Transparency – pull the other one!

With-profits is a class of investment and type of holding plan which has become the “elephant in the room” within the investment world.

And it really is an elephant!

The size of the with-profits market is truly staggering; around £300 billion is the market size and total of all plan values in the UK.

To reflect this you would think, therefore, that there would be a sizeable amount of information available to plan holders in the UK about with-profits, the state of the market, performance and prospects.

Yet there isn’t…

It is virtually impossible to find any reliable information which helps break down the state of the with-profits market in the UK today.

£300 billion is invested into a class of investment (which makes it one of the biggest investment types in the UK) which is largely a complete mystique to everyone. This cannot be healthy.

It is also odd because the regulator of the companies that manage the with-profits funds – the FCA – previously ordered these companies to improve their transparency. The FCA (under its previous guise of the FSA) mandated companies to provide clearer information and guidance, all aimed at making it easy for plan holders to see what they had.

But this has not worked. Companies have tried to conform, producing what is known as PPFM’s – Principles and Practices of Financial Management – and various other guides to try and make everything more transparent. However these documents are often very long, stretching to dozens (sometimes hundreds) of pages and they are commonly full of industry terms.

Your average policy holder will not read this type of in depth, long document.

And even if they do they will not understand some of the terms.

“Terminal bonuses”, for example – what does this mean? Around 1 in 3 adults in the UK are estimated to have with-profits plans; how many of these will know what a terminal bonus is, when it is applied, when it may be withdrawn, how this affects the plan short term and long term? Many plan holders will have no idea and these new documents aimed to help will not help.

Transparency can only come from simplification and this can only occur if there are a series of changes which could include: bonus announcements and individual plan statements, which explain in clear English the exact state of play of that plan for the plan holder, an abandonment of industry terminology and more market appraisals from independent sources.

As a web site aimed at providing such appraisals we can comment with total authority that requests for easy-to-understand information which can be translated into customer friendly terms, generally are not forthcoming.

As a result it is possible to state with equal amount of authority that any claim by any company or by the regulator that this is a market which is now more transparent is completely wrong. Transparency still does not exist in the world of with-profits.

The only real current option for plan holders is to cut through and get an individual review based on their own exact circumstances; a bespoke personalised review/report which will provide the information they need to judge what they have, their future prospects so that they can make an informed decision about how they want to deal with their with-profits going forward.