View more on these topics

Take a bearing on with-profits bonds

FundsNetwork head of sales and marketing Rob Fisher charts a course to help advisers review with-profits bond investments

Reviewing with-profits bonds can be like peering into muddy waters but the benefits of navigating through a review can be great.

Reassuring a client that their policy is good or advising them to switch from a poorly performing bond, perhaps laden with fixed income and cash, to a more appropriate investment are equally rewarding.

The latter is a point worth making because it is wrong to suggest that all with-profits products are rotten. Some bonds continue to live up to the promises made by the companies.

However, some do not, which is why a review is an important part of an adviser’s role.

For many IFAs, the obstacles to the review process mean they do not relish the task.

Couple this with the scrutiny of advice on with-profits and many IFAs approach the decision to recommend a switch with extreme caution, not least because of the lack of information provided by life companies.

Even before the review begins, the obstacles loom into view.

First, you have to identify the correct life office and then the correct policy. In some cases, this will be a simple task as the client will come equipped with relevant documentation, leading you straight to their policy details. Other cases will be less simple.

If you were not responsible for selling the policy, you will be starting from scratch and the client may not have all the policy details to hand.

Even if they do, you might have to piece together a complex corporate history to identify the policy they now hold. This is because many of the players in the with-profits market – big and small – have merged, been bought out, sold or in some other way blended into today’s market.

For example, Phoenix Life Assurance – not to be confused with Phoenix Life or Phoenix and London Assurance – was previously known as Abbey National Life, a whollyowned subsidiary of Abbey National. Abbey, as it is now known, sold its life businesses in 2006 so Phoenix Life Assurance is now a subsidiary of Resolution and its with-profits bonds are reinsured to Scottish Mutual, a subsidiary of Resolution. Resolution is in merger talks with Friends Provident, which has its own with-profits fund, although Standard Life and Pearl are rumoured to be interested in a potential approach. Both those companies also have with-profits funds.

Confused? Trying to keep track of with-profits bond providers is anything but simple and this is just one example of many in the with-profits universe.

The ability to retrieve information on the policy from the provider can be one of the biggest obstacles to with-profits reviews.

However, Access to information on policy investments is improving and product providers have made great efforts to comply with the FSA’s directives on investment disclosure. Gone are the days when it was impossible to get bond valuations.

In some cases, the information is just a few clicks away but it can be slow to arrive from offices which choose not to publish their documents on the internet. When it does arrive, it might be bound within documents many pages long – the principles and practices of financial management or PPFM. Reviewing these tomes can prove difficult and time-consuming while comparisons between them are even more so.

Even reviewing the shortened and improbably named CFPPFMs – the consumer-friendly versions – can be time-consuming and will not reveal much, if anything, about the precise nature of the asset mixes held in the fund.

The PPFM, in all its forms, is full of with-profits jargon and the glossary alone might run to three pages. This documentation all uses a common style. Reading one is not like flicking through the pages of a magazine or sales brochure. Think back to your introduction to Shakespeare at O level and you begin to get the picture.

In the context of assessing the suitability of the policy as an investment vehicle for the client, these forms of information suffer for being general statements of principle rather than reports of the position now.

As a source of the current asset mix, they are close to useless. They will describe the principles of the investment manager but have no current information.

For this, you will have to approach the life office or a third party which specialises in obtaining and presenting with-profits investment information. The scale of the task is demonstrated by the thriving industry that is growing around the procurement and assessment of with-profits policy details.

The analysis and comparison of the data you receive will eventually boil down to three things that summarise the suitability of the product for the client.

These three things assess whether the policy is still able to do what it was supposed to and at reasonable total cost. They are:

  • Investment freedom – whether the investment decision-makers have the flexibility to invest as they wish or are bound by a weak balance sheet.
  • The capability to offer smoothing – does the scope of the investment freedom enable the fund to outperform in good years and pay bonuses in bad?
  • The impact of charges and fees – how high are the charges for investment management, administration and other fees such as market value reductions?

The availability of any guarantees or MVR-free windows should be considered as they will have a material impact on the timing of any investment decisions.

It is not quite the same as deciding which bearing to take at the helm but might feel like it.

Advising a client to stick to, or switch from, a with-profits bond is a big decision in itself but can be the most simple task at the end of a long road of research.

As more pressure is applied by the regulator and more clients demand portfolio reviews, including an assessment of their with-profits bonds, the work of some of the third parties offering with-profits tools may prove invaluable to help advisers.

These tools offer support, often with past performance and asset allocation details to be considered alongside PPFMs.

Perhaps the key point is they can provide a consistent and compliant framework to help cut through the confusion and help advisers steer clients towards safer waters.


Hunt aims to boost Lehman mortgage packager profiles

Paul Hunt has joined Lehman Brothers as director of marketing for its residential mortgage brands in the UK.In this role, Hunt will report to executive director of sales and marketing Guy Batchelor. Hunt is responsible for expanding the profiles of Preferred and Southern Pacific Mortgage Limited and driving forward marketing strategy for the two packager-based […]

Edinburgh Portfolio transferred to Jessop FM

Vertex subsidiary Jessop Fund Managers has transferred the Edinburgh Portfolio – subsidiary of Aberdeen Asset Management – across to its book. The £162m portfolio will now be run by JFM, which currently manages 15 former Gartmore funds on behalf of over 4,600 private investors. The three new Aberdeen funds are valued at £162m with 9,000 […]

Lipsey words are gut-wrenching

The article last week headlined, Misleading claims won big payouts, was not the big story since every IFA in my experience has been only too painfully aware of it for years. On the other hand, what was gut-wrenching was the sentence by Lord David Lipsey, who said that, in his experience, some of those compensated […]

Trustee steeds

A lot may ride on a life policy being written in trust so why are so few clients harnessing them? By Will Henley

Protecting long-term savings from short-term policy

By Jamie Clark, Business Development Manager The pensions revolution is almost upon us. As with any revolution, there will be winners and losers. The winners in this case could presumably be the politicians that orchestrated pensions freedom and choice just before the general election. As for the losers, there may be many thousands of people […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm