Your views: is the FSA being tough enough on With Profits?

About time too - even if it is about 5 years late.  

For the first time I actually find myself agreeing with the FSCP-  the Regulator is not nearly tough enough. 

I look forward to seeing Std Life, Clerical and Friends Provident - as well as many of the closed funds (to mention but a few) get a real kicking over this.      

Harry Katz

Norwest Consultants

Action needs to be taken urgently, particularly with providers of closed With Profits funds.

Is it just a lack of information, or a tactical lack of information being provided to policyholders and advisers alike?

Assuming no regulatory pointers, how would you expect a FTSE 100 company to communicate MVR free/concessionary features to their policyholders whilst protecting a closed book which they derive shareholder value from?  

Help us to help our clients.  

Stuart Knight

Miller Knight

Absolutely not, I agree that they are not being tough enough. Some with profits providers are great, easy to deal with, good asset mix, and fair transfer values if it is appropriate to transfer.Others (and some of the ex IB companies tend to be the worst offenders here) can be virtually impossible to deal with, trying to get meaningful information out of them is like getting blood out of a stone, illustrations that are meaningless and also make it almost impossible to compare like for like, and penalties that are obscene.As you would expect it is often those with the worst performance that have the highest penalties for getting out.I know the argument for protecting the fund is always raised by these companies but does that stand up when RBs are nil and everything is dependant on the TB?The FSA should put the pressure on these companies and force them to treat customers fairly in this regard.Sorry for the rant, but I feel very strongly about this as come companies with appalling performance are forcing customers to stay even though there is little prospect of a decent return.   How about a specific campaign to treat with profits customers fairly?  

Having read the letter it is a start but whilst mentioning independent input into recommendations as to how the funds might be managed going forward in the best interests of the policyholders it also says that advise may be ignored by the board.

So is it ok to spend policyholders money on committees and NED's expenses and salaries and tick boxes only when it comes to it be ignored.

It does not name names so we can not recommend "fair" providers against those that may not be so fair. Where is the transparency in that? And how are we meant to make informed recommendations when all is shrouded in clouds of mist.

When are the FSA going to start to treat us and the consumer fairly? So that we can make proper informed recommendations that have the authority of written evidence made available by the FSA.

Only trouble with this is, where in the meantime does it leave those of us who are reviewing clients with-profits?  a change could make it even more difficult to assess possibly putting many reviews on hold for at least one year until new reports are available.

Surely the best way to deal with this situation is wholesale reviews?  Each life company identify if the adviser linked to the product is current, if he isnt allocate an IFA somehow and have the plan reviewed.  If the company wants to keep them then they have to improve client benefits otherwise the adviser will recommend a move.

The "Board" thinks it is all theirs so they take it from the poor souls trapped in their funds, as a former IFA it makes me ill seeing my clients being fleeced (no Welsh pun intended), to me it is the financial death by a thousand cuts and the regulator allows it to continue. Shame on it, and shame on the parasites who prey on their victims.

With all the fuss about the RDR and advisers why is there such reluctance to advise ?  If clients money is in the wrong place surely it is the advisers job to sort it out - not the provider or the FSA. How can it be right to leave clients in these funds when positive advice a couple of years ago would have seen MVA's absorbed and positive growth achieved. 

Do some research and find out the asset allocation of each fund, talk to your client about the way this particular world has changed, probably forever, and what needs to be done to get their money working again - isn't that what they think we do ? Or is independence just a buzz word for some ? 

Agreed what about the orphans who dont have a current adviser?

Afraid I can only deal with my bit of the world, Ian - selfish I know but I will have to leave the rest for somebody else.

However if we all took some action, then it just might prompt change on a broader front a little more quickly than a debate ever would.

Oh dear, Phil I thought you might know better than to bring hindsight and simplistic argument into the treatment of "with profits" policyholders.

1) What would your defence be if the market had not grown over the past 2 years as it has done?

2) Could you justify the additional risk that you would presumably be taking with those clients funds ? (as if you had opted to invest just in cash, Gilts and Bonds then I doubt you would have seen MVA's absorbed might even be showing negative position).

3) If you had elderly clients in "with profits" investment bonds and you advised them to transfer to OEIC's,unit trusts or investment trusts or even new life assurance investment bonds and then they subsequently had to go into residential care - what would be your defence against the claim of deliberate deprivation of assets (new life bonds) and /or inclusion of capital as assessable assets  (OEIC's UT's).

To mention just a small number of things that could go wrong / be held against you.

But I do agree that we should get on and advise this is why I call for the FSA to come out and name names and give clear advise to us and consumers so that we can advise from a position of strength rather than supposition gleaned in dribs and drabs. It should be the main duty of the FSA to treat consumers fairly this will bring about confidence in the market, not as is present practice, protect the large providers by giving anonymous numbers of miscreants. This has just, as we have all witnessed, brought about general mistrust and the first major run on a UK bank for over 140 years. We should learn our lesson.

See below an open email to the FSA on just the subject of TCF. I long to hear what excuse they come up with now.

Good afternoon Sarah, 28.9.07

We haven’t been in communication before. I am concerned that having spoken to several smaller IFA firms, it would appear that like me, many of them believe that when it comes to the providers and Treating Clients fairly, in some areas, particularly those involving clients with individual stakeholder plan contributions being collected through payroll, that whilst these may be commonly described as “Group Schemes”, the providers are treating them other than they should.

I have raised the issue with one of the providers who we have Group Schemes with and they appear to be acting in their own business interests and not respecting the individuals rights, the Data Protection Act and perhaps even the policy details they provide to clients and the Terms upon which they accept new business from advisers.

Bearing in mind it is just as important that providers put in to practice the principles of TCF, I wonder if you would be kind enough to contact me to discuss this issue. Amanda Bowe may already have forwarded the details of this to one of your team.

The comments below my email footer are not mine as I can explain the case I have which is not being handled fairly, but I thought it worth highlighting what other IFAs think and say and to find out whether you do really want to know or not?

I lawait hearing from you at the earliest opportunity to see whether I should believe what the other IFA said on his Blog, i.e. the FSA isn’t interested in TCF when it’s the providers who are out of step with FAIRNESS. The clients concerned with the scheme we were operating have not been Treated Fairly for nearly a year now and we have exhausted practically all avenues other than suggesting clients make a complaint to the Ombudsman, which is not how I think this issue needs or can be resolved.

Kind regards

Phil Castle

Financial Escape Ltd - Independent Financial Advisers

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From a.n other advisers blog

Can an adviser properly act in the best interests of an employer AND an employee? This is particularly relevant to Final Salary Schemes. What is in the interest of the employer/trustees is not necessarily in the interests of the Employees.

What about when the Employee has no confidence in the Employers chosen IFA? Should the employee be required to pay fees on top of the charges already being deducted form his pension to cover the commission for the employer's chosen adviser?

I have many instances of clients who are members of Group PPP plans, who cannot get ANY advice on fund selection/asset allocation from the group scheme adviser. They are given a booklet and a list of funds and left to their own devices. A number of these clients have asked me whether they should transfer old PUP'd plans into the Group plan. I tell them to contact the holding IFA. Some have then been told that for Transfer advice they must pay an additional fee. Others have been told simply that the adviser does not give advice on transferring.

My own son is a senior computer network manager with (Investment Bank). He is unable to obtain investment advice in connection with the company pension scheme. When trying to review funds for him I discover that they are held on the L&G platform and that a number of funds are not actually published ANYWHERE. Eventually I managed to get some information by talking to L&Gs investment team. There is no way that he could have given proper consideration to fund selection himself and no-one was prepared to advise him.

The wife of my mortgage manager had a similar experience with her firm and was unable to get anyone to help in fund selection.

There are other areas of concern and there is undoubtedly a failure of many large IFA firms to service Group Schemes properly. The only sensible way to resolve this is for providers EITHER to operate a factory gate process and

let the employees pay whoever they wish for advice or to set up systems which are capable of handling two IFA firms and distributing commission appropriately.

In my estimation there are millions of individuals (and the number is increasing) who are shoved into Money Purchase schemes by Employers and advisers and then left to rot - with no proper individual investment advice.

The Group scheme adviser takes his commission and does NOTHING beyond the initial recommendation, and an occasional visit to the employer’s premises usually for the sole purpose of collecting applications from new employees, when they are usually told to contribute to the default vanilla fund regardless of their own risk profile etc.

This needs to be sorted out because i do not believe that it is possible for the Customer to be Treated Fairly under the current systems in place. The FSA of course do not want to know!

He is unable to obtain investment advice in connection with the company pension scheme. When trying to review funds for him I discover that they are held on the L&G platform and that a number of funds are not actually published ANYWHERE. Eventually I managed to get some information by talking to L&Gs investment team. There is no way that he could have given proper consideration to fund selection himself and no-one was prepared to advise him.

The wife of my mortgage manager had a similar experience with her firm and was unable to get anyone to help in fund selection.

There are other areas of concern and there is undoubtedly a failure of many large IFA firms to service Group Schemes properly. The only sensible way to resolve this is for providers EITHER to operate a factory gate process and

let the employees pay whoever they wish for advice or to set up systems which are capable of handling two IFA firms and distributing commission appropriately.

In my estimation there are millions of individuals (and the number is increasing) who are shoved into Money Purchase schemes by Employers and advisers and then left to rot - with no proper individual investment advice.

The Group scheme adviser takes his commission and does NOTHING beyond the initial recommendation, and an occasional visit to the employer’s premises usually for the sole purpose of collecting applications from new employees, when they are usually told to contribute to the default vanilla fund regardless of their own risk profile etc.

This needs to be sorted out because i do not believe that it is possible for the Customer to be Treated Fairly under the current systems in place. The FSA of course do not want to know!

John Whipple,

I dont have a crystal ball nor do my clients think I have but I do have responsibility to give advice and the responsibility to accept the liability that goes with my advice. That is one of the joys of being an IFA - honest - try it and see. 

It is strange that we finally have a topic that everyone agrees on.  To pay a 0% bonus when even some of the worst performing funds have been making money is a disgrace. I find it hard to see it as anything other than contempt. I am sure that even the With Profits companies would privately agree.

I agree we have a responsibility to gvie advcie when our clients ask us for it. The problem arises when the provider refuses to give the information to us as his agent because they insist that as a member of a stakeholder with contibutions deducted through payroll, our client is not our client/agent, their employer's adviser is!

That is not TCF, the Provdiers know it and teh FSA appear to be ignoring it. We can only advise if we can obtain the info we need and it is accurate. We have evidence of being told by the employer a Group Scheme was stakeholder on a 0.6% AMC, only to find out after a lot of digging it was a GPP on a flat 1%.

This was not a small scheme and there was an Independant Firm part owned by providers involved.

As a small IFA, trying to look after the interest of our clients, we end up banging our heads against teh walls, costing oruselves time and money by sticking to the principle or we walk away and leave the client to their employer's adviser. THAT IS NOT TCF and we all know it, it's just Big Business and they bdon't give two hoots about TCF unless it's box ticking TCF.

I agree with phil on this. Meeting with the client and reassessing their attitude to risk is the only way. some of these funds were high EBR's at outset yet in recent years have been weighted heavily in fixed interest. How is that in line with what the client perceives their monies to be invested? Recommending a risk adjusted, diversified unit linked alternative is not neccesarily taking more risk is it? At least then you are addressing the situation instead of burying ones head into the sand and hoping the issues will go away. How is that managing a client relationship? Life companies can be chastised for the issue arising in the first place but at least they have been forthcoming in recognising the issues and providing adviser tools to help review these clients plans to assess suitability.

I think its a healthy debate....is the FSA doing enough? Are life companies doing enough? .....I'd also imply that qualified advisers out there also could be doing more to tackle these issues.

Treating customers fairly is not as simple as removing MVAs because returns are not setting the world alight. What about clients who went into the funds at different stages of the market cycle? Would treating all these clients the same by removing all MVAs neccesarily be treating them all fairly?

With the FSA spending time looking into IFAs using high charged multimanager funds let me leave it with this... Which would you rather have put a client into 5 yrs ago...Scottish Mutual With Profts or Jupiter Merlin Income?

A Norwich Union Portfolio with profits Bond is charging a 1% management fee, for paying a bonus rate of 3.50%. You can get 7% from a Building Society. Talk about feeling done.

Some of the comments above reveal a staggering lack of understanding about  how with profits actually works.

I've never seen the need to recommend a with profits contract to anyone but I'd like to challenge all the hindsight experts on this blog to  own up to whether or not they've accepted fat commissions in the past for selling with profit contracts that they (with hindsight) clearly didn't understand.

The only with profits I have arranged for clients since 1992 have been when the client insisted themselves on with profits and requested I reccomended what I felt best based on this restriction.

As a result you could count on both my hands how many with profits I've sold in the last 15 years!

So far, you're the only one to actually admit to recommending with profits in the past, albeit only when the clients had your arm twisted up your back.

Out of interest, did you educate those insistent clients about how with profits works? 

Did you explain the complete lack of transparency of the underlying investments, the arbitrary allocation of bonuses, the lack of disclosure of information about the funds, and the random market value adjustments that could be applied on withdrawal. 

Did you warn them that terminal bonuses could be used as a cynical marketing ploy to sex up the past performance for the handful of clients who stayed the course, often underwritten by swingeing surrender penalties for the the majority who surrendered early?

How come the rest of you are squeaky clean?

Is Phil the only one who'll admit to  accepting the product provider's shilling for distributing their dodgy products?

Somebody must have sold all those contracts. They certainly didn't sell themselves.

Polyester suit, cartoon character tie, leather-look light grey zip shoe wearing crack commission junkie muppet IFAs? 

Save yourself, kill them all.