Prudential Bond - best IFA?

[mutley74]

I wish to invest considerable amount of savings in a prudential bond. DAK who is a good IFA that gives the best cash back/discount? I am looking to invest around £10k+.

[EdInvestor]

What's the attraction of this bond may I ask? If you are a basic rate taxpayer with 10k to invest you might be better filling up your ISA and then investing the other 3k outside a wrapper.

[dunstonh]

Prudential are not coming out anywhere near the top on lowest charge providers right now. There is quite a bit of difference in the charges on the lowest charge provider and Pru. Why do you want to use Pru?

Also, ISAs should be fully utilised before Investment Bonds unless a trust is being used.

[mutley74]

answers:
-used pru before - got good ROI and good service
-used ISA allowance already
-money is for kids future

hence why i wish to go back for a prud bond. Family have other type investments with other providers got poor ROI compared to prudential bonds.

[dunstonh]

-used pru before - got good ROI and good service

Is that a good enough reason? 8 of the 9 providers with lower charges above them have good service. Some a lot better. Most providers have good service setting things up. It's when things go wrong that you find out who is really good and who is really bad. I'm afraid Pru are not strong on that front.

-used ISA allowance already

Assuming basic rate taxpayer, next in the list would be unit trusts/oeics for tax efficiency. Depending on the funds you want, they may or may not be cheaper but seeing as you Pru is not exactly the cheapest bond provider either, charges dont seem to be a concern for you.

-money is for kids future

Does that mean you are using a trust or just that you have it earmarked.

hence why i wish to go back for a prud bond. Family have other type investments with other providers got poor ROI compared to prudential bonds.

I see nothing in what you have typed to say why Pru is better. Your Family may have other types of investments but seeing as virtually all modern investments available through independents have access to identical fund ranges, then often the only difference is charges and taxation.

You are choosing a product that may not be the most tax efficient for you and charges which are above others offering the same fund range.

Obviously, doing it yourself allows you to make your own mistakes. That is your choice and the risk of DIY. However, your comment about family investments suggests you dont fully understand how investing works and this could cost you a lot in unneccessary tax and charges over the term.

For reference, Pru's charges are 0.2% p.a. higher on like for like basis than the lowest and in the case of one fund, 0.7% p.a. higher. Have you worked out the charges on your chosen funds and compared those?

£10k over 10 years with the Pru bond invested into the Prufund would have £1,100 more in charges in that period than the best option on a like for like basis. 10k is also unlikely to generate a capital gains tax liaiblity but the bond will be paying capital gains tax within it.

Whilst bonds are good vehicles for the right person under the right tax situation and can sometimes be cheaper than the alternatives with the right provider, I do not believe that Pru fit that bill in your case.

[EdInvestor]

What is the point in paying higher charges and tax on capital gains and income which you won't be liable for if you invest outside the bond?

Have a look at the investment bond section of the FSA guide to charges:

www.fsa.gov.uk/tables

While these products can be obtained more cheaply, they usually attract high charges (you clearly already realise this, hence your query).

Did you formerly invest in the Pru With profits bond and is that the one you are looking at again?

[mutley74]

i am actually cashing in some bond money from my divorce (easier that re-assigning long story short) and wish to use money for same type bond for kid.

my dad is a big fan of pru bonds, i think because of simplicity of investing and as they smooth out market fluctauations each year.

any ideas on other investments most welcome where i can invest the money and preferably avoid CGT for a number of years.

[dunstonh]

my dad is a big fan of pru bonds, i think because of simplicity of investing and as they smooth out market fluctauations each year.

So, it would be the prufund then and that is very expensive and old fashioned. Avoid it (for your case anyway. There are limited times it still serves its purpose).

any ideas on other investments most welcome where i can invest the money and preferably avoid CGT for a number of years.

unit trusts and oeics.

[mutley74]

i already hold all my isas in UTs/Oeics. So are you saying invest my lump sum with UTs? would that be best in a genera; dealing account with say Hargreaves lansdown?

Would i have to declare this on tax statements and what about CGT if the funds make gains?

thanks for the advice

[dunstonh]

i already hold all my isas in UTs/Oeics. So are you saying invest my lump sum with UTs? would that be best in a genera; dealing account with say Hargreaves lansdown?
OEICS/UTs are next on the tax efficiency ladder after they have been fully utilised on ISAs unless you are a higher rate taxpayer (and a few other scenarios).

Would i have to declare this on tax statements and what about CGT if the funds make gains
Income distributions (even if reinvested) have no further liability for basic rate tax. You should declare it on a tax return if you get one and if you are a higher rate tax payer, then additional tax will be due. (thats when an investment bond would start looking the better option potentially). CGT is only payable on realised gains over £9000 in a tax year. So, if you dont use your CGT allowance, then don't worry about it.

thanks for the advice

Just to clarify... this is not advice. Its generic discussion. Advice would not be generic like this and it would come with a bunch of compliance warnings!

[EdInvestor]

With 10k there's no need to worry about not having a tax wrapper around the money: divis are not taxable as DH says and you have to sell the fund/shares and realise gains of more than 9k every year to be liable. Not very likely, is it?

These days basic rate taxpayers can invest directly in shares/equity funds without worrying about tax wrappers, makes life a lot less complicated. :)

By comparison gains in the bond are automatically taxed 20% so you would be worse off if you used it ( quite apart from the charges).

Hargreaves Lansdown is appreciated by many. If you think you might look at direct shares at some point, Squaregain is also good.They also have a very cheap deal involving ETF-type tracker funds if you like that style of investing.

[dunstonh]

These days basic rate taxpayers can invest directly in shares/equity funds without worrying about tax wrappers, makes life a lot less complicated. :)

Just for balance. ISAs are a tax wrapper and you can invest directly into equity funds within an investment bonds if you want. With the ability to invest directly into UT/OIEC funds within ISAs, UT/OEICs, Pensions and Investment Bonds, there has never been a better time to look at tax wrappers more closely. Failure to get the tax wrapper right can mean you end up paying more tax than is needed and that can wipe out any small difference in charges there may be plus more.

In this case, an investment bond doesnt appear to be the right wrapper but there will be many more cases when it is.

[EdInvestor]

What with the A day changes to pensions, and recent changes to ISA rules re the tax credit and commercial property, seems to me there's now a considerable gap between best advice for those on basic rate rate and those on higher rate.

Other than the cash ISA,many of the tax wrappers are now only very marginally useful to many younger people on basic rate tax, it seems to me, unless they have accumulated substantial assets, and often even then there isn't much to be gained.

[dunstonh]

Thats fair comment Ed. For smaller investments/holdings, the tax wrappers don't come into play as much and direct holdings (such as UT/OEIC/IT) make sense. Obviously, where an ISA allowance exists, it should be utilised as it costs nothing to do so.

Its when you start getting larger and/or long term holdings or higher rate taxpayers or over 65s investing and not wanting to lose their age allowance or people not wanting to lose their assets in the case of old age care where the tax wrappers can come into play. Higher rate tax payers have the most to gain from tax wrappers.

[Chrismaths]

Sure Ed, but don't forget the cumulative effect of ISAs. When PEPs first came out, you could only put in around £1200! However, if you used up your allowances each year, you ended up with a significant pot of tax-free cash - I've seen million pound PEPs before. If you keep putting money into ISAs now, although you might not see any immediate benefits, with the amount of fiscal drag Gordon Broon has used, it won't be long before we are all HR taxpayers! My piddly amount of money is invested in equity based funds within ISAs, as although I may not see any particular immediate benefit, it costs me next to nothing, and as and when I become a HR taxpayer then it will be a significant benefit to me.

[EdInvestor]

Quite agree on the investment ISA question, everyone who can should use it very year.

...over 65s investing and not wanting to lose their age allowance or people not wanting to lose their assets in the case of old age care...

IMHO this area is still very prone to abuse. There are far too many people with maturing pensions put into poor quality or over-risky annuities, overly expensive and badly invested drawdowns and even more expensive investment bonds for the tax-free cash.[And now we have the dreaded offshore bond joining the fray as well :rolleyes: ]

Another thread about that area later, perhaps.;)

[dunstonh]

IMHO this area is still very prone to abuse. There are far too many people with maturing pensions put into poor quality or over-risky annuities, overly expensive and badly invested drawdowns and even more expensive investment bonds for the tax-free cash.[And now we have the dreaded offshore bond joining the fray as well :rolleyes: ]

Again though you are measuring all investment bonds by the most expensive examples. You also assume that every drawdown is expensive and invested badly. There are going to be a more badly invested DIY drawdown cases than advised ones. You always seem to measure things on advice basis by the most expensive or worst case scenario.