What price advice?

In The Times Business of November 19, I wrote an article highlighting the very real risks to which investors were being exposed in an aggressively promoted, supposedly high-yielding "alternative investment" - Life Settlement Bonds.

Matthew Pace, an executive director of the company promoting this product - at a not insignificant cost, no doubt - wrote an attempted rebuttal (December 3) which ended "Erroneous speculation in pursuit of a good headline does precious little to help them" ("them" being the potential investors at whom the costly advertising campaign was aimed "to help").

His headline was "Getting past the hype around life settlements". Let me to start by correcting the gentleman.

Referring to me, he states: "The author - who by his own admission has never worked with these investments".

It seems that the MFSA should require proof of a pass in English comprehension before issuing an investment services licence, because these were my words: "Well, because of the history I do know, I politely declined offers to promote such products". I then referred to my first meetings with re-insurers and actuaries more than three decades ago. My point? I declined offers to promote such products, made many years ago, not because the incentives were not very alluring, but because they were not the stuff I'd buy for myself, and therefore would not propose to any of our clients.

As if this grossly misleading misinterpretation of my statement into a diametrically opposite position were not sufficient, it was preceded by a pathetic attempt to pooh pooh an extremely rare warning issued by the MFSA.

This first appeared on The Times website on November 13, then as a large advert in The Sunday Times (November 15). The Times, on Monday November 16, headlined in bold: "Beware asset-based bonds, MFSA warns green investors".

Mr Pace has the temerity to refer to this rare intervention by the regulator as "a fairly innocent statement". Talk of turning "hype" on its head!

He must have missed a letter by Anthony R. Curmi, one of Malta's most respected senior bankers, now retired, in The Times of November 27. "The MFSA should be lauded for taking such a courageous decision. The MFSA was right in pointing out that it does not give investment advice, but rather promotes education in financial matters.

"The fact that it was felt that a warning was opportune speaks for itself."

Incidentally Mr Curmi also gave short shrift to ELSA's (The European Life Settlement Association - launched a mere six months ago) full page advertising back up to the local promoters.

Mr Pace ignores my quoting The Economist of June 11, 2009, and US Congressman Paul Kanjorski's concerns, while chairing a US congressional sub-committee hearing about the suitability of these "alternative investments". More hype, right?

He does quote 24 words out of a 2,450 word article in The New York Times of September 6.

The following is some of what he did not "help" his readers with, contained in the other 99 per cent of the same article: "Among those expressing concern about life settlements at the Senate committee hearing in April were insurance regulators from Florida and Illinois, who argued that regulation was inadequate."

"The securitisation of life settlements adds another element of possible risk to an industry that is already in need of enhanced regulations, more transparency and consumer safeguards," said Senator Herb Kohl, the Democrat from Wisconsin who is chairman of the Special Committee on Ageing;

"The industry has been plagued by fraud complaints. In 2006, the New York attorney general sued Coventry, one of the largest life settlement companies, accusing it of engaging in bid-rigging with rivals to keep down prices offered to people who wanted to sell their policies. The case is continuing."

"Critics of life settlements believe this defeats the idea of what life insurance is supposed to be," said Steven Weisbart, senior vice president and chief economist for the Insurance Information Institute, a trade group. "It's not an investment product, a gambling product."

On November 19 I quoted, from the same New York Times article, the reference to expected massive increases in life expectancy, which, according to Mr Pace, "can be predicted with relative certainty".

Now there is one perfect example of the kind of hype that can be followed by a hurricane!

This article is not intended to give investment advice.

The author is managing director of Financial Planning Services Ltd, which is licensed by the MFSA to provide investment services and insurance brokering business.