The Association of Independent Financial Advisers (AIFA) has warned about the implications of the Financial Services Authority's powers to intervene in the market on specific products and asset classes.
AIFA said the regulator's recent proposed ban of the life settlement asset class for retail investors had already forced one fund to close, causing "real consumer detriment". Adding that the regulator's proposal "may, in fact, have harmed the very people they are seeking to protect", Stephen Gay, director general of AIFA, said: "There must now be a review to establish if this closure was likely to happen regardless or if it was the direct consequence of the regulator's intervention."
On 28 November, the UK's Financial Services Authority (FSA) warned that traded life policy investments are "high risk, toxic products that are generally unsuitable for the majority of UK retail investors and should therefore not be promoted to them".
Since then the EEA Life Settlements Fund, one of the biggest traded life policy funds, which became very popular with investors during the 2008/09 credit crunch crisis has been forced to suspend dealings. Though a high-risk fund, it paid regular high incomes to investors at a time when returns from other assets were rare. It also had good diversifying characteristics.
But the FSA's warning prompted a wave of investors to withdraw their money from the £608m fund, potentially throwing the fund's solvency into doubt and forcing the company's board to suspend dealings. Many investors in the EEA Life Settlements Fund are wishing that the regulator hadn't issued this warning - the suspension means the existing investors are effectively trapped in the fund until the board decides that it can resume paying investors their money back while ensuring the fund’s solvency.
