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FCA tees up with-profits review as firms receive letters

The FCA has laid the groundwork for a review of with-profits policies.

The regulator has issued an information request to “the majority” of firms that run with-profits funds – offered by life companies to pool investors’ money to invest in a range of assets – to help it conduct an inquiry into the sector.

The work forms part of one of the FCA’s priorities: ensuring the fair treatment of existing customers.

The FCA singled out ‘smoothing’, where policies attempt to minimise short-term volatility, and guarantees as particular features of with-profits business, but will decide on where it wants to focus after the information request has been answered.

The full review will start in the final quarter of 2017 or early 2018.

The regulator writes: “We do not have pre-determined views about whether any particular practices are unfair or are leading to unfair outcomes and have not drawn any conclusions about whether with-profits customers are being unfairly treated.”

Former regulator the Financial Services Authority reviewed with-profits business seven years ago.



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There are 4 comments at the moment, we would love to hear your opinion too.

  1. Julian Stevens 30th June 2017 at 2:53 pm

    I seem to recall the regulator’s first With Profits review was at least 15 years ago, using such a viciously hatchets and sledgehammer approach, like a troop of chimpanzees with machine guns, that it almost destroyed the entire sector. It also caused hundreds of thousands of LC Endowments either to fail to meet their target maturity values or to be needlessly surrendered early because the regulator had stipulated a new methodology for projections that cast them in the WORST possible light. That can only have been completely intentional.

    Sure, WP providers were guilty of dirty tricks such as imposing unduly penal early surrender terms on endowments so as to boost maturity values for those who stayed the course. And it was always difficult to gauge the fairness or otherwise of MVA’s.

    What was needed was reform not a wholesale assault. Let us hope that this time round the regulator makes an effort to act in a more responsible and less destructive manner.

  2. Here we go again, 15 years ago I pointed out to my MP Paul Flynn that most closed with profit pension books would never perform, that clients were not getting any bonuses, yet for regulatory purposes we had to assume the illustrated growth rates. This meant many compliance departments would not allow pension switches out to better products. This still exists today in some networks and nationals. He was not interested, stating the State Pension was the best option. This has caused millions to be left in closed books for the last 15 years, many purchased by venture capital companies who have gladly sat on these funds, in many cases making more then the client.
    The industry has built up viable alternatives to With Profits, that offer value for money and smoothed returns for consumers.
    What is the betting they will look at these new offering first, not the old with profit funds languishing in over charged products, as they cannot change contract law, but can attack current offerings.
    Lest hope the regulator does not mess up like they did on 2003 and have learned from their mistakes.

    • Julian Stevens 30th June 2017 at 4:46 pm

      Closed WP funds, whilst grinding to a halt as far as Reversionary Bonuses are concerned, can deliver phenomenal Terminal Bonuses. For that reason alone, I never advise anyone to transfer out of a closed WP fund. In fact, I advise them strongly AGAINST doing so. No guarantees, but…..

      Example ~ a friend/colleague of mine effected a Low Cost Endowment when working for a now closed life company in the early 80’s. As well as LAPR, he received a staff discount. The target MV was something like £22,000. He paid off his mortgage way before the policy matured but, as the premium was only about £22 p.m., he thought it best to stay with it right through to maturity, so he did.

      The final MV?


  3. Julian is right, Martin is repeating old mantra, I am afraid. Some closed funds are cream-crackered, like NPI which is struggling just to meet guarantees, but in recent years (until Solvency II, another regulatory impediment) many closed funds have been adding so much Inherited Estate, you simply could not have invested in a mixed mainstream asset fund and done better. ex-Royal Life are adding more than 30% to asset shares, for example.

    You have got to look at the detail on WP funds and not apply the ages old broadbrush assumption that they are all zombies, or your advice may be attacked.

    I might even start a claims firm up to challenge lazy advisers on this because I think it would be easy pickings.

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