Prudential Flexible Investment Plan

Ninadee

I have £40,000 to invest and have been advised by an IFA to invest in:-
an ISA via the CoFunds platform
the Prudential Flexible Investment Plan.
The investment into Prudential FIP is to be split equally 4 ways into the following funds:-
Blackrock UK Absolute Alpha Fund
M&G Corporate Bond Fund
Invesco Perpetual High Income Fund
Prudential PruFund Growth Fund

The 1st 3 were also recommended by the IFA for the ISA.

Is this sound advice, I'm concerned both are using mostly the same funds. I want to set up the ISA but am not sure what's best to do with the remainder. Any advice much appreciated.

dunstonh

Is this sound advice

We dont know anything about you or your objectives so its pretty hard to comment specifically.

I'm concerned both are using mostly the same funds.

You only have £40,000 so overlapping on the ISA and the bond isnt really an issue. Have you relayed your concerns to the IFA so they can answer your question?

Have you asked the adviser why he selected those funds?

Also, why is the adviser using the investment bond wrapper and not unit trusts? (could be good reason but unit trust taxation is typically better than investment bond and if you bed & ISA each year then you can move the UTs to ISA fully within 4 years)

Ninadee

Thanks for your reply. I'll go back to my adviser for clarification.

I'd really appreciate if you would explain what the following means

if you bed & ISA each year then you can move the UTs to ISA fully within 4 years

Being new, as you can see, I'm struggling somewhat.

jem16

He means that each tax year you switch funds from unit trust investments ( ie.e outside of the ISA tax wrapper) into the ISA tax wrapper where it is tax-free.

Basically this involves selling the unit trust versions and buying them inside an ISA - can involve a switch fee of 0.25%.

EdInvestor

Typically investment bonds (the FIP) involve high commissions.They used to have some advanatges for higher rate taxpayers, but not any more.The big benefit is to the seller/advisor.

You should start with investing the ISA allowance, put the remainder directly into unit trusts, as mentioned, and then move it annually bit by bit into the ISA.It's very unlikely you would be due any tax on the unit trusts becuse it would be covered by allowances.

What has the advisor determined to be your 'attitude to risk'?

jem16

EdInvestor wrote: »

Typically investment bonds (the FIP) involve high commissions.They used to have some advanatges for higher rate taxpayers, but not any more.

They still have some advantages if high yield funds are used although typically the amount needs to be at least £100k.

The big benefit is to the seller/advisor.

Still some areas where the bond can be useful and the OP hasn't given enough information.

It's very unlikely you would be due any tax on the unit trusts becuse it would be covered by allowances.

Where did the OP mention that he/she wasn't a higher rate taxpaper?

dunstonh

They used to have some advanatges for higher rate taxpayers, but not any more.

They still do.

They can also still benefit basic rate taxpayers as well as their charges are often lower than unit trust funds (some can be higher but the best examples are cheaper). Also, the fixed interest element of a portfolio is treated much the same in unit trusts for tax as it is in bonds. So, a portfolio heavy in fixed interest can be more beneficial in a bond. Obviously fixed interest is at its best in an ISA first though.

The big benefit is to the seller/advisor.

Not really. Unit trusts pay natural trail. Bonds when set up the same way pay exactly the same. Some providers will allow the adviser to take x number of years of trail up front in exchange for never getting any trail. It costs the consumer nothing extra regardless of which way its done.

Not personally a fan of big up front commissions but just correcting the information. Pru are not a big commission pay and as always focus on the charges. No the commission. If full up front commission is being taken then some providers paying 4% commission have higher charges than those that pay 7%. If you focus on the commission you could end up with a more expensive product than had you focused on the charges. Its the charges you pay. The provider pays the commission.