New research from investment management company Managing Partners Limited (MPL) has revealed a sharp rise in the level of discontent among with profits policyholders over the last year.

The research shows that 28% of the generation with the highest proportion of policyholders - the 45-54 age group – say they intend to stop investing in their policies, representing a substantial increase on the 19% who said this in similar research last year. More than one in three (35%) in this age group hold with profits policies.

Jeremy Leach, Managing Director of MPL, commented: “Another year of poor financial markets and disappointing bonus announcements has pushed with profits policies another step closer to their inevitable demise. Those people in the older generation will have bought endowments to pay off their mortgages and will be bitterly disappointed by the shortfalls they have been left with. But the high degree of disillusion among the younger generations also demonstrates that the with profits concept has no future.”

The research also reveals a very low level of penetration of with-profits based products among those aged 35 and under.  Its findings reveal that only 7% of people aged between 25 and 34, and 4% of those aged 18-24, have a with-profits policy.    This compares to 23% of people aged 35 – 44 and 35% of those aged between 45 and 54. The research shows that ownership has declined on the year among those investors who were most disillusioned last year, the over-55s, of which only 25% now own a policy compared with 28% a year ago.

Investors looking for an alternative to with-profits investments that provide steady, predictable returns should consider investing in Traded Life Policies (TLPs). These are United States-issued life assurance policies sold before the maturity date to allow the original owner to enjoy some of the benefits during their lifetime.  TLPs are purchased at a discount from their maturity value, which in the majority of cases is fixed at outset and means that they are guaranteed to rise in value. The TLP market has seen huge growth from $50m in 1990 to $20bn in 2006.

While TLPs carry the risk that it is unknown when the lives assured will die, the key attraction of a TLP fund is that with the right diversification and actuarial analysis, they can be used to deliver steady, predictable returns. Because of this high degree of certainty and their solid underlying value, it is possible for products that invest in them to secure a substantial degree of gearing to enhance returns and initial allocation rates. This is particularly attractive to UK investors in countering the surrender penalties imposed for pulling out of with profit funds.

A round table staged by MPL in April concluded that volatility in equity and property markets would not stop investors making positive returns from TLPs in 2008. Two IFAs who attended the debate, including Nigel Newlyn, Director of Argent Personal Finance Managers, and David Chinn, Partner in the Financial Services Division of Oury Clark, both said they were increasing their clients’ exposure to TLPs. Professor Merlin Stone, of the Bristol Business School, said that the predictability of TLP returns meant that they could act as a replacement for with profits and help address the increasingly important issue of longevity risk.

For retail investors, MPL offers a GBP Growth share class in its Traded Policies Fund. The fund is a fully-regulated Cayman Islands mutual fund that can be included in personal portfolio bonds, wraps and SIPPs. A popular feature of the fund is its leverage facility, enabling returns to be enhanced. Its first year performance to 1 April 2008 was 9.62% on a bid-to-bid basis.

This entry was posted on Wednesday, July 9th, 2008 at 2:31 pm and is filed under Managing Partners News. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.