With-profits guru Ned Cazalet says IFAs face a "real struggle" getting accurate information on with-profits from providers.
He has urged advisers to lobby the regulator through their trade bodies to try and improve the standard of information on clients' policies and the time it takes to be delivered.
“IFAs are being told to improve their information to clients but without better quality information from providers, they will struggle to achieve this task,” he says. “Advisers don’t have a change of understanding life offices structures and how they operate their with-profits fund.”
He says the issue of what to do with money held in with-profit is a massive one for the industry as £400bn is tied up in the funds.
Speaking at a seminar on With-Profits hosted by Aegon Scottish Equitable, Cazalet stressed the importance of advisers get exact information on their client’s individual policies and not accepting generalised figures.
He says regular reviews, perhaps annually, were also necessary as significant changes could be made to policies in a short space of time.
Cazalet, who has acted as an adviser to the Treasury and key industry players on with-profits, says it is key to look at the client’s expectations at the point of sale and compare them to the profile of the fund now. This would include assessing asset allocation, charges, bonus and smoothing prospects for the future.
Key points to consider include:
- whether the solvency capital has the same asset mix as asset shares and check the asset mix for individual policies
- look at the maturity date of the fund as equity weightings will drop as the fund as a whole matures.
- also important to look at derivatives as put and call options reduce downside risk but restrict upside and equity collars can choke performance in rising markets.
- check timing to maximise returns to clients taking advantage of spot guarantees and MVA Frees.
For advisers wishing to move out of the funds, he says some may start looking at equity-type funds with capital/income guarantees as well as hedge fund style absolute return funds.
However, Cazalet stresses not all with-profits funds are bad and there are attractive propositions available including some closed books of business.
Cazalet has recently collaborated with Aegon Scottish Equitable and Towers Perrin on a new with-profits modelling tool which helps advisers determine whether clients should stick with their current policies.
Aegon also suggested to advisers they should read the ten questions the FSA advises consumers to ask on with-profits.
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