Tillinghast Calls for Industry-wide Adoption of Improved Financial Planning Techniques

‘Blind optimism’ hampers investment decisions

London, England, September 6, 2002 � Tillinghast, the management and actuarial consultant, is calling for more insightful techniques to be adopted by advisers and product providers in the process of financial planning. Tillinghast believes that there is evidence of an attitude of ‘blind optimism’ amongst consumers when it comes to long-term financial planning and that current industry-standard investment projections can fuel a sense of false security.

Tillinghast has developed an industry leading on-line advice system, eValue, which it is launching to product providers and IFAs as a breakthrough in offering consumers better projection information on which to base their financial decisions. Tillinghast’s eValue uses comprehensive scenario forecasting techniques known as stochastic asset modeling. Stochastic projections help investors to more easily understand the relationship between the risk and reward of different investment strategies. This process of enlightening and educating investors highlights the likelihood of achieving their financial goals and helps them understand the consequences of different asset allocation strategies. Armed with this information earlier action can be taken to address any potential shortfalls and to optimise future investment decisions.

Tillinghast believes that stochastic modelling techniques are vital to combat the unrealistic expectations of investors and the reputational risk to
the long-term savings industry. Had stochastic forecasting been adopted by the financial services industry earlier many of the product
performance issues facing the industry today would have been greatly reduced as advisers and investors would have had more insight into
probable returns. For example, stochastic modelling would have shown that:

many endowment products sold in the last 15 years, where policyholders have already received a warning letter from their product provider, would have had a significant probability of not meeting their objective of paying off the whole of a policyholder’s mortgage, and there was a high probability that most employees leaving final salary pensions schemes for personal pensions would be worse off as a result thereby saving the financial services industry billions of pounds in compensation for mis-selling and deterring consumers from saving for retirement.

Commenting on this revolutionary system, Tillinghast principal, Bruce Moss, said, “We enthusiastically support the wider use of stochastic projections and have responded to the FSA’s Consultation Paper 134 accordingly. We also recognise the Sandler Review’s recognition of this issue and the need for improvement.

” ‘Blind optimism’ is a common feature of consumers’ long term financial planning and can lead to real financial hardship. Our planning tool, eValue will change that because it provides the adviser, provider and customer with a range of outcomes and their corresponding probabilities. The financial services industry bases advice on ‘deterministic’ predictions – that is, anticipating a certain future growth rate – but not providing any indication of the likelihood of that outcome or any guidance on the asset allocation that best meets an investor’s needs. This is particularly dangerous with new products such as pension income drawdown and investment linked annuities where the scope for future disappointment is enormous.

“We fervently hope that the FSA follows through on its cautious initial endorsement of stochastic forecasting. Its use would represent a fundamental breakthrough for advisers and providers and would help meet key recommendations of the Sandler Review – that there should be much greater focus on investment issues, the importance and process of asset allocation and the trade-off between risk and return.

“We have begun a marketing campaign to leading product providers and have signed up several big players who intend to offer the system as a key element of their distribution strategy. We also anticipate considerable take-up from the IFA community.”

eValue has a broad focus including retirement planning and other financial goals such as school fees planning and home loan repayment.

eValue works well in the corporate market supporting stakeholder, personal and occupational pension plans as well as providing useful tools to support provision of advice on a wide range of wealth accumulation issues such as lump sum investment and/or regular investment to produce a future series of payments. These could be offered to IFAs or used by tied agents.

For further information on Tillinghast’s eValue system, please contact Bruce Moss on 44-20-7170-3383 or Vaughan Jenkins on 44-20-7170-2153.

About Tillinghast � Towers Perrin

Tillinghast provides actuarial and management consulting to financial services companies and advises other organizations on their risk financing and self-insurance programs. Tillinghast is the premier actuarial advisor to the insurance industry, and its major clients include most of the world’s top insurance organizations. It operates globally as a single firm through a network of 43 offices in 20 countries. Tillinghast is a division of Towers Perrin, one of world’s largest management and human resource consulting firms with over 9,000 employees. Towers
Perrin helps organizations manage their investment in people to achieve measurable performance improvements. More information about
Tillinghast is available at www.tillinghast.com.