With the real possibility of war on the horizon, stock markets worldwide at record lows and lit...
With the real possibility of war on the horizon, stock markets worldwide at record lows and little prospect of a swift recovery, it is hardly surprising that investor confidence has been shattered. The stock market boom of the 1990s now seems a distant memory and advisers are finding their clients becoming increasingly cautious.
The question on most intermediaries' minds must be how they can persuade clients to invest at all. The answer lies in providing products that consistently meet clients' investment needs. So what are their real needs?
As the FTSE has sunk lower and lower, many people's capital has eroded and they are no longer prepared to take unnecessary risks. Long-term security has become a prerequisite and many clients believe that the only way to secure their capital is to leave it in a cash account. However, most fail to realise the erosive effect of keeping capital in cash.
Potential return, however, is not enough. To persuade these clients to invest, you need to offer them long-term security from a company that they can trust as well as the potential for investment growth. One product that offers all these benefits is the traded endowment policy (Tep).
Traded endowments enable investors to benefit from the smoothed returns and guarantees of traditional with-profits policies ' products that are no longer available as a new investment.
Teps are policies that have already run for several years and so benefit from locked-in past performance with bonuses that are completely guaranteed provided premiums continue to be paid by the purchaser. In addition to this, the policies traded are from the largest and most secure life offices with household names that offer further reassurance.
The capital security of a Tep can be assessed by comparing the investment amount (price plus future premiums) with the guaranteed minimum maturity value (the basic sum assured plus reversionary bonuses declared to date).
Recent investment conditions have actually made Teps more secure ' as with-profits bonus rates have fallen, the levels of capital protection in relation to the purchase price and future premium payments have increased significantly.
Most Tep market makers now have a significant number of policies on their books where the capital guarantees are 80% or over. Once purchased, the guarantees continue to grow each time a reversionary bonus is declared.
In addition to security, the with-profits structure means that these policies still offer the potential for long-term capital growth as markets recover.
In recent months, an increasing number of policies have been coming onto the market, pushing prices down and creating even better value and further potential for future capital growth.
So with recent press headlines and market conditions causing investor inertia, the key is to demonstrate how Teps offer a secure home for capital as well as long-term growth potential.
Once your clients see the benefits of Teps alongside the long-term cost of keeping capital in cash, persuading them to invest will be a much easier task.
Jo Bridger, marketing manager of Policyplus
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