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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.

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