Understanding Holloway
20 August 2010
Keeping the traditional base and sprucing it up for the modern world is the bottom-line work ethic for mutual society dg mutual.
Its chief executive, David Thompson is trying to hold on to the company’s 1927 roots, while steering appropriate developments through the impact of the FSA’s Retail Distribution Review on its traditional products and, at the same time, attending to the need for better communication with IFAs.
To begin on a high note, dg mutual has not seen any funding challenges despite the market problems and its free assets have increased healthily over the past few years.
Mr Thompson said: “We are not an exceedingly risky organisation so we have not suffered in the market problems with regard to the reduction in share prices and investments.
“We suffered some investment losses during 2008 but that recovered during 2009. Much of our investments are kept in treasury deposits and fixed-interest, which suffered a lesser impact in terms of the capital value of assets we hold.”
The problem that dg mutual has encountered however is the uncertainty of RDR regulation with regards to its products.
Mr Thompson said dg mutual is trying to continue its ethos of following on from its original roots, but aspects of its with profits products are complicating matters and clashing with the FSA’s strictures. The fundamental offering of the product goes back to the ideas put forward by the George Holloway, in the 1880s.
Mr Thompson said: “We are looking back to the traditions of the Holloway product, which centre around income protection insurance for professionals.”
The RDR rules are clamping down heavily on the investment side of the market and this is having an undesirable impact on the Holloway products, because of the with profits status. Where other with profits products may be primarily investment-based, Mr Thompson said the investment aspect in its offering is incidental to the primary element of income protection.
He said: “We feel that the way RDR is moving at the moment will make it increasingly difficult to continue to market traditional Holloway products, and not just this society but the collective under the Association of Financial Mutuals. They are in talks with the FSA for a better understanding of what the product is and its difference to a pure investment product.”
Mr Thompson explained that the incoming restriction of commission will mean many policy holders will be less willing to pay a fee for advice for what is technically a protection product, just because it has an investment element to it.
He said: “It is an investment in terms of it being a with profits product, but back when it was launched in the 1880s the idea was to protect the workforce.
George Holloway brought about the idea of putting money away gradually to be paid out in sickness and, on top of that, build up a fund for possible retirement money.”
This has been the historic way the policy has been sold and Holloway has retained that investment element.
“Whether the investment aspect is 1 per cent of the product or 100 per cent, it is still regulated in a similar way,” said Mr Thompson.
“People buy our products for protection. The investment side is incidental to them. We have put our case to the FSA and it is still gathering information, so we are waiting for its decision.”
Mr Thompson said he just wants a quick resolution. He said one of the benefits of being a smaller friendly society means that whatever the FSA comes up with, the society can change quickly
“We will have to produce a product that is capable of being sold in the market it is appropriate to. We are waiting for the results of the RDR to see what options to take,” he added.
