St James's Place Income Distribution Bond

EdInvestor

Agree with CCon this wrap question.

You can get exactly the same thing by just opeing an online account with a discount broker, through whom you can buy funds, or shares or whatever and have everything listed in your portfolio when you log on at no cost.

Recommended. Takes a lot of the mystery out of investing.

dunstonh

Are we really comparing like for like, comparing different things or comparing exactly the same thing? There isnt a 100% true wrap in the UK at this time. Most of them are fund supermarkets but with "some" other investments allowable. What is a discount broker? (in very simple terms) its an IFA with with a fund supermarket/wrap available to them, whether its their own white labelled version of someone elses.

I knocked out a portfolio statement for someone today covering 5 investment products including 2 ISAs (portfolio), 1 unit trust/oeic (portfolio) and 2 investment bonds (portfolios). One press of a button and it gave a full sector breakdown across all the investments combined (i.e. one pie chart) and a valuation all on 2 sides of A4. You could argue that it is the same as a wrap in the reporting sense. I have often wondered if it would be the software companies that would win in the wrap provider stakes rather than the providers.

EdInvestor

The discount brokers I'm talking about are not IFAs.They exist primarily as inexpensive online platforms to buy and sell shares - but you can also buy and sell funds as well and they offer ISAs and SIPPs.Strictly execution-only, no advice.

Here are a few examples

cheerfulcat

dunstonh wrote:

What is a discount broker? (in very simple terms) its an IFA with with a fund supermarket/wrap available to them, whether its their own white labelled version of someone elses.

No, there are brokers who offer discounts on funds who are not IFAs.

dunstonh

Just wanted to make sure we were talking about the same things. Do those brokers arrange unit trusts,oeics,ITs and onshore/offshore investment bonds in their "wraps"?

cheerfulcat

They aren't " wraps ". No-one except IFAs needs a " wrap ". Yes, you can hold all of those things except investment bonds ( yet another product which benefits IFA and producer more than investor ). Also shares and bonds, ETFs, covered warrants, gilts...all in one place.

dunstonh

( yet another product which benefits IFA and producer more than investor )

CC, thats a disgraceful thing to say. I thought you would be better than that.

Three scenarios where investment bonds are better than unit trusts:

1 - A higher rate taxpayer who will be a basic rate taxpayer in the future will save a fortune in tax by using an investment bond rather than picking the same funds within a unit trust/oeic. With the same funds being available in both wrappers, the only difference is taxation and charges. Bond would pay no higher rate tax and there would be no CGT to pay. Unit Trust would have higher rate tax liability and you would have potential CGT liability.

2 - Trusts. Investment bonds can be placed in trust. Unit Trusts/oeics cannot. Just tell someone with £500k in an investment bond in trust with no IHT liability on it that they would be better off on a unit trust which would have a £200k tax liailbity on it. Bond pays out £500k, unit trust pays out £300k. (only person happy with that is Gordon Brown!)

3 - charges. Bond charges have been coming down steadily and its now possible to have lower charges in an investment bond than the same unit trust funds. There has to be care here because you cannot say all are cheaper because there are still some high charging ones and I would put the average charging above what you would expect on a unit trust. However, that doesnt negate the fact that you can get cheaper.

There are a number of other good reasons to use bonds (those that use CGT allowance elsewhere, gross roll up etc) but the above are probably the most common examples.

I will concede that bonds are oversold. Particulary by tied agents and low knowledge/experience advisors. Its an easy sale with its no initial charge compared with unit trusts. This is why a 10 year reduction in yield figure should be compared on the bond and the unit trust (using same funds) to see how the charges differ. This can then be used to compare the taxation differences to see which one comes out best (for a basic rate or lower taxpayer).

Don't disregard the bond. Its a vital investment product for reducing tax liaiblity in the right circumstances. As I have already said in this thread, you just need to be sure that the bond is right for your circumstances. If not, you could end up paying more rather than less.

cheerfulcat

CC, thats a disgraceful thing to say. I thought you would be better than that.

Sorry dh, you're quite right, there are circumstances where the investment bond is quite handy. So I'll take that part back :A

But for the rest of it, I am honestly struggling to see the benefits of a " wrap " over a broker's account as described.

ReportInvestor

dunstonh wrote:

Three scenarios where investment bonds are better than unit trusts:

1 - A higher rate taxpayer who will be a basic rate taxpayer in the future will save a fortune in tax by using an investment bond rather than picking the same funds within a unit trust/oeic. With the same funds being available in both wrappers, the only difference is taxation and charges. Bond would pay no higher rate tax and there would be no CGT to pay. Unit Trust would have higher rate tax liability and you would have potential CGT liability.

Incredible that we are nearly into the 10th Year of a Labour government and this loophole still exists.

EdInvestor

cheerfulcat wrote:

They aren't " wraps ". No-one except IFAs needs a " wrap ". Yes, you can hold all of those things except investment bonds ( yet another product which benefits IFA and producer more than investor ). Also shares and bonds, ETFs, covered warrants, gilts...all in one place.

BTW there is very little difference between these brokerage accounts and online SIPPs. This is because the SIPP admin is provided separately. Thus the investment and the tax wrapper are completely split and you simply concentrate on managing the investments. Which is how it should be.

It's very obvious that one of the main barriers people have to getting their pensions sorted satisfactorily is that they don't realise there are two separate things going on - the pension tax wrapper itself and the investments within it.[You can see where the confusion comes from - it's the overwhelming use of With profits funds for pensions in the past, where the investor is not required to have any control or involvement, along with final salary company pensions, based on the same system.]

With a proper SIPP it's quite clear what's going on and what you need to do.
I'm sure the upcoming hybrid SIPPs will go a long way to obscuring this potentially dangerous clarity however.