The FSA has issued a warning today about an unregulated equity release plan called Crossroads, from a company called Asset Income Plan Ltd.
The Crossroads plan claims to pay homeowners 5% of up to 50% of their property value for a three or ten year period.
It claims to achieve this by an insurance company taking a legal charge over half of the value of your property. This helps the insurance company meet their capital requirements and accordingly they pay interest on the value of the capital.
In their warning to consumers, the FSA says that people should be cautious about using plans such as Crossroads which claim to offer a ‘no cost’ way of using property to generate an income.
The concept being promoted by Asset Income Plan has been discussed within the IFA community for several months.
Most advisers seem to have neatly categorised the plan, and any others like it, as ‘too good to be true’.
Whilst we welcome product innovation, there is a big difference between this and genuinely useful financial products. Providers of financial products which are not regulated by the FSA, make fantastical claims and are missing the factual information required to make an informed decision are usually best avoided by retail investors.
Many investors, and unfortunately some advisers, are too blind to see the risks associated with unregulated investment schemes and financial products.
The motivation for an adviser to recommend an unregulated product, when there are more than enough regulated alternatives to choose from, can sometimes be difficult to fathom. The obvious motivation is commission and other financial incentives, which tend to be higher than the market average and in some cases more opaque.
We believe that advisers are also sometimes tempted to recommend unregulated products because they are desperate to be seen as having found something ‘special’ or find the story behind these products results in an easier sales process.
In an economic and market environment where it is difficult to invest for reasonable returns, we can understand why some advisers are tempted to go ‘off piste’ in their search for products which seem to be able to deliver better prospects.
Investors will continue to demand innovative products that somehow break the unbreakable link between risk and reward. What professional independent financial advisers must do is have the confidence to just say no when it comes to any product where the investor or adviser is too blind to see the risks involved.
Photo credit: Flickr/Martin Bamford
