Review to scrutinise with-profits policies

Ron Sandler, the former chief executive of the Lloyd's of London insurance market, yesterday targeted the complexity of with-profits products and opaque charges for financial advice as part of his investigation of the £1,500bn retail investment industry in the UK.

Publishing a consultation document which surprised the City with the wide-ranging nature of its remit, Mr Sandler – who was appointed by the Chancellor, Gordon Brown, to review the industry – said he would cover life insurance, pensions and collective investment vehicles such as unit trusts. The review will not include bank deposits or cash savings.

He said the successful growth of the savings and investment industry over the last few years was evident but added his review was necessary due to "concerns over the competitive processes in this industry". Companies must respond to the consultation paper by 28 September. With-profits policies, which allow investment companies to smooth returns in bad years by keeping some profit from returns in good years, will come in for particular scrutiny.

Mr Sandler said these funds may not be appropriate now for their core market of long-term savings and asked whether the products can be effectively compared to others in the market.

He also questioned corporate governance of with-profits policies, saying shareholders' interests may not be aligned with those of policyholders.

The paper also focused on financial advice. Mr Sandler said guidance was crucial as consumers had a "poor understanding" of investment products and that "advisers' incentives are not aligned with those of their clients". He may end the practice whereby consumers do not always realise that their adviser is paid commission by a product provider.