With-profits have changed a lot since their heyday so you should carry out reviews to make sure they’re still the most suitable investments for your clients. For example, the average equity weighing of a with-profits life fund in 2000 was 66%* - compare that with the average in 2007, which is 38%*. Quite a difference isn’t there?
*Cazalet Consulting Ltd, Life 2007/2008 report
Think about why your clients took out the with-profits bond in the first place and what their original aims were. Is it still meeting their expectations? If it’s not, do you feel comfortable explaining the reason why?
If that’s not reason enough to review, the Financial Services Authority (FSA) has issued 10 questions it suggests with-profits investors should ask themselves:
- What sort of policy do I have?
- Does the policy still meet my needs
- How long have I had the policy, and how long is left?
- What can I expect my policy to be worth if I keep it until it matures?
- What benefits does my policy have?
- What could I get if I cashed in my policy today?
- Is there any way I can cash in my policy without the company charging a surrender penalty?
- If I do cash in the policy, what should I do with the money?
- I’ve received a letter from my insurer saying I can switch to a unit-linked fund – should I?
- Should I move my money to another insurer?
The FSA gives some guidance to investors under each question. The FSA’s 2005/06 report states that there’s £427 billion of assets invested in with-profits funds, £95 billion of which is in closed funds. That’s potentially a lot of money that could be wrongly invested.
The FSA has also warned that it will take supervisory or enforcement action, where appropriate, where it finds that with-profits customers aren’t being treated fairly. This warning came as part of its Insurance Sector Briefing in May 2007. Follow the link to read the full briefing.