The Faculty and Institute of Actuaries says with-profits is finished if the Treasury requires full client disclosure of smoothing.
The FIA says IFAs would be likely to be misselling if they advise clients to buy with-profits.
Under close questioning from members of the Treasury select committee on Tuesday, Faculty of Actuaries president Tom Ross and Institute of Actuaries president Jeremy Goford both agreed that “time would be up” for with-profits if the Treasury decides on a high level of transparency for smoothing.
Goford said if IFAs recommended with-profits at a time when transparent smoothing was negative, it would be tantamount to misselling. He agreed with Labour MP Nigel Beard that presently with-profits does not provide the savings benefits or incentives that other simpler savings products have.
Ross also agreed that the prospect of advising clients to buy with-profits under a fully transparent structure would be “risky” for an IFA.
However, FSA director of retail firms David Strachan, who represents actuaries in house at the regulator, came to the defence of with-profits, telling the committee members that it still presents a unique proposition in that it helps investors through the peaks and troughs of the market over the life of the product.
Goford says: “Time could be up for with-profits. It depends on one issue – whether or not full transparency is required. If it is, an IFA would be in trouble if disclosure of smoothing was negative and he still sold the product.”
The Jelf Group business development director Brian Lawless: “The Treasury has no choice but to force complete transparency, otherwise it undermines its whole policy of simple products. Transparency will certainly bring down with-profits.”