View more on these topics

&#39If a 100/0 fund replaced the 90/10 fund, there would be concern about where capital strength was coming from&#39

Life offices have had their feathers ruffled by suggestions that Sandler&#39s with-profits proposals – which would see funds ringfenced to prevent them being used to cross-subsidise other business areas – could become mandatory.

Prudential UK chief executive Mark Wood accepts that the suggestion will have people looking at the Pru but says this is merely because it has the biggest with-profits fund in the UK. Its fund was last valued at around £70bn and its orphan estate was valued at between £6bn and £8bn at the end of 2001. No other company is so closely associated with traditional with-profits.

The FSA is keen to stress that DP20 is a discussion paper and not a consultation paper. When the paper was issued, FSA managing director John Tiner said he was keen to hear opinions about the Sandler model becoming mand-atory, accepting that such a move could have significant implications for with-profits offices, particularly the redistribution of orphan assets, the supply of capital for new business and what happens to traditional-style with-profits funds when they are closed.

Wood is clearly cool about being forced to move to a 100/0 structure. Unlike Norwich Union and Legal & General, which say they will resist any move to stop them selling traditional with-profits, Wood takes a more softly-softly approach. He broadly welcomes the Sandler approach while questioning the need to ringfence funds.

Wood says: “We absolutely understand the attraction of the 100/0 structure but consider that, for a strong and well-regulated fund, where the principles of financial management are publicly stated, the advantages can easily be overstated.”

However, Wood says he feels that many of Sandler&#39s reforms can be incorporated within the existing structure. For example, he believes an explicit charging structure could be attached to a 90/10 fund. But he does not rule out a restructure. “We are examining the options for moving to a 100/0 structure,” he says.

Wood says the Pru already has structures in place which would give it a headstart in creating a new-style fund. He points out that Pru&#39s with-profits offering in the French market and the international with-profits bond domiciled in Dublin both conform to the more modern ringfenced structure.

But Wood says he remains to be convinced that any such move would be in consumers&#39 best interests. “If a 100/0 fund replaced the 90/10 fund, then there would be concern about where the capital strength was coming from,” he says.

He adds that this is a concern he has heard IFAs express.

Does Wood think the FSA will go so far as to require the Sandlerisation of all future with-profits business? “I think it is possible but an unlikely outcome,” he says.

If it does happen, it would have implications for Pru&#39s famed orphan assets. The company has been in discussions with the regulator on the issue since 1996 although it stresses that these concern attribution rather than distribution.

“There is no question of being forced to distribute the inherited estate,” he says, adding that it would be many years before it became a pressing issue.

Wood believes the 340,000 people who currently have a Pru with-profits bond should continue to benefit from the cushioning strength provided by the orphan assets.


Women&#39s intuition

When all-female IFA Finance 4 Women was formed last March, its founders admit they had no idea how their new venture would pan out. Eleven months later, however, they have no hesitation in declaring their new company an unqualified success.“It has been a whirlwind,” says Karen Ritchie, one of the firm&#39s four founder members. “From […]

HBOS bolsters Clerical with £500m injection

Clerical Medical has had a cash injection of £500m from parent HBOS to improve its financial strength and investment flexibility after investment losses sustained last year.The company has declared a free-asset ratio before allocation of the new capital of 7.1 per cent excluding future profits compared with a FAR of 11.5 per cent at the […]

New Govt agency to clamp down on crime barons

A new Government agency launches this week with the power to confiscate or tax cash and property where the owner cannot prove they were gained by legitimate means.The Assets Recovery Agency gets its powers through the Proceeds of Crime Act that this week also brings in a duty on IFAs to report suspected evidence of […]

HSBC sells Fof range via branches

HSBC is offering three funds of funds through its high-street branch network.It claims to be the first high-street bank to offer a fund of funds service to customers.The funds will be rolled out to IFAs in early spring.The three options available are growth, income and global growth.The bank says the funds of funds are designed […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm