Toxic Investments in Insurance Bonds

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gazzaga
Posts: 22
Joined: Thu Mar 16, 2017 8:24 am

Toxic Investments in Insurance Bonds

Post by gazzaga » Thu Jun 27, 2019 7:32 pm

I'm a financial adviser and I recently met with a potential new client who had been sold an offshore insurance bond which contained 'Investment' funds, all of which were suspended which meant that the bond owner could access no cash from the bond, had lost money on these suspended funds and was still being charged by the bond provider for the privilege of owning them.
I've lived and worked in Cyprus for 15 years and witnessed the mess caused by this grey area of the law where an 'Insurance Advisor' can sell investments with little chance of redress in favour of the buyer.

If you hold:
Axiom Legal Financing Fund
Protected Asset Traded Endowment Policy (TEP Fund)
LM Australian Income Fund or any of the LM Funds)
EEA Life Settlementss Fund
Mansion Student Fund
Premer New Earth Solutions
Quadris Environmental Fund
EcoPlanet Bamboo Fund

Through the likes of :
Old Mutual International (formerly Royal Skandia or Skandia Ireland)
SEB (Formerly Irish Life)
RL360
Generali
Hansard

You no doubt share my frustration that this can still go on.

You may ask, "is there no law against this to protect the investor?" Insurance mediation in Cyprus is regulated by the Insurance Companies Control Service (ICCS). Investment advice is regulated by the Cyprus Securities and Exchange Service (CySEC).
If you buy a bond (Insurance - ICCS) which is then loaded with toxic investment funds (Investment - CySEC) the 2 organisations say the other is responsible. The regulation of investments is pretty tight and the fines can be huge, BUT, CySEC will only go after CySEC regulated companies. The majority of British advisers in Cyprus operate under the insurance regulation and are well aware that they can get away with it.
It gets better, if you deal with a company that is regulated by the UK Financial Conduct Authority (FCA) and you live in Cyprus and buy the investments while in Cyprus frrom an adviser in Cyprus, the FCA has no responsibility. So, imagine the scenario, You're British, you feel you were badly advised by a UK regulated broker in Cyprus and you go to the FCA, they tell you to complain to CySEC, CySEC in turn............ you guessed it..... tell you to go to the FCA.
To make it a little more complicated, there are different levels of licensing by CySEC. The company should have minimum of 2 licenses:
1, Provision of investment advice (so they are allowed to advise you)
2, Reception and transmission of orders in relation to one or more financial instruments (so they are authorised to make the investments on your behalf as broker)
Trust companies will have a different license, portfolio managers another etc

All the above scenarios I have encountered first-hand in Cyprus. If you want to buy investments, deal with an investment company that is physically present in Cyprus and is regulated by CySEC. This doesn't mean investing in Cyprus, it just means you have somewhere to go if you feel you have received poor advice.

In summary, Insurance Bonds are not a bad thing per se. They can be useful for succession planning, tax efficiency etc but they are generally more expensive than alternatives and often restrict access to the investments within, usually for the period that the insurance company will take to recoup the up-front commission paid to the salesman. The problems begin when insurance bonds are loaded with inappropriate, expensive investments, by commission hungry advisers who can claim commission on the Insurance Bond and then again on the investments held within....”

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PW in Polemi
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Joined: Wed Dec 28, 2016 9:56 am
Location: Polemi of course! Doh!!! :)

Re: Toxic Investments in Insurance Bonds

Post by PW in Polemi » Fri Jun 28, 2019 7:38 am

Thank you for your explanation. I have always thought it strange that investment advice in Cyprus often seems to come from insurance advisors, so have declined any investment advice opportunities from those.
Kay
Those who do not like cats, must have been mice in a former life! :lol:

gazzaga
Posts: 22
Joined: Thu Mar 16, 2017 8:24 am

Re: Toxic Investments in Insurance Bonds

Post by gazzaga » Fri Jun 28, 2019 8:27 am

PW in Polemi wrote:
Fri Jun 28, 2019 7:38 am
Thank you for your explanation. I have always thought it strange that investment advice in Cyprus often seems to come from insurance advisors, so have declined any investment advice opportunities from those.
In the UK, Financial Advisers often provide Insurance and Investment products together and both are regulated by the FCA. As I mentioned, Insurance Bonds have their place for trust and succession planning even more so for UK residents because of certain tax advantages

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