The Association of Independent Financial Advisers (Aifa) has published a member survey on with-profits, together with a guide on issues surrounding the products.
It has also confirmed its first ‘stakes in the ground’ project will focus on with profits, saying it is an increasingly complex area for advisers and one in which the Financial Services Authority (FSA) is taking a particular interest.
‘Stakes in the ground’ was announced at the end of 2004 as a way to benchmark acceptable advice each year given the regulatory, political and cultural conditions existing at the time.
It is hoped the scheme will be used in future complaints to the Financial Ombudsman Service (Fos) and in regulatory actions by the FSA to provide guidance on the state of the market at different periods in time, so they assess firms by the regulatory and political conditions existing at that time and do not apply regulation retrospectively.
Chris Cummings, director general of Aifa, says: “Investment products tend to be long-term and it would be useful to be able to draw upon the evidence of the environment in which products were sold in five or 10 years from now.”
Aifa carried out an IFA census of its members in May, which found 90% of IFAs are not recommending with-profits funds to new clients.
Just over half (55%) are advising existing clients to continue making regular contributions to their funds, and 56% of IFAs who are advising clients to continue investing in existing policies do so ‘frequently’ or ‘almost always’.
While 70% of IFAs are aware information regarding a life office’s with-profit performance is available from a life office balance sheet, 52% are aware this information is also available from principles and practices of financial management (Ppfms) and 46% are aware it is available from consumer friendly Ppfms (Cfppfms).
Further, although the life office balance sheet is the most recognised source of with-profits information, it is also the least used by those who have heard of it.
Ppfms are used ‘sometimes’ or ‘always’ by 71%, while 68% use Cfppfms ‘sometimes’ or ‘always’ and 54% use life office balance sheets ‘sometimes’ or ‘always’.
The information provided by Ppfms is deemed to be the most useful by nearly 35% when comparing and contrasting different with-profits funds. Cfppfms are identified by nearly 30% as the most useful, while life office balance sheets are identified by nearly 21%.
Cummings states: “With-profits products have become an increasingly complex area in which to give advice. With a prolonged decline in the stock market, insurance companies leaving the with profits market and closing finds, and the introduction of extensive information about the way in which the funds are managed, giving advice on these policies has become significantly more demanding for IFAs.”
Aifa’s guide – Advising on with-profits – covers:
- The current position on with-profits and how and why things have changed dramatically even within the last five years;
- The introduction and use of Ppfms and Cfppfms and other relevant information published by the insurance companies such as balance sheets;
- Details about risk capital margins, how insurance companies reduce risk and asset allocation;
- The growing phenomenon of closed funds; and
- What IFAs should do now when advising on new policies, checking clients’ suitability and reviewing existing policies.
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 Emily Perryman on 020 7968 4554 or email [email protected].IFAonline
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