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Is this a with-profits renaissance?

Advisers and analysts alike have suggested that we could be in the midst of a with-profits comeback as life offices such as Prudential and Legal & General reported a boom in bond sales in their interim results.

Hargreaves Lansdown chief executive Peter Hargreaves in typically combative language is concerned that the with-profits “shovels” seem to be out again and questions the motivation behind advisers pushing the products at such a time. Could the maximum commission levels of 7 per cent have something to do with it? he wonders.

He says: “Why would you put money in a fund when the assets in which it invests are all depressed and any increase can be held back? This indicates that bonuses will be low and in some cases zero. Surely, the time to use with-profits is when markets are high and likely to decline not low and likely to recover?”

Fitch senior director of insurance David Prowse is also surprised by what he calls a “mini renaissance” in with-profits bonds judging by Prudential’s figures.

He says: “There was a general belief that with-profits was fading so to see some evidence of it coming back is surprising.”

But he says it is not yet clear how much of an industry-wide phenomenon this is.

Worldwide Financial Planning IFA Nick McBreen says he has believes it has been happening for years, yet he is still “staggered” that money is still going into with-profits.

He says: “This is not a time to panic and resort to old models that do not work. Bonus rates are either non-existent or tiny, then there are the potential penalties of market value adjustments when moving funds out, the lack of investment diversification and the fact they are not tax efficient.”

Richard Jacobs Pension and Trustee Services managing director Richard Jacobs says one of the dangers is the perceived safeness of with-profits funds amid consumers, who he believes need to be made aware of any investment risk they take on.

Hargreaves’ assertion is that life offices have been quietly accepting the business without making too much of a hoo-haa about.

Not all the life offices report their figures separately in their results, so we will have to wait a few weeks for the Association of British Insurers to publish industry-wide figures before we can tell quite how significant sales have been.


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