The Consumers' Association wide-ranging and trenchant report into the with-profits business, Profits at the Consumer's Expense, has provoked a mixed response across the industry.
From providers which do not offer with-profits policies, the report is welcomed.
Skandia brand manager Peter Jordan says: “We welcome the report, which recognises the limitations in this kind of investment vehicle. We at Skandia have been aware of the issues highlighted in the CA report for a number of years.”
New entrant Britannic Retirement Solutions corporate development director Robert Bullivant claims to offer the product that the CA is calling for – with total transparency, guaranteed charges and a declared smoothing allowance.
Companies which do feature with-profits policies offer a measured and careful response, with the notable exception of Norwich Union, which is outspoken in its criticism.
Few providers are willing to be seen to be disputing the need for greater transparency called for in the report and point to recent improvements in this area.
Standard Life general manager of marketing John Hylands, while saying he broadly welcomes the report, is concerned “the reader risks being misled by the wide-ranging way in which the report is written”.
He diplomatically adds: “Some lines of the report make it unclear whether with-profits or wider issues are being addressed.”
Norwich Union deputy actuary John Lister declares it “ludicrous” for the CA to say that no one should buy with-profits policies. He describes the report as “factually inaccurate in a number of ways”, adding caustically that “it would have been nice if the CA would have taken advice from experts”.
A particular inaccuracy that the industry points to in the report is the criticism of decreasing annual bonuses, which life offices claim is due to diminishing investment returns rather than a wider conspiracy.
The issue of early termination penalties also draws a mixed response, depending on the particular provider's own policy on front-loading or spreading charges. Providers do continue to extol the virtues of with-profits policies to offer protected exposure to equity markets.
The way in which the report tars the whole industry with the same brush has met with resentment. “There is a danger that the reports finding are taken to be applicable across the industry,” says Hylands.
Another criticism widely aired is the report is stale and relates to the past rather than the current state of play.
Why then should the CA have chosen to pitch their report in this particular way? One suggestion is that the report is motivated by sour grapes. “It looks as though the CA have been irritated by the judgment in the Axa case,” says Lister.
He disagrees with the report's comments on orphan assets, emphasising the benefits of free assets and points to the Equitable Life debacle. “You are damned if you do, damned if you don't,” he says.
There is also the suggestion of a turf war with the FSA, and some hint at the CA's need for headline-grabbing positions to maintain visibility and sell its publications.
The CA's suggestion that the FSA is not competent to investigate this issue finds little support. As for the FSA itself, the report elicits only “hope for a constructive dialogue” from spokesman Robert McIvor.
The CA report joins an increasingly dense flurry of investigations into with-profits – the FSA and the Faculty and Institute of Actuaries are conducting investigations and there is a Trea- sury select committee look-ing into Equitable Life.
IFAs' responses are less guarded and range over both extremes. Wilcox Young managing director Bob Young says: “The Consumers' Association is absolutely right – the sooner insurance companies stop doing investment business the better.”
He criticises them for opacity and says no one has any idea where they are investing, suggesting a unit trust is preferable every time. “Insurance companies should stick to protection,” he says.
But Advisory and Brokerage Services managing director Gareth Marr, while adm- itting that the report raises issues that need looking at, says: “The situation will not be improved by scaring investors with rabid headlines.”
Like many in the industry, Marr is worried that the report might be counter-productive and could push policyholders into early termin- ation of their policies, which the report highlights as being poor value.
Marr says: “The Consumers' Association needs to be careful not to scare people into cashing in what have actually been very good investments. Policy holders will always lose out if they redeem policies before maturity. That is hardly in the interests of the consumers the CA purport to represent.”