The same committee that was at the centre of the leaked email storm. There was only one worthwhile response from the 11 requests sent out to that LOA sub-committee, from Liberty Life.
Q. Do intermediaries have access to the analysts reports mentioned, in terms of which products are more likely to out-perform inflation and which are not?
A: The analyst report referred to was one that referred to the industry and product quotes in general. It did not highlight products that could not beat inflation; it just commented that even the product quotes showed growth of below inflation.
Any intermediary on the distribution list of these reports could obviously get them.
Q. Have intermediaries been warned that the product they sell as inflation beating may in fact not beat inflation - the short term one?
A: The comment made does not refer to a particular product or products. Rather, it referred to the subsection of small recurring premium endowment policies that are kept for a short period of time. Even amongst these there will be different expectations in terms of the return likely to be achieved relative to inflation depending on factors such as the portfolio selected, and whether or not annual escalations are selected.
All charges are disclosed on the quotation.
In addition, the CPQ requires that the impact of all costs are shown as a single number on the quotation.
The intermediary can therefore judge whether the product is expected to outperform inflation based on the expected portfolio returns and the charges levied on the product.
This allows the intermediary to make allowance for the type of portfolio being used (conservative, moderate or aggressive) which will impact on the expected return in excess of inflation, as well as to take account of the impact of things like annual escalations.
In addition to showing the RIR calculated over just the commission term, Liberty Life also shows the RIR over terms of 5 and 10 years longer than the commission term.
This illustrates to the client and the intermediary the increased cost effectiveness of investing for the long term, and allows the intermediary to judge the costs of the product over the appropriate term for the client versus the expected return from the portfolio.
It is difficult to be prescriptive because the same product invested in different portfolios or continued for different terms will deliver different results. This is where the intermediary adds value by reviewing the client’s particular needs and assessing the appropriateness of the product to these.
Q. What products are intermediaries selling more of - the short term endowments or the 'large' long term RAs - over the last 6 months, 12 months, 18 months, 24 months
A: Intermediaries are selling both endowments and RA’s. Our experience is of similar volumes of both. The sizes and terms of both of these products vary based on client need and affordability, but average premiums seem to be increasing.
Q. Is therea different commission structure for these two product ranges
A: Yes.
Q. Can investors change from the short term endowment to the large long term RA to beat inflation - without charges being levied, in the past and will this rule be changed, in light of the email
A: Some points to make on this question:
* The size of the contribution is often determined by affordability. If an investor couldn’t afford a large endowment contribution he is unlikely to afford a large RA one so this situation is unlikely to arise
* The size of RA contributions is often determined based on what size premiums the investor can deduct for tax purposes. Again therefore switching to an RA may be totally inappropriate
* The investor can hold the endowment for as long as he wants as these are open ended vehicles. This will give the investor the benefit of the longer term that is highlighted under the RA product. We encourage a long term view to investing in both our marketing material.
Q. What portfolios, in the 'large' long term RA stable wouldnt beat inflation?
A: Only hindsight will tell but on longer term RA’s investors will probably use aggressive and moderate portfolios for a long period of the term, so we would expect that they will get inflation beating returns after all charges if they hold these products to their retirement date.
Q. Would this information be made available to intermediaries - in their sales presentations
A: Liberty Life provides intermediaries with information regarding the likely volatility of portfolios over different time periods, the likely return relative to inflation of the portfolios over appropriate time horizons after the deduction of ongoing management fees and asset composition amongst other things.
These tools will assist intermediaries in making these judgement calls.
Q. Brief general comments on endowments and RAs and your company's position on CPQ, RIR, RIY,illustrative values, and acting in the best interests of advisors, intermediaries and tied agents..., and perhaps as importantly the investor and client.
A: Liberty Life has gone on record that they are focused on getting the balance right between the intermediary, the policyholder and the shareholder.
Some examples of things that we are doing to achieve this are the purchase of Capital Alliance to get greater scale and access to their skill of cost effective management of the back office, and the launch of a new product which gives more to the policyholder for putting in place long term financial plans with Liberty Life.
We are in a partnership with intermediaries. We will strive to give them product and service that helps them to meet the various needs of their clients. They will provide the financial planning and advice to the client to make sure that the appropriate solution is put in place.
In addition, to assist intermediaries with financial planning for their clients, we have developed a number of tools to assist them.
RA’s and endowments continue to be appropriate investment vehicles for many investors although there is obviously concern around early termination values. This is currently being addressed by the LOA, and Liberty Life is playing a role.
Liberty Life is very supportive of the addition of the RIR to quotations as this assists the intermediary to determine the impact of all charges without having to do this calculation himself.
A common process also allows easier comparison by intermediaries of charges of different products, although it should be stressed that charges are just one of the features that needs to be assessed in evaluating a product.
A debate that will still be had is whether illustrative values should be moved earlier in the planning process, for instance to the FNA, but this will evolve over the coming months.