View more on these topics

The usual suspects

Remakes of classics are generally disappointing and the news that J-Lo and Ben Affleck are to remake Casablanca is unlikely to change things.

In a similar vein, I have to question whether remaking with-profits is also going to deliver similar regrets.

The key element of the appeal of with-profits was smoothing or the partial insulation of the investor from volatility in the investment markets. Continuing to use market value adjusters at will must make this smoothing a discretionary feature, with the actuary deciding whether to switch the feature on or off.

As to what to call this inv-estment option, any notion of calling it With-Profits 2 or With-Profits – The Remake should be resisted at all costs.

Just as advisers&#39 remuneration is to be far more transparent, so must investment products, fund choices and their structure become similarly obvious.

A few years ago, a regulator asked me how I found the time to analyse complex investment offerings I explained that I used a standard procedure which I called the 10-minute bin test.

On the receipt of a brochure, I would allocate no more than 10 minutes to reading it and being in a position to summarise its key features mentally.

By key features, I mean the basic proposition, as opposed to the impenetrable document that we currently pass on to our clients, who, of course, then read it cover to cover, or perhaps not.

If at the end of the 10 minutes, I cannot easily summarise its key features (previous explanation applies) then I throw it in the bin.

He nodded and said that perhaps this concept should be introduced as a prescriptive measure but, no, it never made it to a regulatory update.

Just think of the effect that this test would have had on the sales of “precipice bonds”. They would have never made it off the starting blocks, given the markets that the return of capital was linked to – or am I the only IFA who does not understand these fringe markets in detail?

You can complain all you like about the press but on this occasion I take sides with them. Selling something you do not understand fully is stupid and only likely to lead to complaints.

Advisers have a duty to reject products where the upside has all the focus and the downside is almost an afterthought. Where the level of risk to capital is unclear, we, the advisers, should vote by popping the offending material in the bin where it belongs.

We have a duty to educate the public on the level of income which can be expected from different investments. We must avoid trying to find a means to produce high levels of income as the secondary or, worse, the equal objective of protecting the original capital.

But back to the potential desecration of one of the all-time great movies, J-Lo and her beau should take my advice and do the 10-minute bin test – can you measure up to Ingrid Bergman and can he perform as enigmatically as Humphrey Bogart?

The sensible answer is no, so throw this remake idea in the bin and instead create something original. Perhaps those product designers working on the Sandler version of “with-profits” should consider taking a similar course.


Caps off for Sir Howard

Never in the history of the FSA has Money Marketing agreed more with the views of chief regulator Sir Howard Davies. The last combined chairman and chief executive has told the world he does not believe price caps work. He chose an ABI conference to say he disagreed with one of the fundamental strands of […]

Bear necessities

Investor confidence is at an all-time low, with the bear market biting ever harder. No wonder investors are scared to risk their capital. The plight of IFAs is no better. With what confidence can they advise clients to invest? Into what type of investments should they recommend that clients put their savings? The one thing […]

Barrage of protests at lifetime limit

The Inland Revenue&#39s proposal for a £1.4m lifetime fund limit linked to prices has come under fire from across the pension industry as its tax simplification consultation closes. Norwich Union says it is nonsense to base the lifetime limit on the value of the fund at retirement rather than on contributions as this will penalise […]

Fidelity lifespan Fofs in bid to smooth volatility

Fidelity is seeking to transform the UK investment market with US-style limited lifespan funds of funds which aim to smooth volatility by making lifestyle-type switching through asset classes. The three fettered wealthbuilder target funds will invest in Fidelity equity funds at their launch in May and gradually increase their exposure to bond funds before moving […]

Creating opportunity out of change

By Denise Wond, marketing manager The buy-to-let market has recently been the subject of a raft of tax changes, all of which make it a less profitable and less appealing proposition for investors. In response, we’ve seen a dip in demand for BTL mortgages and that’s bad news for many advisers who will now be looking […]


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