With-profits investments falling in popularity

It's an economic vicious cycle: once the stock markets start slowing down or inflation keeps rising steadily, consumer confidence drops, exacerbating the whole situation.


So it is with with-profits investments. Over recent years as the UK economy kept growing and showed no signs of stalling, let alone reversing, millions of Britons were keen to cash in, taking out insurance policies which were tied into the profits of the insurer, usually a mutual life insurance company.

Indeed, with-profits policies, including endowments, were seen by many investors as the sensible option, almost guaranteeing a healthy return at the end of a fixed period, so much so that many insurers attracted customers with attractive promises on returns.

Now, however, the situation is considerably worse. Several endowment providers have already issued warnings to investors that they are likely to be disappointed once their policies mature, while thousands of people are starting to look elsewhere for a safe place to put their cash.

New research carried out by the investment specialists Managing Partners Limited (MPL), found that, of those with-profits investors questioned 25 per cent intend to stop putting money into this type of product.

While 65 per cent expressed confidence and said that they would carry on investing in with-profits products - with ten per cent unsure of what to do - when it is taken into account that the proportion of those who consider themselves to be 'fairly happy' with their policies has fallen from 37 per cent to just 30 per cent in just a year, clearly consumers are getting worried.

In fact, 28 per cent of investors are now 'not happy' with their with-profits policies, an increase from 24 per cent over the same period.

Jeremy Leach, the managing director of MPL explained: "I think because we've very much got this head for safety attitude with investors, they're looking at non-correlated, low risk, alternative investments."

"I think a lot of these investors are disenfranchised because, particularly with the savings plans, they've taken them out to repay considerable debts, generally the mortgage on a property."

"They just haven't delivered upon expectations. The insurance companies did well for 100 years, but they have never recovered from the problems that started to occur eight years ago."

In comparison, personal financial advisors have been witnessing a marked interest in low-risk, and more importantly, predictable investments, such as bonds, ISAs or just sticking to a simple bank account as their confidence in the economy remains low in the wake of recent doom and gloom stories.

Notably, traded policy funds, which allow predictable returns of around nine per cent a year have soared in popularity during the last quarter of the year.

With low confidence meaning risky investments will be put on hold for the time being and with high street banks offering poor returns even on the largest of savings accounts, it seems likely that compromise products such as traded policy funds will be the financial asset of choice for savvy investors for the foreseeable future.