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With-profits sales set to make a comeback

With-profits sales will make a comeback and could see net inflows in the next two years if equities continue to out- perform cash, argues Nor- wich Union finance director Mike Urmston.

Some commentators say advisers may try and time their re-entry into the asset class by keeping a close eye on MVRs, bonuses and spare asset levels to maximise equity exposure.

Urmston says consistently rising equity markets combined with falling interest rates will limit investor options and will attract many back into with-profits.

He expects interest rates to continue falling, at least for the short to medium term, and says once deposit levels drop from their current 4.75 per cent levels to nearer 4 per cent, investors’ risk aversion levels are likely to increase.

Norwich Union is set to build various types of guar- antees into its with-profits product suite early next year to offer incentives investors who are still wary.

Hargreaves Lansdown head of pensions research Tom McPhail says detailed analysis of a with-profits fund and provider could give a better feel of the likely future returns.

He says: “There could be an upturn at some point and if that’s the game you want to play, digging up the detail could give you a good feel for the fund.”

Urmston points to NU’s raising of bonuses and cutting of MVRs earlier this month, noting the bonus hikes were the first in a decade. Similar moves have been seen across the industry by players with financially strong with-profits funds.

Urmston says: “The drivers are there for strong growth in with-profits business in 2006. With rates falling, where else are investors going to put their money?”

Cazalet Consulting director Ned Cazalet says the industry paid three times more in with-profits claims than it took in total premium income last year so any reversion of this would be a major turn-round.

He says: “The problem is many IFAs are very anti-with-profits and across the industry claims payments are outstripping total premium income by three to one.”

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