Skandia has unveiled a new website to help investment advisers assess whether clients should continue to hold their with-profits policies, and make the transfer if appropriate.
At this stage, the with-profits transfer site for financial advisers has been designed to provide the IFA with almost everything they might need to review a consumer holding with-profits bonds – additions are expected to be made at a later date to cover with-profits pensions – and the calculations used to compare potential investment performance are not independent, as the critical yield calculations are pegged to Skandia’s enhanced allocation bond and capital and income bond.
Research conducted by Skandia ahead of its launch suggests of the 900 intermediaries questioned, 92% of advisers are considering recommending alternative investments to clients’ existing with-profits policies, however, advisers are thought to be uncertain of how to go about it.
This also follows recent comments from officials at the Financial Services Authority questioning the quality of financial advice being given on existing with-profits investments.
As a result, Skandia is offering access to a range of tools which include:
- background information articles explaining which companies now own closed and consolidated funds – so advisers can approach them to gather bond valuations
sample asset allocations of 17 with-profits bonds, including those of the main providers
- guidance on with-profits best advice and some of the issues which might affect the value of a WP bond transfer
- an action plan for giving client advice on with-profits client approach letters and provider valuation letters, and
- a critical yield calculator tool which can be adapted to ascertain whether the client’s investment might perform over the coming years.
Among the information covered, Skandia points out specific factors to consider will include whether there are any options or guarantees at surrender or whether there are any dates at which surrender could be completed without financial penalty.
Part of the critical yield calculator also helps to assess what the required investment performance might need to be of alternative products, in situations where the client’s bond also carries life cover and therefore could be affected if there is a reduced surrender value.
Officials say they are not suggesting all with-profits funds are “toxic” however, they note it is “questionable” whether some funds will achieve the returns needed to meet their medium-term risk status since there has been a significant asset shift from equities to bonds in the last five years.
At the same time, advisers have found it difficult until now to advise consumers as to what to do with existing with-profits policies because of the detailed asset allocation comparisons required.
“The with-profits market has been in decline for several years and our research shows that this trend is likely to continue as advisers increasingly look to unit-linked investments,” says Ian Thomas, investment marketing manager at Skandia.
“However, the key issue is whether [with-profits funds] will be able to deliver going forward and advisers have to decide at what point they should advise clients cut their losses and pull out."IFAonline
To promote 'long-term investment'
Switching 'hard and expensive'
Smaller funds still packing a punch
To drive progress