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ABI asks IFAs to explain with-profits to public

The ABI&#39s Raising Standards initiative is to aim its accreditation for with-profits products primarily at IFAs because its explanation of charges and deductions may prove too complicated for consumers.

Life offices which do not offer the with-profits option are claiming that the quality-mark scheme will struggle to make the multi-billion-pound with-profits market transparent to consumers.

The concerns have prompted the ABI-backed project team to suggest its with-profits information will primarily help IFAs to help their clients draw comparisons rather than inform consumers directly.

Under plans for financial services brands to receive accreditation from the Pensions Protection and Investments Accreditation Board, with-profits products will require two documents to explain charges and bonuses.

The first will be a with-profits summary providing background information on how with-profits work, including the smoothing of returns.

The second will be a more detailed document contain-

ing technical information

aiming to reveal how life office actuaries work out charges and bonuses.

The ABI scheme was launched late last month, promising to increase the transparency of life and pension products for consumers.

But some providers argue the WP plans defeat a key objective because they will not help consumers understand charges. Gavin Hill, managing director of National Mutual, which has not committed to the project, says: “With-profits bonds are the height of opaqueness and yet the standards will allow for confusion. The initiative will not go far enough so investors will not know how front-end charges are built in to the products.”

Skandia senior manager pensions development Brian Newbould says: “This move shows how complicated with-profits are and how the products ought not to be sold

without advice.”

But Raising Standards project director Andrew Stoker says: “With-profits is complicated and we do not want consumers to be given three or four pages of detailed information although if they want this it can be requested. We expect the more detailed version to be requested by IFAs for comparison between different funds. We are not expecting consumers to request information unless they are particularly interested.”

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