Units body attacks reform plan
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Your support makes all the difference.THE Association of Unit Trusts and Investment Funds is urging its members to fight proposals that will force them to monitor how long investors hold on to their contracts or policies, writes Caroline Merrell.
In a letter to members about the plan from the Life Assurance and Unit Trust Regulatory Organisation, Philip Warland, director general of Autif, said: 'We believe that the capricious proposal to extend persistency testing to unit trusts damages their credibility as a regulator.'
Autif claims that implementing monitoring systems will cost the industry millions of pounds.
Lautro is recommending that life insurance and unit trust companies should track the percentage of life policies and unit trust contracts that are cancelled in the first, second and third year after they are purchased. The regulator believes poor persistency levels can reveal a number of problems, including incompetent recommendations, commission-biased advice, over-selling or fraud. Statistics from the Securities and Investments Board show that, for some companies, up to 40 per cent of contracts are cancelled within two years.
Autif points out that persistency is an appropriate monitoring device for long-term life products where there are high front-end charges and where consumers will lose money if they cash in early.
But it adds that unit trusts have low up-front charges and are not sold with a fixed term, so persistency is not a good tool for monitoring them.
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