Cuts likely as with-profits funds continue to lose their lustre

With-profits funds continue to suffer despite the recent upturn in world stock markets. The funds, which produce returns by holding back money made in good investment years and paying it out in the form of annual and final bonuses in bad years, are held by millions of private investors. But insurer Standard Life warned its with-profits investors last week that they could see cuts to final and annual bonuses this year due to poor investment returns and continuing stock market volatility.

A new survey by fund management group Managing Partners found widespread disillusionment with with-profits among independent financial advisers. Only 2 per cent of IFAs have a positive view of with-profits-based investments. More than two out of five IFAs have a negative view, with 17 per cent being very negative. Nearly four out of five IFAs said they wouldn't recommend with-profits investments to their clients. Persistent cuts to annual and final bonuses have helped to fuel the discontent. "With-profits investments have steadily failed to deliver returns over the past few years, much to the despair of many investors. Added to this, exit penalties of up to 20 per cent are being applied to policyholders on encashment of their plans," said Jeremy Leach, managing director at Managing Partners.