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; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Suggested Topics
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Digital Optimisation Executive - Marketing

    £30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

    Recruitment Genius: Financial Reporting Manager

    £70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

    Recruitment Genius: Payments Operations Assistant

    £23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

    Recruitment Genius: Telephone Debt Negotiator

    £13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

    Day In a Page

    Sepp Blatter resignation: The beginning of Fifa's long road to reform?

    Does Blatter's departure mean Fifa will automatically clean up its act?

    Don't bet on it, says Tom Peck
    Charles Kennedy: The baby of the House who grew into a Lib Dem giant

    The baby of the House who grew into a Lib Dem giant

    Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
    Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

    The harrowing testament of a five-year-old victim of Syria's endless civil war

    Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
    The future of songwriting: How streaming is changing everything we know about making music

    The future of songwriting

    How streaming is changing everything we know about making music
    William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

    Recognition at long last

    Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
    Beating obesity: The new pacemaker which helps over-eaters

    Beating obesity

    The new pacemaker which helps over-eaters
    9 best women's festival waterproofs

    Ready for rain: 9 best women's festival waterproofs

    These are the macs to keep your denim dry and your hair frizz-free(ish)
    Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

    Wiggins worried

    Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
    Liverpool close in on Milner signing

    Liverpool close in on Milner signing

    Reds baulk at Christian Benteke £32.5m release clause
    On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

    On your feet!

    Spending half the day standing 'reduces risk of heart attacks and cancer'
    With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

    The big NHS question

    Why are there so few new GPs when so many want to study medicine?
    Big knickers are back: Thongs ain't what they used to be

    Thongs ain't what they used to be

    Big knickers are back
    Thurston Moore interview

    Thurston Moore interview

    On living in London, Sonic Youth and musical memoirs
    In full bloom

    In full bloom

    Floral print womenswear
    From leading man to Elephant Man, Bradley Cooper is terrific

    From leading man to Elephant Man

    Bradley Cooper is terrific