View more on these topics

Why with-profits model is past its sell-by date

Who can beat the returns from With-profits?

Although I must have missed Brian Newbold&#39s article on the smoothing of withprofits funds (Money Marketing, August 30), I am familiar with his views.

Terence O&#39Halloran is quite right to defend the past performance of withprofits funds. However, like the rest of the investment industry, their limited research seems to begin and end with past performance and only then after being particularly selective.

It could be argued that, with the biggest proportion of with-profits funds assets invested in equities during the period of the best-ever bull market in the UK and inter-national equities in history, returns should have been even better or huge reserves should have been built up.

The fact is that the era of the with-profits model is past its sell-by date. The markets have changed. The products have changed. The customers have changed.

The marketing departments have twisted the arms of the actuaries to invest more and more of the funds&#39 assets into equities.

If the stockmarket correction turns out, as I expect, to be a long drawnout bear market taking share prices down to levels we only see in our worst nightmares and remain so for a considerable number of years, then the effect on with-profits funds will be devastating.

With-profits bonds with their easy sell (low-risk, guarantees, past performance) and obscenely high comm-ission have been the best sellers for all the insurance companies who offer them.

I believe that up to £35bn has been invested in the last three years.

Assuming that the average with-profits fund has an exposure of 80 per cent in equities and the markets are down by 30 per cent, then according to my calculations 24 per cent of this sum is no longer available to policyholders.

In all investment decisions, it is not what has happened in the past but what will happen in the future. From this point of view, Sandler is absolutely right when he criticises the investment knowledge of financial advisers.

I suggest that it is a toss-up which will be the next misselling scandal.

The candidates are low-risk with-profits bonds, low-risk stockmarket-linked income bonds and low-risk zeros.

Roger Harris

Certified financial planner,

Roger Harris & Company,

Leicester

Recommended

Dishonour over transfer

Bryan Little is right to identify the pernicious practice of transferring policies Money Marketing, September 20).I was surprised when I got notice that a client had transferred servicing rights elsewhere and wrote to him, only to discover that what he had intended was for his employee&#39s financial advisers to get information about his current pension […]

Bedford leaves Misys IFA Services

Misys IFA Services head of marketing Andrew Bedford is resigning to take up a position in America in January 2002. Bedford will become director, training and development for ALICO, a subsidiary of AIG. Bedford has been MIFAS head of marketing since January last year.

A lesson in research

I must reply to Philip Thomas&#39 letter in Money Marketing last month. It seems to me he has proved exactly the point that we were making that IFAs do not have the time or resources to do much of their own research.He has taken at face value a few comments in the press and elsewhere. […]

Systems failure

Although a small but significant number of life offices have been building the extent of their new business being rec-eived electronically, on the whole, it would be fair to say that IFAs are not exactly leaping to take advantage of the various tools delivered to enable the market to move away from paper proposals.There are […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment