With profits are about to be forced into terminal decline as "exaggerated" bad publicity and regulat...
With profits are about to be forced into terminal decline as "exaggerated" bad publicity and regulator "obsession" with transparency have destroyed the product's reputation, a Datamonitor survey says.
Its figures indicate that 56% of IFAs have reported either a "negative" or a "very negative" reaction from customers at the mention of the phrase "with profits".
On top of that, new pensions with profits premiums are set to drop from just over £1bn annually last year, to just over £700m by 2007, Datamonitor forecasts.
Regulator obsession for transparency is largely to blame for the deterioration of with profits, says Datamonitor's life and pensions analyst Nicholas Stephens, with people such as Ron Sandler showing "a tenacious hatred of the with profits proposition because it does not tally with the latest buzzword of transparency".
In order for with profits products to work properly, they cannot offer the transparency the regulator wants, Stephens says. They are thus likely to be negatively regarded because of that, he adds.
Another problems has been negative press reports. Datamonitor believes that with profits did not deserve this, and that the misery of policyholders has been "exaggerated" - as well as the losses involved.
Datamonitor says that with profits will soon have a much smaller role to play becuase of the reasons outlined above. Instead managed funds, distribution funds and, eventually, capital guaranteed funds will become the key underlying investment vehicles in the UK long-term savings market.
However, Datamonitor thinks with profits is a strong product for long term saving, perfectly suited to investors who are less entrepreneurial with their investments, and with a desire for security.
Furthermore, Datamonitor believes that with profits products are already transparent enough becuase the FSA makes it clear that they must be viewed as long term, that bonuses are not guaranteed and that penalties may apply if investors exit early.
The smoothing mechanism also provides trustworthy protection from stock market falls, Datamonitor says.
And whatever the issues raised, there is little doubt that the average UK tracker has underperformed the average with profits fund over the last five years, Datamonitor points out.
"With profits remain a strong product, more sinned against than sinning", adds Stephens.
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