Money Management articles from December 2002

Money Management archives from December 2002

First things first; With profits bonds are one of the most successful insurance products ever invented. But will that popularity continue in the light of current woes? Janet Walford looks at the current state of play and gives an overview of how this guide can help.
December 1, 2002... Some GBP75bn is currently invested in with profits bonds and this for a product that has only been around for about 10 years. This makes them one of the most popular products ever, but they have been under constant attack from various quarters...

Why buy a with profits bond? With bonus rates falling almost monthly, Gerry McGrath, product manager at Standard Life puts the case for why with profits bonds still have a place in any well planned portfolio.
December 1, 2002... The with profits bond market has grown enormously since the first product was launched in the early 1990s. In 2001, over GBP15bn was invested in with profits bonds, representing 63% of the investment bond market. Clearly, with profits bonds...

Financial strength; Financial strength is a key factor in comparing with profits life offices, Jon Cudby examines how financial strength is assessed and what it means.
December 1, 2002... In sustained periods of universal economic decline, such as the one that we are currently experiencing, a companys durability is dependent on its financial strength. Put simply the financial strength of a life office is a measure of the level...

New generation bonds; With profits bonds have undergone several makeovers in their relatively short history, but the changes now taking place are perhaps the most fundamental of all. Ken Hogg, director of business development and marketing at Scottish Equitable, looks at what.
December 1, 2002... As 2002 draws to a close it seems that, this year, more than any, has kept the reviewers pretty busy. This year saw three major reviews of the life assurance industry: The FSA with profits review feedback statement published in May; The medium...

The nuts and bolts; How can you have a with profits bond without bonuses? If the Sandler report is accepted in full, there will soon be no such thing as bonuses and with profits bonds, at least as we currently know them. Will Hadfield looks at what has been done so far.
December 1, 2002... Not every insurance company providing with profits investments will have to make substantial changes when the Government publishes its response to the Sandler review. A handful including Britannic Assurance, Scottish Equitable and Scottish...

All about tax; With profits bonds have several tax advantages that make them attractive. Janet Walford looks at the various tax benefits and the pitfalls too.
December 1, 2002... With profits bonds are, simply, single premium life insurance policies. As such, basic rate tax is deemed to have already been deducted at source from the life fund. This means that basic rate taxpayers will have no further liability to income...

How have they performed? With profits bonds have served investors well in the past, but latest results show that values are tumbling. Janet Walford looks at what the bonds are paying out after all charges, and compares the results with building society accounts and tracker funds.
December 1, 2002... Hardly a week seems to go by without with profit policies making the headlines in the national press money sections, for all the wrong reasons. Bonus rates, both terminal and reversionary, have fallen dramatically over the last 12 months. So...

Transparently obvious; In his report on long term savings, Ron Sandler criticised the lack of transparency in with profits policies. Here Rob Kerry, a senior actuary.
December 1, 2002... As with beauty, transparency depends on the eye (or viewpoint) of the beholder, and what may be trans-parent to the regulator and analysts may be as clear as mud to the consumer. Hence, any discussion of transparency needs to take account of...

Early surrender values; Uncertainty in underlying funds and spiralling market value reduction rates have led to with profits bonds receiving a very bad press. But is it fair? Jon Cudby looks at the impact of the MVR on surrender values.
December 1, 2002... With profits bonds are designed to be long term investments. Over time they should provide a steady and consistent annual return. This consistency is achieved through a process of smoothing whereby, in years in which the underlying fund has...

A helping hand; No combination of funds or other investment vehicles would have provided complete insulation from the negative stock market returns in each of the last three years. But, as Canada Lifes executive director Paul Whitaker discovers, a lot of the downside co.
December 1, 2002... The investment community is facing a third year of negative returns on equity investment and longer term sentiment remains bearish. IFAs are facing a reality check on their skills in selecting funds and blending them together in portfolios....

Winning combinations; With an estimated 40,000 funds to pick from, it is impossible to set up the optimum portfolio of investments without the help of a third party. Will Hadfield looks at how manager of managers, fund of funds and discretionary managers go about finding the r.
December 1, 2002... There are two funds for every stock trading in the world today. For those seeking the combination of funds that maximises the potential return from their portfolio for the level of risk that they are prepared to take, the range of available...

Premium products at premium prices; Paying a third party to select funds and monitor portfolios of products that are managed by a range of investment houses costs money. Will Hadfield finds out how much more it costs to access manager of managers, fund of funds and discretionary managed por.
December 1, 2002... Multi manager, multi fund and discretionary management are premium products that have only traditionally been available to the wealthy few. That is changing. Outsourcing investment advice to a third party inevitably incurs additional costs...

A science not an art; Advisers are increasingly under fire for allowing their clients assets to fall in value and are expected to justify every investment decision that they take. Artemiss assistant marketing manager, Sarah-Jane Field, explains how multi fund products can re.
December 1, 2002... The distinction between investment advice and investment expertise is in danger of becoming blurred. Multi manager products are a possible solution that can help advisers serve their clients with both, without needing to become professional...

ASSET STRATEGY; The Sandler report makes some justified criticisms of the financial services industry, says Bruce Moss of Tillinghast-Towers Perrin. We need to focus less on products and more on the underlying asset strategy.
December 1, 2002... Helping investors understand the trade off between risk and reward has never been more important particularly in the current bear market. It would be all too easy for investors to yield to the temptation to run for cover at present but the long...

Taking Stock; Speculation is hard but investment is easy and readers should concentrate on the latter, says former investment banker Russell Taylor.
December 1, 2002... A reader of taking stock, F De Zulueta, has written in saying "you were kind enough to write to me in September 1997 and you proved accurate. Could you tell me what your views are today?". I do not know whether M Zulueta took my advice or not...

PRICE SPIRAL SLOWING DOWN; Rapidly rising premium rates have made private medical insurance too expensive for many people. But Helen Pridham discovers that there are signs that the increases are finally slowing down.
December 1, 2002... This autumn a number of private medical insurers announced that they were not increasing their premium rates on individual policies in the latest of their biannual price reviews. Even where rates have gone up, the rates of increase have tended...

OUTSIDE THE BOX.
December 1, 2002... P aradoxically, the wealthier that a place becomes, the more people it needs but the less affordable housing opportunities it can provide for them. This is an effect that we have seen in UK regions for some time now as teachers, policemen,...

Modifying the ifa model; John Chapman asks what changes should be made to the IFA distribution model.
December 1, 2002... The commission based IFA distribution model has been a considerable success, dominating the pension market. Yet it has been repeatedly criticised by the FSA, by Sandler and by a report from the Centre for Studies in Financial Innovation. Even...

THE CASE FOR ACTIVE MANAGEMENT; Andrew November, head of global strategy at Scottish Widows Investment Partnership, asks whether index tracking funds have a role in the current environment.
December 1, 2002... Investors who chose to put their money into stock market index trackers over the last three years are now likely to be facing some fairly severe losses. Many major equity markets recently slumped to six year lows, with most having fallen more...

INCORPORATING SMALL BUSINESSES; This tax year may be the ideal year for existing businesses to incorporate. But, proceed with caution; there is more to consider than the possible tax savings, warns Chris Brum of Clerical Medical.
December 1, 2002... For anyone running their own small business (or advising the business owners), it is important to consider how that business should be structured and at what levels of income or profits that a sole trader should consider incorporating the...

ADVANCED PLANNING.
December 1, 2002... It is almost inevitable that the inheritance tax (IHT) noose will tighten. The Government has now indicated as much on several occasions. Indeed, the regime has already become significantly more punitive albeit invisibly by the fact that the...

Boiling point; Critical illness policies were the success story of the 90s. But advances in medical science have led to spiralling costs, forcing more companies out of the market. Anna Bawden reports.
December 1, 2002... The critical illness industry is in danger of meltdown. With claims soaring, survival rates increasing and great strides in medical science making serious conditions detectable much earlier, critical illness cover is becoming an expensive...

FUND OF FUNDS COMES TO BONDS.
December 1, 2002... Winterthur Life is setting up an investment bond to provide access to its range of six fund of funds and 44 retail funds. The Credit Suisse-owned insurer, which is best known for its presence in the SIPPs market, already has a with profits...

SAFE COMBINATION FROM SLI.
December 1, 2002... Scottish Life International (SLI) has launched a new protected product. The Safe Combination is available on SLIs offshore investment bonds: the secure investment portfolio and protected investment management service (PIMS). It is designed...

LGM LAUNCHES NEW OEIC.
December 1, 2002... Lloyd George Management (LGM) has launched an onshore retail version of its offshore global emerging market fund. The LG Global Emerging Markets Fund will invest in around 40 emerging stocks and will be benchmarked against the MSCI EMF index....

GOING GLOBAL.
December 1, 2002... Io Investors is the latest manager of managers provider to expand its product range for IFAs. The relatively small investment house, which runs GBP1.6bn of manager of managers money worldwide, is setting up a new Global Bond fund. Global...

THE FIRST OF MENU.
December 1, 2002... Scottish Amicable has forged a link with Lifequote and will be offering its menu-based mortgage protection product through the intermediary networks website. The online IFA portal features a quotes search engine, which takes several...

HENDERSON LAUNCHES PLANS.
December 1, 2002... Henderson Global Investors has become the latest asset manager to launch a structured product as investors seek a degree of protection from volatile markets. Its FTSE 100 Income or Growth Plan offers 6.5% pa income (0.52% monthly) or 35%...

VETERAN PROVIDER LAUNCHES FUND.
December 1, 2002... Private equity house Baronsmead VCT (venture capital trust) has reopened to further investment by issuing a tranche of C shares (which enable additional investment without opening a new VCT). The VCT is run by ISIS Equity Partners and hopes to...

RETAIL AND LEISURE FUND; Sector specific investment through a limited partnership.
December 1, 2002... Property specialist Gullwing has launched a new UK commercial property fund investing in the retail and leisure sectors. The Gullwing No 1 Limited Partnership aims to provide a net total return of 8.9% pa. The initial term of the...

LIFE OFFICE LAUNCHES DIVERSIFIED FUND.
December 1, 2002... For those who want to diversify beyond the retail and leisure commercial property sectors, Scottish Mutual, in association with Westbury Asset Management and Knight Frank, has a new offering. Its Commercial Property Plan will invest in...

Single lease commercial property fund.
December 1, 2002... Unlike the funds reviewed above, Pinder Fry & Benjamins latest offering is based solely on one commercial property. That property is a "central London trophy building", let to a Government tenant until 2021. The Gold Property Limited...

LETTER OF THE MONTH: Mortgage endowment shortfalls.
December 1, 2002... I would like to expand on a matter raised in the November with profits survey. I am not a great fan of endowment mortgages; however I am very concerned that the reasons for the current shortfalls, and the need to take corrective action,...

In the winning corner.
December 1, 2002... Thank goodness the IFA community have had the support of Money Management in our corner during the debate over DPS and related topics within CP121. Your solid, logical, down to earth approach over this potential time bomb confirms your status...

Novembers MVR table.
December 1, 2002... Due to an oversight, the market value reductions (MVRs) table was omitted from last months with profits endowments survey. Table 4a appears below. Please note, however, that these rates were applicable at 15 October and may have changed since....

Feelings of inadequacy.
December 1, 2002... Almost two thirds of UK insurance firms do not view preparations for the FSAs new capital adequacy requirements as a priority, according to a recent survey. The findings, from the technology group, CMG, come as the FSA starts its drive to...

Ethics a problem with FSA as well as City; Regulators in glass houses should not throw stones.
December 1, 2002... As the FSA asked financial services companies whether or not their "dither or delay" was creating errors, the City watchdogs chairman was accused of being "asleep on the job" by a select committee of MPs. The accusation that Sir Howard Davies...

A healthy way to keep on top of cover; New health insurance portal aims to bring CI into the limelight.
December 1, 2002... Specialist IFA John Joseph has launched a new portal targeting IFAs and the public, as part of his plans to increase awareness of health insurance issues. The portal, www.healthinsuranceguide.co.uk, initially provides detailed information...

NEWCASTLE pulls structured products launch.
December 1, 2002... Belated feedback from IFAs has prompted Newcastle Building Society to pull its latest structured product launch at the eleventh hour. Comments included that markets were too volatile and that not even guarantees were enticing investors back in...

HEDGE FUNDs still buoyant.
December 1, 2002... Hedge funds are now worth $600bn, up 6.7% from the second quarter 2002, according to Chicago-based Hedge Fund Research (HFR) figures. $152bn of the $600bn was in funds of funds. There are now 5,135 hedge funds available, up 5.3%, HFR found. The...

CORPORATE BOND demand surges.
December 1, 2002... Bond trading levels on the IC/Bondscape Corporate Bond Index are at a record high. Year to date volumes are up 107%. The index, a joint venture between sister publication Investors Chronicle and online trading platform Bondscape, is up 9.81%...

Stakeholder misses target; The critics are proved right.
December 1, 2002... The first real evidence has emerged that stakeholder is being used largely as a tax vehicle by high earners. ABI research to be released at the end of November will show that the average contribution is GBP140 a month, suggesting that it is...

One step forward; 1st Software edges towards straight through processing.
December 1, 2002... There have been more false dawns for straight through processing through IFA software than there have been predictions of mis-selling scandals. So the announcement by the only back office system with more than a third of all directly...

Caremongering; IFA firm moves into LTC.
December 1, 2002... The Millfield Partnership is to launch a specialist arm solely offering long term care (LTC) advice. The Millfield Care Partnership is looking to employ up to 50 specialist IFAs who will operate across the UK as registered individuals. It...

CHANGES TO TAXATION OF OEICs announced.
December 1, 2002... Three taxation changes to UK OEICs will be made in the next budget. Overseas investors will no longer be liable for inheritance tax. Nor will they have to receive interest gross from a fund to declare non-residency. And unit trusts that merge...

FSA fines to be paid by shareholders.
December 1, 2002... Shareholders rather than policyholders will have to pay any FSA fines levied on life insurance companies, under rules that came into effect in November 2002. The move is designed to encourage firms to comply with FSA regulations in future. The...

ACA: DB KOed in uk.
December 1, 2002... Over half (55%) of UK final salary schemes are now closed to new employees, a survey has revealed. The Association of Actuaries research showed that a further 32% are reviewing their current arrangements and fewer than 1% of employees held a...

Number 10 adviser joins pensions fray; Push for money back annuities and contribution protection.
December 1, 2002... Ros Altmann, senior policy adviser to Number 10 and the Department for Work and Pensions, has come out in favour of money back annuities. Speaking at the Britannic Retirement Solutions conference on the future of annuities, Altmann said that,...

TEP bonanza; Bargain policies attract buyers.
December 1, 2002... A barrage of negative publicity about endowments has created an oversupply in the traded endowment market (TEP) and unprecedented buying opportunities. Brian Goldstein, chairman of the Association of Policy Market Makers and managing...

Pressure mounts on FSA to regulate equity release.
December 1, 2002... AIFA and Help the Aged have joined Britannic and the Consumer Association in their calls for equity release to be regulated by the FSA. At the Treasury Select Committee meeting on 14 November 2002, Sir Howard Davies, chairman of the FSA,...

R&SA reopens to new business.
December 1, 2002... Royal & SunAlliance is back in the life business again, albeit as a marketing channel. Its direct arm More Than in conjunction with LifeQuote will sell critical illness, level term and mortgage protection policies from 14 third party providers....

Mortgage exam deadline looms.
December 1, 2002... Advisers have little over a month to pass the mortgage exam if they are to be able to advise on mortgages in the New Year. According to the Mortgage Code Compliance Board, almost 41,000 of the estimated 55,000 mortgage advisers have qualified...

Split cap crisis? Complaints fall short of expectations.
December 1, 2002... The financial services ombudsman has received only a fraction of the complaints for split capital trusts that it did for endowment policies. The figure currently stands at 8%. According to Iris Baker, press officer at the ombudsman, only...

The fat lady starts to sing; Is it the end of OPRA?
December 1, 2002... The Occupational Pensions Regulatory Authority (OPRA) is coming under increasing fire for its overly draconian approach to regulation and its apparent inability to prevent the pensions crisis. The National Audit Offices report on the...

LIFE COVER GAP BIGGER THAN SAVINGS GAP.
December 1, 2002... The amount of life insurance held by UK consumers needs to double, a report by Swiss Re Life & Health has warned. While ABI research identified a savings gap of GBP27bn late last year, this report says that the life protection gap is GBP2...

PAST PERFORMANCE FIGURES ARE HISTORY.
December 1, 2002... The new FSA guidelines prohibiting the use of past performance in advertising financial products come into effect from 1 December 2002. The regulations, outlined in CP132, prevent advertisers from basing entire campaigns around past performance...

FSA CONFIRMS MENU APPROACH.
December 1, 2002... The spectre of IFAs who charge commission losing their independent label has faded. The FSA has confirmed what Money Management reported last month: the defined payment system (DPS) has been abandoned in favour of a menu-based approach...

Standard life denies equity back down.
December 1, 2002... The equity weighting of Standard Lifes with profits fund dropped from 73% to 57% in the three months to the end of September. But the life office denies that it has reversed its bullish stance. Gordon Arthur, director of corporate affairs, says...

COMMENT: Infamy, infamy.
December 1, 2002... That beautifully wry play on words by actor Kenneth Williams in the film Carry on Cleo, "Infamy, infamy, everybodys got it in for me", is how I imagine many IFAs must feel about this industry when everything seems to be conspiring to put them...