.
TLPIs can only be proposed to certain investors
We have found in the past that advised sales of TLPIs were very often unsuitable.
As a result, these products are subject to our marketing restrictions on non-mainstream pooled investments.
This means they cannot be promoted to the general public in the UK, but only to some limited types of investor, including:
- certified high net worth investors
- certified sophisticated investors
- self-certified sophisticated investors
Why we are concerned about TLPIs
TLPIs are usually marketed as offering strong returns that are unrelated to stock market performance. This makes them appear attractive at a time when more traditional investments are not doing well.
In fact, TLPIs are high-risk investments. This is because:
- TLPIs use complex investment strategies based on calculations about how long people will live. With medical advancements and improved health, people are living longer, so these calculations may prove to be wrong. This means 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.
- TLPIs 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.
Most of these products are offshore and so are outside of our regulatory scope. This means investors are unlikely to be protected by the Financial Services Compensation Scheme if things go wrong.
For this reason, investors may not have access to the Financial Ombudsman Service either. It may still be possible, however, to complain about advice given or marketing material produced in the UK by an authorised firm.
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, 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) may be able to help.