Opinion  

How does with-profits measure up against other solutions?

How does with-profits measure up against other solutions?

With a host of life offices lining up to say that they will maintain their with-profits offerings, Legal & General’s withdrawal of the product may not be the end of an era – or at least not yet.

One has to wonder, however, if this may come to be seen as a turning point in years to come.

The move has not been prompted by any capital or regulatory challenges. Pressures that have seen other with-profits offerings withdrawn usually involve the closure to new business or the merger of the business overall.

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However, this fund is in good health.

Clearly much of the move is about the modernisation of advice and advisers, with a post-RDR – and therefore post-commission – fall in business into the fund being cited by L&G for the closure.

It is unlikely that a with-profits offering would appeal to most IFAs these days and certainly not for their accumulation clients. This is an era of investment solutions that fit the client based on a host of factors. Whether it is fair or not, there is a sense that clients are made to fit into with-profits products, not the other way round.

Indeed, historically, the need to make with-profits address the competing demands of many types of investor – the very long-term pension client, the endowment policyholder and the medium-term investor – may have been viewed as one of its biggest weaknesses.

However, given that the product remains on offer and presumably bought into by many people, perhaps we need to challenge some of those assumptions that suggest it is a product for the past.

First, was it with-profits or simply badly run with-profits that gave the concept its bad name? Is it so different from other multi-asset propositions on the market? If bonus strategies and indeed ownership issues between the plc and policyholders are transparent, then maybe it does offer a useful investment engine that also allows smoothing.

Clearly it would seem very odd were one to consult with a financial adviser and find that all the eggs were placed in a with-profits basket. That all seems a little 1995 or perhaps even earlier. But does the product perhaps have a place among all those other investment solutions for the mass market, especially now that sales cannot be driven by unfair commission terms?

The other pressing question is where the product fits into the post-retirement landscape. It might suit the new era of a mix of products as a retirement income solution. Does part annuity, part drawdown and part with-profits work?

With-profits has become much less controversial in recent years because horrendous problems, such as those at Equitable Life, have receded into history.

Perhaps the Tiner project from the FCA helped sort things out too.

Yet there is also an argument to say the product suite needs substantially more scrutiny, at least in terms of how it measures up against the alternatives.