The Aifa and the ABI have agreed to develop a "PPFM portal" to provide financial intermediaries with access to these key with-profits documents from product providers.
This move follows evidence compiled by the FSA which suggests just one in five advisers are using a life insurer’s principles and practices of financial management (PPFM) document or are at least aware of themwhen advising clients about any with-profits policy, despite regulators stressing financial advisers use these, along with other sources of information, when making client recommendations.
With-profits providers were told by the FSA to develop PPFMs as part of the regime designed to help consumers better understand with-profits policies and their risks, following a lengthy review of the sector which began in 2001.
According to the FSA, part of the problem may be inaccessibility to documents, as the regulatory body says much more needs to be done to improve access to documents as well as clarity and quality of the content and some PPFMs were difficult to locate on the firms’ websites.
“We continue to be concerned by the low level of engagement with, and awareness of, PPFMs in the advisory community,” says an insurance sector briefing issued by the Financial Services Authority.
“We have discussed our concerns with the Association of Independent Financial AdvisersM and the Association of British Insurers, and welcome their proposed joint initiative of a ‘PPFM portal’; a dedicated webpage for financial advisers providing links to providers’ PPFMs,” continues the FSA.
More specifically, the FSA report on the development of PPFM suggests there is no single insurance company which has met all of the rules governing the document which is designed to give a public account of how a company runs its with-profits funds, how they are managed and how any MVRs or surrender reductions are calculated.
Speaking at an insurance meeting last week, David Strachan, insurance sector leader at the FSA, said while companies have sought to improve the quality of their PPFM documents and their explanations of with-profits policy – particularly as companies have to publish ‘consumer-friendly’ versions of the PPFM by the end of the year – there are still some “significant concerns”, for example about explanations concerning a company’s smoothing policy, as well as how MVRs and surrenders are calculated.
“The quality and clarity of some aspects of firms' PPFMs leave much to be desired,” said Strachan.“Our review found that no firm satisfied every rule. Given the arrival of consumer friendly versions of these documents by the end of the year, it is all the more pressing that any shortcomings are addressed promptly so that they are not carried over into the documents that will be given directly to policyholders.”
Under rules set out in COB6.10, a firm’s PPFM should cover its approach to setting final bonus rates on with-profits policies while its principles should indicate whether the firm applies market value reductions among other things.
To try and help companies understand what the FSA is looking for, examples are offered of situations where requirements and recommendations meet their expectations.
That said, the FSA is particularly concerned some companies have not provided enough information to explain the accuracy of MVRs or the treatment of MVR-free withdrawals, especially where partial withdrawals are allow on products such as with-profit bond policies.
Additional references are made to the current controversy surrounding the tax position of with-profits funds, as the FSA says “it was not always clear who paid the tax on the shareholders’ proportion of the bonus” and how firms treat tax when calculating asset shares.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Julie Henderson on 020 7968 4571 or email [email protected].IFAonline
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From 6 April 2019