AXA Capital Investment Bond and Distribution Fund

br1anstorm

What do regular savers/investors - or advisers - think of AXA's (or other providers') Capital Investment Bond and Distribution Funds?

Briefly, I'm retired, married, and receiving an earnings-related pension, and after house-downsizing we have had to think about where to save and invest. We are dripfeeding the annual max into stocks & shares ISAs by monthly payments. We have a small assortment of direct investments in equities (some the result of windfalls). But we still have a sizeable amount in cash - mostly in bank/building society savings accounts - and the interest on these on top of my pension has been pushing me towards, if not over, the 40% tax threshold - though with plummeting interest rates, this may not be so in future...

An adviser has suggested we invest a lump sum (up to £100k) via AXA's Capital Investment Bond in the AXA Distribution Fund, to provide capital growth and some tax-deferred income if we wish. We could probably afford to tie such an amount up for 5+ years (and would have to do so in order to avoid early cash-in charges as well as allowing time for growth).

Savings rates are low (and we had a nasty scare over the money we had deposited with Icesave!). And equities are relatively cheap. So at first glance this suggestion looks sensible. Do others agree? Is there a catch? I can't immediately see whether this, like some other life-linked plans, has a hefty front-end commission...

Any comments would be appreciated.

br1anstorm

dunstonh

What do regular savers/investors - or advisers - think of AXA's (or other providers') Capital Investment Bond and Distribution Funds?

Personally, i am not a fan of single fund solutions that try to be a bit of everything. The AXA investment bond itself is actually quite good. Well priced (not the best but not far off) and has around 300 funds available so you can get a decent spread if you want. If its off the bond and on ISAs and unit trusts then there are better and cheaper whole of market options available

I dont like AXA admin (too many issues have occured), and their broker consultants encourage bad advice (I'm sure that may only be a local occurrence but I have heard similar from others).

An adviser has suggested we invest a lump sum (up to £100k) via AXA's Capital Investment Bond in the AXA Distribution Fund, to provide capital growth and some tax-deferred income if we wish. We could probably afford to tie such an amount up for 5+ years (and would have to do so in order to avoid early cash-in charges as well as allowing time for growth).

What is the justification for doing an investment bond and not unit trusts?

I can't immediately see whether this, like some other life-linked plans, has a hefty front-end commission...

It has the same commission options as unit trusts. However, the natural fund based trail can be indemnified to increase the initial and take no trail (at no cost to consumer). IFAs can choose. AXA salesforces may not get that choice and take full initial. Is it an IFA, multi-tie adviser or tied agent?

br1anstorm

dunstonh wrote: »

What is the justification for doing an investment bond and not unit trusts?

Don't know... maybe just convenience of packaging and admin? Or perhaps the tax arrangements? I was under the impression that a bond (life policy wrapper) was better for retirement income than direct investment in unit trusts where income tax (on any income paid out) or CGT (on any disposals) was immediately payable. But I'm just guessing.

Is it an IFA, multi-tie adviser or tied agent?

an IFA...

br1anstorm

EdInvestor

br1anstorm wrote: »

I was under the impression that a bond (life policy wrapper) was better for retirement income than direct investment in unit trusts where income tax (on any income paid out) or CGT (on any disposals) was immediately payable. But I'm just guessing.

You will be taxed up to 20% on earnings within the bond and this is not reclaimable, nor does it make use of your CGT allowances, more than 9k each. Since CGT was reduced to 18%, it is better even for higher rate taxpayers to use unit trusts rather than investment bonds.Basic rate taxpayers normally pay no tax on dividends, though age allowance may be affected.

ManAtHome

The Axa Distribution Fund seems to be "flavour of the quarter" for some reason. I've had mailings from an execution-only FA I took a couple of WP bonds through several years ago, advising a switch into ADF (cashed the WPs earlier this year, so just binned the mailings).

jem16

br1anstorm wrote: »

But we still have a sizeable amount in cash - mostly in bank/building society savings accounts - and the interest on these on top of my pension has been pushing me towards, if not over, the 40% tax threshold - though with plummeting interest rates, this may not be so in future...

How close are you to the 40% tax threshold? This tax year it is £40,835 and next year it will be £43,875.

br1anstorm

In 07-08 the interest earned on my cash-deposits, on top of my pension, has definitely put me up to about £45k. If I keep my cash/deposits as at present, I suspect my income will be over the 40% tax threshold in 08-09 too.

What conclusion to draw from that? Does it make a difference to assessments of the suitability of the AXA Capital Bond/Distrib Fund products? Should I be looking at NS&I instead?

These aren't easy times for savers and the retired...

dunstonh

Don't know... maybe just convenience of packaging and admin? Or perhaps the tax arrangements? I was under the impression that a bond (life policy wrapper) was better for retirement income than direct investment in unit trusts where income tax (on any income paid out) or CGT (on any disposals) was immediately payable. But I'm just guessing.

You need to find out. Investment bonds can be cheaper than unit trusts but they also can pay more in tax (although less in some circumstances eg. higher rate taxpayer who will be basic rate in future). The option for the funds and the withdrawals exists on all tax wrappers so there is no justification there. Whatever the bond can do, the Unit Trust can do as well but potentially more tax efficient. Plus, if you bed & ISA every year (put upto £7200 into the ISA from the unit trust) then it can be very tax efficient with UTs. You cannot do the same from a bond if you are taking the regular withdrawal.

Giving the benefit of the doubt, if the options have not been covered, they may be in future before a formal recommendation is made. However, if it has got to the stage of recommending a provider and funds, then you do get the impression that it has past that point.

Since CGT was reduced to 18%, it is better even for higher rate taxpayers to use unit trusts rather than investment bonds.

That is wrong. Dividends on unit trusts would be subject to higher rate tax but in the bond they would not be.

You will be taxed up to 20% on earnings within the bond and this is not reclaimable, nor does it make use of your CGT allowances, more than 9k each. Since CGT was reduced to 18%

That is correct. The key thing there is the up-to 20% though. In reality, it tends to come out around 10% as life funds still benefit from taper relief unlike personal CGT calculations.

If the asset allocation of the bond is heavy in fixed interest and cash funds then tax differences are very little. If its heavy in equities, then unit trusts would be better (for basic rate). So, the key thing is to find out the equity/cash/fixed interest mix and then compare it to unit trusts using the same funds and charges on each wrapper. Then you find out which one is cheaper after tax and charges. All IFAs have access to software that will do this and showing you a copy of this (or whatever their research is showing they have considered tax and charges) will cement the recommendation and confirm quality research. If that doesnt exist then walk away. You are paying for research and recommendation. If you dont see the research or get a summarised explanation of the reasons why then how do you know if the recommendation is right or not? You may not understand it but you should be able to judge the quality. It is possible the adviser hasnt shown you because they think you dont want to know. Many people do not. So, ask for it and see if it is forthcoming.

Also, on a transaction of this size, you should be on fee basis and not commission. It should be cheaper for you unless the adviser is greedy.

earlgrey_3

dunstonh wrote: »

Also, on a transaction of this size, you should be on fee basis and not commission. It should be cheaper for you unless the adviser is greedy.

Getting unbiassed advice is difficult. I'd also suggest you also consider an adviser using a proper flat-fee service rather than what some IFAs like Dunstonh misleadingly call "fee-based", for example http://www.nomonkeybusiness.co.uk/why_we_are_different/

'Don't be fooled by the ubiquitous label 'fee-based': if portfolio-based fees can only be collected by offsetting commissions received, then commission bias between products is not removed - “it is only by persuading people to part with real money that an adviser can claim to be truly independent”: FT, 30 October 2006'

See also http://www.moneyweek.com/personal-finance/need-unbiased-advice-youll-be-lucky.aspx

I'm in a similar position to you. Advice is needed not only on where to invest but also how much and when. The problem with firms that use self-employed commision-only salesmen like Dunstons is that the more they can persuade you to invest, regardless of market timing, then the more money they make.

The reforms being brought in by the FSA to deal with the current problems with IFAs aren't due until 2012 and will only be partially effective.

jem16

br1anstorm wrote: »

In 07-08 the interest earned on my cash-deposits, on top of my pension, has definitely put me up to about £45k. If I keep my cash/deposits as at present, I suspect my income will be over the 40% tax threshold in 08-09 too.

What conclusion to draw from that? Does it make a difference to assessments of the suitability of the AXA Capital Bond/Distrib Fund products? Should I be looking at NS&I instead?

These aren't easy times for savers and the retired...

Dunstonh has answered most of the questions re suitability of the bond. Other reasons could be;

1. money is removed from IHT
2. money is not taken into account for local care funding (provided it is documented for another reason such as tax efficient)

jem16

earlgrey wrote: »

I'm in a similar position to you. Advice is needed not only on where to invest but also how much and when.

You don't need an adviser, you need a crystal ball.

The problem with firms that use self-employed commision-only salesmen like Dunstons is that the more they can persuade you to invest, regardless of market timing, then the more money they make.

When are you going to stop hurling personal insults towards Dunstonh? You have followed him around this board twisting and misrepresenting everything he says.

If you wish to make a point, make it without constant references to one person.

'Don't be fooled by the ubiquitous label 'fee-based': if portfolio-based fees can only be collected by offsetting commissions received, then commission bias between products is not removed - “it is only by persuading people to part with real money that an adviser can claim to be truly independent”: FT, 30 October 2006'

If the cost to the client is £1000 and is agreed before any product is advised on, how exactly does it matter how that £1000 is paid to the adviser and how can bias exist when the fee was agreed in advance?

See also http://www.moneyweek.com/personal-fi...-be-lucky.aspx

I'd be careful following any "advice" from Merryn Somerset Web. She writes a fortnightly article in one of the newspapers I read and often has factual mistakes. The last report she wrote was followed the next week by corrections.