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Split decision on with-profits

The great and the good of financial services turned up last week at the Bloomberg head office in the City to hear the case for and against the future of with-profits.

Proposing the motion that With-profits Remains a Good Investment for the 21st Century Investor was Standard Life head of with-profits marketing David Hare. Opposing was Skandia UK founder Paul Bradshaw.

A show of hands at the start of the event, hosted by the Financial Services Forum and chaired by chairman of the advisory board Anthony Thomson, found the audience split 21 for and 20 against, with six undecided.

Hare made a solid case that the product “remains” a good option for investors while warning that the new breed of with-profits should not be judged by the structure and performance of those sold 20 years ago. Bradshaw, on taking the podium, quipped that Hare had won the argument for him by admitting that the new-style with-profits were smoothed investments anyway.

When the debate was opened up to the floor, Ken Hogg from Aegon claimed that Hare and Bradshaw were saying the same thing, only coming at it from different angles in that they both believed the future of with-profits depends on the product adapting.

Hare reiterated his point that with-profits has developed. Using a car analogy to illustrate the point, he said the fact that old-style cars were not fitted with airbags was not grounds for slating new cars for the “sins” of their forerunners.

Likewise, with-profits should not continually be slammed because the products sold 20 years ago were not as straightforward as the new breed.

Hare also dismissed Bradshaw&#39s assertion that, for the product to survive, it had to have full transparency. This brought the discussion round to the heated topic of trust and whether the investing public could trust with-profits or indeed financial services.

Hare said the much put upon product over the years has been blamed for all manner of financial woes such as endowment shortfalls and pension misselling, adding that the only thing with-profits has not been accused of is cruelty to animals.

A&B Consulting&#39s Gareth Marr admitted that his heart was in Bradshaw&#39s camp but said he failed to offer any alternatives to with-products that would appeal to ordinary consumers.

Bradshaw came back, saying the way forward was to get away from selling packaged products and to move more to individually tailored products, adding that the challenge for IFAs was to acknowledge that they needed to adopt a stance of “I&#39m a professional who can look after your investment needs” and not just be a product conduit.

Marr added that it was not with-profits that was a tarnished brand but financial services, a point picked up and expanded by Hare who berated the fact that financial services was an industry full of companies habitually backbiting and trying to under- mine each other.

Robert Noach of Schroders took the issue further by accusing the industry of talking itself into a hole. By continuing to debate the pros and cons, he said, financial services was guilty of perpetuating the image problem.

Hare agreed with that viewpoint, saying it would help if, as an industry, financial services could at least agree on the fundamental issues.

The show of hands at the end of the debate highlighted what seemed to be a swelling in the ranks of the opposer&#39s camp. However, a few late arrivals may have skewed the result of 21 for and 25 against, with two still undecided.

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