With-Profits...again

These days, I find it increasingly difficult to drum up any enthusiasm for with-profits investments.  In the days when they had guaranteed sum assureds, and reasonably high levels of reversionary bonus, I suppose I had more time for them.  The things that masquerade as with-profits policies now appear to have more than a passing resemblance to a poor Managed Fund, and with rather less by way of guarantees!

Of course, I am being a little tongue-in-cheek here.  But it is something of a challenge to detect much by way of a convincing future for these funds - or at least a future which delivers definable benefits to the client.  LV have just announced a halving of their returns on their w-p fund in 2007.  Disappointing results have also been announced by Scottish Widows and Norwich Union, and the latest update from Scottish Mutual/Provident has delivered the depressing news that there is to be no Annual Bonus for 2007.  And, if you are an NPI w-p policyholder...

It seems as if w-p funds suffer from having to comply with pressures emanating from quite disparate sources.  The Regulator's focus is on solvency, which almost inevitably results in extremely high allocations to gilts and bonds - with the FTSE A Brit Gvt All Stocks losing -6.23% in 2007, it is perhaps not surprising that these funds have not failed to disappoint in recent times.  The net result can be clearly seen when you review the With-Profits Bonds Past Performance Table in Investment Life & Pensions MoneyFacts: the oft-use of that three-letter word 'Nil' against the various categories of bonus payable.

It is interesting, therefore, to learn that L&G believe that there is still a promising niche for w-p products (and I am willing to bet they are focusing on Investment Bonds).  Call me cynical, but one wonders if this has something to do with the insurer's cosy relationship with Barclays/Woolwich, and now with the Nationwide Building Society.  I can almost see the glossy marketing materials - a headline bonus rate which compares favourably with deposit rates, and a nice big, juicy initial commission payment in the region of 7-8%.  Or more.

Is this a prophetic moment?  We'll see.  In the meantime, it is precisely that kind of focus that highlights the discontinuity between product sales and customer interests, and rather fundamentally undermines the concept of 'Primary Advice', contained in the FSA's RDR.

There is a useful role for IFAs in this difficult area: we need to be more proactive with our clients, to help them understand the nature of these products - and, where appropriate, help devise strategies to minimise disappointment.  You might consider using our template material for a client factsheet/bulletin.  Download your copy by clicking here.