Julian Knight: It's not just personal morality that dictates it's best to steer clear of 'death bonds'
Sunday 04 December 2011
When should personal morality enter your financial decision making?
It's a question most of have to ask ourselves at some point. We all have our different red lines on the issue. Some have no problems investing in so called sin stocks such as tobacco, arms, betting and alcohol. Some turn a blind eye to this, allowing their investment fund or pension manager to take the tough decisions on their behalf. Others are set against it full stop and actively look for returns but with conscience.
One of my personal red lines has always been investment in life settlement funds. This trade involves the buying of life policies from people while they're still alive but often not in good health. The investor is gambling – and I think that is the right word – that the policyholder will die fairly soon. If they do, then the investor makes money, but if they defy actuary predictions and live longer then a loss is made.
The idea originated in the States and came about as a consequence of the 1990s Aids crisis, when relatively young people had far shortened life expectancies and needed ready cash for medical treatment, but it has now spread to all sorts of groupings. You can see why the trade earned the ominous monikers of "death bonds" or "death futures".
But with medical advances has come greater longevity, and the risks that the actuaries could get their sums wrong grows all the time. Therefore, the FSA has issued a stark warning that these funds could be "toxic" and are unsuitable for retail investors, that is, me and you. Within days of the warning, a £600m life settlement fund, EEA, ceased trading, prompting some IFAs – who have no doubt made a tidy sum in commission selling life settlement – to say the FSA's move had actually prompted a crisis in the sector.
This is nonsense. The FSA would not have acted if it hadn't had serious concerns over the solvency of some funds and the number of ordinary people for whom lower-risk investment would be more suitable. The fact that EEA went pop within days, if anything, shows how much of the industry has very rocky foundations.
Last week brought yet another warning of the dangers of trusting your finances to one of the heavily marketed fee-charging debt-management firms. Liquidators of the Somerset-based Debt Dr, which ceased trading in April, have found £600,000 of client money missing. This money was paid by people with serious debt problems and was meant to be passed to creditors. The firm was run by Jeremy Hockley, a former bankrupt, according to reports, under the trading name of Hermes Financial Solutions. Like other companies of its type, Debt Dr would offer to be a go-between with creditors, getting them to write off a percentage of the debt – taking a hefty lump-sum fee in the process. But when Debt Dr went under, client money that was meant to be protected went missing and, according to a statement, has been used "inappropriately".
The lesson in this is: never use a debt-management firm – even if it claims to be established or respectable or part of an industry scheme. You can get the same service, free of charge, from a debt charity such as the Consumer Credit Counselling Service.
A lost decade? We'll be lucky
There aren't many reasons to be cheerful at the moment. The Autumn Statement was in effect a mini-Budget, and the figures on Britain's debt are horrendous. At the time of the financial crisis I wrote that we would be lucky if we got away with a Japan-style lost decade, I think the chances of even that are receding. And the reason? It's not the cuts – they aren't even impacting the economy yet, that's to come – no, it's the eurozone crisis.
Complete political paralysis at the heart of Europe seems to be being replaced by grudging acceptance that closer integration is necessary. But this is going to be difficult to achieve in time to save the euro in its current form. The uncertainty is pushing us into recession – and the thing about recessions is that, almost invariably, they are worse than first predicted.
Independent Partners: See how much you could save by switching credit cards. Compare now
Look beyond the usual shows for the best festive telly
The battle for control of Stieg Larsson's £30m legacy
Geoffrey Macnab does not like the comedian's big screen debut
newsFormer soldier taped 33 of the animals to the floor and then stamped on them one by one
- 1 Sun will 'flip upside down' within weeks, says Nasa
- 2 Christmas comes early: Justin Bieber is 'retiring from music'
- 3 Iain Duncan Smith leaves Commons food banks debate early
- 4 Cycle death inquest: Boyfriend hugs driver of 32 tonne tipper truck that killed his girlfriend
- 5 Burglar steals video tapes of child abuse, hands them into police
Exclusive: Young people ‘want UK to stay in Europe’: Four in 10 adults aged 18 to 24 are ‘firmly in favour’ of membership, poll shows
Tom Daley ‘is gay because his father died’ says UK evangelist
Iain Duncan Smith leaves Commons food banks debate early
Kiss and yell: Italian protester charged with sexual assault after kissing riot police officer
PM denies two child limit for benefits is part of Tory welfare policy
Anachronistic and iniquitous, grammar schools are a blot on the British education system
- < Previous
- Next >
iJobs Money & Business
£Negotiable: Citifocus: High calibre individual with institutional client serv...
£120000 - £150000 per annum: Cornwallis Elt : Programme Manager, Strategy Lead...
£55000 - £120000 per annum: Pro-Recruitment Group: The Financial Services Tran...
£600 - £700 per day: Harrington Starr: Client based in West London is looking ...
Day In a Page
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds
A four-bedroom chalet bungalow with three bathrooms and a spacious garden, £525,000
A two-bedroom flat with an open plan kitchen and two balconies, close to Arsenal station
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A Grade II-listed home with six bedrooms, secluded landscaped gardens and views across Hadley Green
A Grade II-listed mansion with two apartments and a cottage, near Gretna Green
A three-bedroom Grade II-listed mews house with vaulted ceilings and roof garden
A spacious Grade II-listed family home with annexe and equestrian facilities among four acres of land in Itchingfield
A four-bedroom home with exposed brick walls and open fires in the picturesque village of Northill
A Grade II-listed property with five bedrooms and unique tower, overlooking Hastings Old Town
A charming five-bedroom detached family home, set within half an acre in Kew
A two-bedroom maisonette set on the top two floors of a period building, close to Kentish Town Tube.
Take advantage of the extra space provided by former stables and outbuildings at this five-bedroom farmhouse.
This three-bedroom Victorian terrace is near to Queen’s Road Peckham station, Nunhead station.
A five-bedroom modern house with terrace, swimming pool, Zen treehouse and large carp pond
An unexpected gem with four bedrooms, remarkable vaulted reception and a galleried study area
A five-bedroom house in one of Lymington's most sought after tree lined avenues, moments from the marinas and sailing clubs
A grand early 19th century B&B close to the historic harbour, with four en suite bedrooms
A four-bedroom, 17th century home with walled gardens, a landscaped terrace, cellar and open fires
A six-bedroom house with five bathrooms and four reception rooms spread over 4,000sq ft of luxury living space
A stunning three double-bedroom apartment with two decked terraces in the exclusive gated community, Bromyard House
A 10-bedroom period, family home amid beautiful surroundings in the centre of the Wentworth Estate in Longcross village
A stylish three-bedroom apartment with two bathrooms and private landscaped garden, moments from Fitzroy Square
A Grade II-listed Elizabethan barn with landscaped gardens, exposed elm beams and four bedrooms, all with lovely views
A six-bedroom family home, dating back to 1280 with four reception rooms, barn, swimming pool and tennis courts in Harwell
A spacious two-bedroom flat, refurbished to a very high standard with private landscaped garden, close to Kentish Town station
An exceptional two-bedroom apartment with balcony and underground parking in the centre of Richmond
A one-bedroom, luxury, duplex apartment in the grand landmark building, Imperial Hall
Run a fabulous boutique shop, live above it in a one-bedroom flat and let a second one-bedroom flat that comes part and parcel
A Grade-II listed, thatched cottage in Hundleby village, with five bedrooms, a coach house and three and a half acres
A spacious two-bedroom flat in the heart of Hoxton Square with wooden floors and roof terrace
A five-bedroom family home with stunning pool and gym complex set among two acres of land
A six-bedroom period house with heated swimming pool and a separate two-bedroom annexe cottage in Townlake, £795,000
A spacious and contemporary two-bedroom flat arranged over three floors, with garden patio close to St George Square, £600,000
A one-bedroom flat in a beautiful Regency building opposite the beach in Kemp Town, £190,000
A two-bedroom flat with London skyline views close to Surrey Quays. £395,000.
A seven-storey tower with three bedrooms and a stunning roof terrace. Guide price: £850,000.
A 16-bedroom country pile with nine reception rooms, four self-contained flats and a 13th century Peel Tower. £850,000.
A classic six-bedroom Victorian Manse house 10 miles from Edinburgh. £495,000.