The fund management firm was forced to suspend trading of the EEA Life Settlements Fund at the end of last year after the City watchdog issued a warning against what it termed ‘death bonds’.
The FSA said it had set its sights on banning the sale of TLPIs because it found significant problems with the way they are designed, marketed and sold to retail investors in the UK.
In an open-letter to the FSA Simon Shaw, chairman of EEA and Hiren Patel, compliance officer at the firm, said they agreed with the regulator that TLPIs are not suitable for the majority of retail investors.
But they added TLPIs are suitable for some retail clients, as defined in FSA rules, such as sophisticated individual investors and certain high net worth individuals, where appropriate advice is received from an authorised firm.
In addition, EEA said it did not believe TLPIs should be singled out by the FSA for special treatment as many other collectives, including both regulated and unregulated products, share similar risks to TLPIs.
Different tactics
Alternative suggestions put forward by EEA to ensure the suitability of TLPIs for retail investors were:
- A prohibition on any investment in a TLPI below a specific minimum investment threshold.
- A requirement for investors to certify when making an investment in a TLPI that they make up no more than a certain permitted percentage of their investment portfolio.
- Limiting the level of fees that can be paid to authorised firms and/or platforms for the sale of TLPIs so they are not being rewarded more highly for the sale of TLPIs than they are for the sale of other products.
Shaw and Patel concluded: "We believe it is in the interests of all parties involved with or invested in TLPIs for the FSA to conclude the consultation exercise as swiftly as possible, so there is certainty in the market.
"We would also urge the FSA to provide authorised firms with guidance in its final document not only on marketing and selling TLPIs but also on what they should be doing with respect to their clients who have already invested in them."
In December last year Neil Shillito, director of SG Wealth Management lambasted the FSA for its stance on TLPIs in an open letter.
He said the regulator’s statement was "ill-thought out, partial, and emotive" and used language "unbecoming of a regulator".
