This year feels different. Over the last few years, anyone working in the with-profits business has been forced to adopt a bunker mentality in preparation for the annual bonus season. Top of the Christmas present list would have been a tin hat for self-preservation and to ward off criticism and adverse media comment. In recent years, the industry has had to contend with a bear market of unprecedented duration. The stockmarket downturn eroded the financial strength of with-profits funds, with some suffering more than others. In many such cases, bonus rates were reduced and fund values fell. Some companies did not pay a bonus, effectively setting the rate at zero. The investment environment over this time was further unsettled by a series of interim bonus cuts by all the big providers which compounded to reduce consumer confidence in with-profits. We have seen a record number of with-profits funds close to new business and cases where financial strength considerations meant that asset mixes reverted to fixed interest, leaving little scope for growth in the future. The with-profits industry was tarred with a single brush. With no distinction being made between weak funds and the stronger funds which offered a safe haven from the poor market conditions by being better managed and financially more adept with dealing with whatever the markets threw up, perceptions of the with-profits industry fared badly. Advisers who were supportive of the with-profits concept of investing could not understand the stance taken by the media over this time. Doom and gloom stories abounded about bonus rates falling substantially. This was despite annual bonus rates reducing across all the well-managed funds since the early 1990s in line with reducing inflation and interest rates. The comparison of maturity rates on a year-on-year basis has only served to confuse the debate. Do you know anyone with two 25-year endowments maturing back to back over two years? Strangely, comparisons with the performance of alternative investments which suffered equally from the bear market conditions were not forthcoming. But 2005 feels different. Equity markets have seen a recovery and, in turn, the stronger providers have been more optimistic about the future prospects of with-profits and the returns investors are likely to enjoy. Over 1999 to 2004, the FTSE 100 produced a negative return of 20 per cent. Being in the industry over that same time, you would be forgiven for believing that with-profits returns fared equally badly but the actual performance tells a far different story. With-profits funds across the board produced positive returns – not bad for a supposedly dead-in-the water investment. At Prudential, a 20.7 per cent return was recorded – a 40 per cent differential over the stockmarket. Others such as Scottish Widows, Aviva, Standard Life and Clerical Medical outperformed the FTSE over this period by between 22 and 25 per cent. These are results which speak for themselves and go a long way to dispel the myth that with-profits is a poor investment choice. For clients invested in the stronger funds, the longer-term prospects are looking up and, for those not so fortunate, who find themselves in a closed fund with little prospect of growth, the good news is you do not have to exit with-profits. Select the right provider and the sector has still much to offer.