Julian Knight: It's not just personal morality that dictates it's best to steer clear of 'death bonds' - Spend & Save - Money - The Independent

Julian Knight: It's not just personal morality that dictates it's best to steer clear of 'death bonds'

 

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.

Debt-firm warning

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; request a free guide on NISAs from Hargreaves Lansdown

Suggested Topics
News
Paper trail: the wedding photograph found in the rubble after 9/11 – it took Elizabeth Keefe 13 years to find the people in it
newsWho are the people in this photo? It took Elizabeth Stringer Keefe 13 years to find out
Arts and Entertainment
Evil eye: Douglas Adams in 'mad genius' pose
booksNew biography sheds light on comic genius of Douglas Adams
Sport
FootballFull debuts don't come much more stylish than those on show here
News
i100
PROMOTED VIDEO
Life and Style
Kim Kardashian drawn backlash over her sexy swimsuit selfie, called 'disgusting' and 'nasty'
fashionCritics say magazine only pays attention to fashion trends among rich, white women
Arts and Entertainment
TVShows like Agents of S.H.I.E.L.D are little more than marketing tools
Arts and Entertainment
Hit the roof: hot-tub cinema east London
architectureFrom pools to football pitches, rooftop living is looking up
Travel
travel
News
The ecological reconstruction of Ikrandraco avatar is shown in this illustration courtesy of Chuang Zhao. Scientists on September 11, 2014 announced the discovery of fossils in China of a type of flying reptile called a pterosaur that lived 120 millions years ago and so closely resembled those creatures from the 2009 film, Avatar that they named it after them.
SCIENCE
Life and Style
tech
Arts and Entertainment
Matisse: The Cut-Outs exhibition attracted 562,000 visitors to the Tate Modern from April to September
art
Life and Style
Models walk the runway at the Tom Ford show during London Fashion Week Spring Summer 2015
fashionLondon Fashion Week 2014
News
Kenny G
news
News
peopleThe black actress has claimed police mistook her for a prostitute when she kissed her white husband
Life and Style
techIndian model comes with cricket scores baked in
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SQL Developer - Watford/NW London - £280 - £320 p/d - 6 months

    £280 - £320 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

    Senior BA - Insurance **URGENT**

    £400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

    Training Coordinator / Resource Planner - City, London

    £35000 - £38000 per annum + Benefits: Ashdown Group: Training Coordinator / Pl...

    Data Governance Manager (Solvency II) – Contract – Up to £450 daily rate, 6 month (may go Permanent)

    £400 - £450 Per Day: Clearwater People Solutions Ltd: We are currently looking...

    Day In a Page

    Mystery of the Ground Zero wedding photo

    A shot in the dark

    Mystery of the wedding photo from Ground Zero
    His life, the universe and everything

    His life, the universe and everything

    New biography sheds light on comic genius of Douglas Adams
    Save us from small screen superheroes

    Save us from small screen superheroes

    Shows like Agents of S.H.I.E.L.D are little more than marketing tools
    Reach for the skies

    Reach for the skies

    From pools to football pitches, rooftop living is looking up
    These are the 12 best hotel spas in the UK

    12 best hotel spas in the UK

    Some hotels go all out on facilities; others stand out for the sheer quality of treatments
    These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

    Widespread fear of Isis is producing strange bedfellows

    Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
    Topshop goes part Athena poster, part last spring Prada

    Topshop goes part Athena poster, part last spring Prada

    Shoppers don't come to Topshop for the unique
    How to make a Lego masterpiece

    How to make a Lego masterpiece

    Toy breaks out of the nursery and heads for the gallery
    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
    Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

    Ian Paisley’s decision to make peace with his IRA enemies

    His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    Exclusive extract from Janis Winehouse's poignant new memoir
    Is this the role to win Cumberbatch an Oscar?

    Is this the role to win Cumberbatch an Oscar?

    The Imitation Game, film review
    England and Roy Hodgson take a joint step towards redemption in Basel

    England and Hodgson take a joint step towards redemption

    Welbeck double puts England on the road to Euro 2016
    Relatives fight over Vivian Maier’s rare photos

    Relatives fight over Vivian Maier’s rare photos

    Pictures removed from public view as courts decide ownership
    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    Donatella Versace at New York Fashion Week