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Early predictions of stakeholder being a vanilla product limited to tracker funds have been proved wrong as providers line up to launch new products, which in many cases are substantially better for consumers than their previous personal pension.

Most pundits now agree stakeholder will impact on the entire defined-contribution market and IFAs cannot ignore these developments.

IFAs will continue to select products after analysing the charges, flexibility and performance potential.

The choice of investment fund may be influenced by your strategy towards these low-cost products. Will you stay in active contact with these customers, helping to adapt their investment portfolio as circumstances change, or will you opt for an approach which does not require so much ongoing servicing?

Inclusive funds include managed, with-profits (if they are allowed), lifestyle options and tracker funds. There appears to be a degree of softening towards with-profits funds by the DSS, which will be welcomed by the industry as the
re are a substantial segment of risk-adverse customers who want this level of security. However, there must be concerns over the medium-term performance prospects of with-profits, with the financial implications of stakeholder still unravelling on providers.

The current price war is designed to force the smaller players from the table. I am not sure it is a great time to be a with-profits policyholder unless you are in for the duration and have a long way to go, in which case equities are probably more appropriate, anyway.

Managed funds, which are the traditional inclusive fund requiring little ongoing servicing, are a compromise. Why invest your clients, especially younger clients with 15 or more years to go until retirement, in a fund with 20-35 per cent invested in property, gilts and so on. You are ensuring mediocre performance. But it requires little servicing and it is easy to recommend as a relatively low-risk fund.

The objective of a managed fund must be to provide long-term capital growth with an acceptable level of risk.

I personally favour equity-based lifestyle models as a more accurate alternative which ensures full equity exposure when young, moving to a more balanced investment strategy in the years immediately before retirement.

Another alternative would be to invest in tracker funds. Although these carry a higher risk than either the managed or lifestyle options, tracker funds will be widely available and will be cost-driven. Virgin et al start to look very expensive at 1 per cent for the vanilla tracker fund.

One of the criticisms of the IFA market over the years has been how little ongoing servicing and advice is provided to existing customers. The cost pressures are more extreme than ever and our industry must respond and provide added-value services to ensure the best standard of living in retirement for our customers.

Of course, there is more opportunity to add value through investment performance. Past performance is distorted and can only provide the most superficial guide. Future performance is what counts and IFAs must spend time and effort analysing investment styles and disciplines of the competing investment houses.

Obviously, the best return is secured when low charges are combined with future good fund performance. This is where the IFA&#39s skills come in and where value can be added.


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