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With-profits wizards

The FSA has made crystal clear the importance it places on consumers having access to ongoing advice on with-profits business.

Although the title of the regulator’s recent insurance sector briefing, Quality of post-sale communications in the life sector and availability of ongoing advice to withprofits policyholders, may not make it seem as interesting a prospect as the latest Harry Potter novel, for any IFA, the document is required reading.

This is not just because it clarifies what the FSA expects of advisers, it also identified significant opportunities for further advice. When read in conjunction with the recent small firms factsheet, Platforms using fund supermarkets and wraps, it becomes clear that the FSA expects advisers to have processes in place to review where it might be appropriate to replace an existing investment contract with a new one if it is the customer’s interest.

From my reading of the document, I believe the emphasis is on having processes in place to review suitability on an ongoing basis and this produces a major challenge to advisers.

How do they identify which contracts are good value and should be maintained and where is it appropriate to offer alternatives?

In the case of withprofits, this is particularly difficult as these contracts are, by their nature, opaque. It is very difficult for advisers to access the right information and, even if they do, can firms themselves actually analyse these issues in sufficient detail?

This provides a signifi-cant opportunity for the provider community to deliver services to help the IFA. When it comes to having a detailed under-standing of the finer points of different with profits contracts, one name immediately springs to mind – Ned Cazalet.

The good news is that Ned has been working with a number of product providers to deliver tools to help advisers meet the need for this advice.

Aegon has already launched its product which can be accessed at and this will be joined over the next couple of months by tools from Clerical Medical and Funds Network.

Over the last few weeks, I have been given the chance to look at what each company is doing and the following is intended to highlight the differences between their offerings.

Each of the tools uses a two-part process. An initial analysis is used to identify circumstances where the existing product remains appropriate or, if not, what further analysis is necessary.

In the latter case, the service will guide the adviser through collating the appropriate level of information to carry out a review and will then help them in analysing this and deciding what course of action to recommend.

When reviewing withprofits contracts ,it is particularly important to understand exactly which version of with-profits fund you are dealing with.

Each provider offers a paper-based capture form which advisers can use to make sure they have the necessary information in advance to carry out an analysis.

In each case, the tools use the underlying Cazalet Consulting data to help the adviser identify the right fund.

I particularly like the way Clerical Medical has addressed this, with the adviser being able to carry out a text search against the name of a life office or fund which, in turn, produces a table showing the periods during which each fund was available for the adviser to select from.

Where it is identified that more detailed analysis is needed, the services guide the adviser through a process to examine ongoing suitability in more detail with reference to factors such as income withdrawals, any market value reductions that apply and the underlying asset allocation of the existing investment compared to alternative products.

Of the different tools, only the Clerical Medical tool drives advisers towards comparison with its own product as a replacement. The others leave the adviser to identify this separately. That said, there is no reason why advisers cannot then conduct their own open market analysis, having considered the Clerical product.

The Clerical product appears at this stage to carry out a more detailed analysis of the client’s tax position, capturing specific information about the client’s tax code and other related facts.

At the end of the process, each service can generate a report which the adviser can edit as appropriate to record their advice.

This means the output is in a generic form and is not branded by any of the providers. The Aegon tool also allows advisers to insert standard paragraphs into the tool which is an easier way to include any centralised compliance wordings or similar.

Given the difficulties in obtaining and analysing information on with-profits and the fact that this information will underpin the advice that has been given, I am particularly impressed by the process that Funds Network is putting in place to be able to react promptly whenever new data does become available.

For minor changes, its process is designed to update the underlying data overnight. Where more significant changes are announced, it will, if necessary, withdraw funds from the service while this information is being analysed. Its tool shows if information on the service was changed and the effective date of any change.

In addition, Funds Network will provide factsheets on individual funds. These are an extract of the data normally only available in the detailed Cazalet reports.

In a perfect world, every IFA would go out and source the appropriate expertise to be able to conduct such analysis but in the real world this is an expensive process. In providing these services free to advisers, Aegon, Clerical Medical and Funds Network are all helping advisers by delivering the tools to address these responsibilities. Provided the advisers have had sufficient training to understand how to use them, this offers a practical way to provide consumers with the advice they need.

Given the nature and variations of these tools, I would not be surprised if advisers ended up running an individual client through more than one of these services, particularly as each examines varying areas in more detail while retaining the additional reports on file.

For practical purposes, I would expect they would only deliver one report to the client – although this might vary from client to client. In my view, every adviser business should be thinking how they can use tools of this type to meet their regulatory responsibilities in the context of with-profits.


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