SL Investment Management (SL), one of the UK’s leading Traded Endowment Policy and Life Settlement product providers, is urging intermediaries to remember TEPs in their holistic financial planning process for clients.
The firm believes that although conventional with-profits endowments are finite in number, there are still around two million policies in force in the UK. And, in a post-RDR advice market where client satisfaction and long term relationships are key, IFAs can benefit from helping clients to liquidate cash sums where a quick fix is needed to improve cash flow and maximise immediately realised value.
SL has been in the market for over 20 years (originally trading as Surrenda-link) and has invested over £1 Billion in TEPs on behalf of clients. In 2010, the company reinforced its market position with the acquisition of Policy Plus, Robin Lloyd and Freetrawl.com, and by making a substantial investment into the TEP Exchange platform.
Demand for policies on the buy-side remains strong; SL claims that TEPs are suitable for risk averse investors as returns can exceed cash and bond rates, whilst offering a degree of capital protection; typically around 85 per cent. TEPs have a number of unique benefits for investors, despite a slowdown in popularity from the early 00s, including:
- Net return potential in excess of 6% per annum; often returns at this level require a higher degree of risk than usual and/or lock-in periods that tie up the investment, which is not the case with TEPs.
- Enhanced security; this is because TEPs are invested in the With Profits funds of the UK’s major life offices. Not only are they ring-fenced from the Life Office itself, but also covered within the rules of the protection offered by the Financial Services Compensation Scheme. This offers a high level of security for the level of returns offered.
- Bonuses already acquired cannot be taken away; this effectively offers a degree of capital protection unavailable in similar investments – estimated to be in the region of 85%.
- Finally – TEPs are liquid. In the absence of a buyer, they can be cashed in to the issuing Life Office for their quoted surrender value at any time, and these surrender values are on the rise.
Alec Taylor, SL’s Head of TEPs says: “TEPs remain a great opportunity for both buyers and sellers alike and we want to make sure that they stay on intermediaries’ radar.
“It’s a co-dependent market. Sellers benefit from quick-fix cash sums and at a better rate than surrendering them back to the life office. Meanwhile, for investors looking for attractive, stable returns without the roller coaster ride of equities, buying a second hand endowment policy can make a lot of sense. In both instances, IFAs can enhance their client relationship by really adding value.”