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Examine the historic evidence on with-profits

Rather than proliferate the correspondence, I would first like to correct the data quoted and assumptions made by Terence O&#39Halloran in his reply to my published letter. I am an independent and a free-thinker – I speak for myself, not for Skandia or any other organisation.

As an adviser remunerated by fees, I am not interested in working with the majority of individuals or their meagre offerings. I, therefore, could not comment on the suitability of Terence O&#39Halloran&#39s advice to his clients.

He agrees that with-profits funds are exposed to as much as 80 per cent in equities and suggests that all alternatives are also invested in equities.I have never recommended a managed fund and hold no equities in the £8m or so of self-select Peps and Isas which I manage. Equities are not the only game in town.

I am sure that 200 certified financial planners in the UK and several thousand around the globe will be pleased to hear they have such dubious mental ability. Such a comment, if true, would certainly down-value the AFPC and the Inst-itute of Financial Planning&#39s exam process. I am sure the same charge could not be levied at a chartered insurance practitioner.

As a “robust” investment manager not currently exposing his clients&#39 wealth to overvalued equities in a primary bear market, I have not (as suggested) lost my clients 30 per cent of their hard-earned wealth.

On the contrary, my clients&#39 portfolios have performed well over the last two years since stockmarkets peaked and all gained in the month of September 2001 (when an investment into the Govett US bear fund (UT) implem-ented on June 16, 2001 and sold on September 18 yielded a 9 per cent profit).

Oh, and trail fees if any (commission, where possible, is reinvested) are credited to each client&#39s fee account.

No, I am not a clairvoyant – just a hard-working adviser who commits a great deal of his time and energy to painstaking research so that I make the right investment decision more often than the wrong one.

My decisions are based upon possibility and probability. It is probable that the markets are at the start of a prolonged bear market (like Japan) but it is possible that these exceptionally overvalued markets could move higher and become extraordinarily overvalued. Looking back and studying history is a great research tool and I use it all the time.

However, it is essential that one learns from history or one is destined to repeat it.

The comments and assertions regarding with-profits funds in my original letter were, in part, based upon research we have commissioned from two independent consulting actuaries.

Both concluded that if the All Share index should fall by 50 per cent or further and remain at this level for five or more years (like Japan), terminal bonuses would be eliminated, annual bonuses would fall and many insurance companies would become technically insolvent.

Finally, Mr O&#39Halloran suggested that “people” ought to do more research before opening their mouths. I agree entirely. My own research and knowledge (I was also involved in financial services during this period) of the historic bear market period 1967/1982 confirms that the FTSE 100 Index, incorrectly quoted by Mr O&#39Halloran, was not introduced until 1983.

The FT 30 index, however, fell, not from 1,500 to 147 (90 per cent decline), as incorrectly stated by Mr Halloran, but from 542 in May 1972 to 146 in January 1975 – a fall of 73 per cent. During this long bear market, many life insurance companies paid no terminal bonuses on their with-profits funds. And this was at a time when with-profits fund exposure to equities was much lower than today and their profitable regular-premium business much higher. This historic evidence alone should make advisers examine the with-profits model and reach their own well-researched conclusions, as I have done.

Roger Harris

Certified financial planner,

Roger Harris & Co,



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