Life policy ban reflects FSA’s lack of trust in IFAs

The ‘guidance’ from the FSA that IFAs should not promote traded life policy investments has, predictably, provoked a mixed response.

Some accuse it of yet again shutting the stable door after the horse has bolted, pointing out that it is now several years since problems became apparent with Keydata Lifemark products.

Some suggest this a restriction on their trade and, in particular, the FSA is using a blunt instrument that will damage the good as well as preventing the bad. Others suggest it is sending a mixed message because while it refuses to pre-vet products it is now effectively post-vetting them.

The problems with traded life investments is surely a basic one – that they are extremely complex products that were sold to investors who did not understand them by advisers who also did not understand them.

This seemed particularly to be the case with Norwich and Peterborough Building Society IFAs. Did investors in Bury St Edmunds really understand they were gambling their savings on the life expectancies of Americans? If so, were they monitoring sales of colas, steaks and fatty foods?

Should advisers and compliance officers really have allowed investors to put all their money into one product even if the investors got down on their bended knees and begged?

In 2005 both HSBC and KPMG objected to the Keydata brochures, according to information published on the keydatavictims internet site.

Keydata Lifemark was undoubtedly a failure of advice as well as regulation.

The questions are, can all IFAs be trusted to read and understand every detail of a complex investment? Can they be trusted to assess the risks to their clients accurately and can they then be trusted only to suggest investing to the small minority of clients for whom that product just might be appropriate?

Clearly the FSA thinks not. This ban says as much about the FSA’s view of IFAs as it does about its wariness of these products.

The ban suggests the FSA no longer feels IFAs can be trusted to research and assess certain products. It certainly does not feel that all IFAs can be trusted to act in the best interest of their clients.

The FSA has now embarked on a road which will surely see more such guidance restricting the marketing of products it feels are unsuitable for the vast majority of consumers. And I’m certainly not going to complain about that.

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Bond sales ban

If the FSA wants to pick up its magic wand and make another product disappear it could do worse than to target investment bonds.