“I do believe there is still a massive market out there for clients who have little understanding of risk and investments in general and who would benefit from the smoothed growth provided by a well-run with-profits fund.”
Mr Morrow agrees: “With-profits arguably should be an attractive proposition. It should be a solution for those people who shouldn’t be taking equity-based risk and should be getting a return a bit better than cash but with minimised volatility. The problem with with-profits is that it’s got a terrible name.”
Some insurers – still seeing the merits of its smoothed investment approach – have sought to rebadge with-profits but keep its ethos while adding a modern approach. Prudential’s PruFund range has proved hugely popular with investors, both saving for and at retirement, and until recently a lack of competition had enabled it to monopolise the market.
However, in December 2017 Aviva launched its Smoothed Managed fund as a direct rival to the PruFund range. So far the uptake has been gradual, and Mr Morrow explains that although the arrival of the PruFund rival is positive, further competition is needed.
But he suggests that others, due to the aforementioned regulation requirements, do not have the resources to offer products with the internal risks attached for those offering smoothed investment returns.
“Most companies don’t have balance sheets that they want to expose to that sort of thing, but are focusing on the asset management side because that’s quite an easy sell.”
Regulators are also paying attention, with the aim of ensuring customers know what they are getting. An independent review into the PruFund range, commissioned by Prudential at the end of last year, emphasised that advisers must be aware of the workings of such funds’ asset-allocation processes and governance and oversight policies, as well as how they award and monitor underlying investment mandates with third parties.
Here, as in the case of back books of business being sold to firms that are perceived as being more distant from the average adviser, intermediaries must ensure communication does not fall victim to the rapid changes going on in the sector.
Flavour of the month
Mr O’Dwyer adds there are other developments that could help with client engagement.
“As in every other facet of our lives, the solution lies in the innovative use of technology,” he says.
“The dawn of digital advice has the potential to operate alongside existing advice models, integrating with them to help many more people have the support they need in accumulating and managing their life savings. This is going to continue to drive change in our sector.”
