Investment Bonds

cheerfulcat

defender_of_the_weak wrote:

SOME ADVISERS LIE. They write down what the company expects to see rather than the truth of their clients circumstances so the customer fits the sale rather than the other way around.

Yes, they do and I have personal experience of this.

EdInvestor

I apologise to those who think they are in a groundhog day scenario but if Ed keeps repeating this with no qualification then I have to repeat it as well.The FSA tables are not a reliable guide to charges or commission on investment bonds. They assume full commission taken and they assume one default fund. You cannot compare bonds on that basis.

I would certainly think it sensible for anyone to compare any investment bond product they are offered with the charges listed on the table from all the insurers' products.

See how yours compares.Is it one of the expensive ones? Or one of the very expensive ones?

I agree, investment bond charges are all relative. So it's very useful to have an understanding of the benchmarks being used.

dunstonh

I would certainly think it sensible for anyone to compare any investment bond product they are offered with the charges listed on the table from all the insurers' products.

It doesnt work like that though and it can lead to confusion and misunderstanding.

I, like many other advisors now, work on the new model basis. This means we take 1% intial and 0.5% trail regardless of the investment product sold. So, if you take a larger commission paying product which may have unfavourable terms on maximum commission basis, that could potentially become quite cheap because of the rebates or reduced amc. Now someone getting that product cheaper would look at the FSA tables and think they are paying more than they are.

Ironically, the new model charging basis means that investment bonds do tend to come out quite favourably on charges over 10 years compared to OEICS/UTs (although not ISAs). Hence why I tend to give them a little more support on here than they get from other individuals who assume that if a Ferrari costs £150,000, all cars most cost that much

The FSA publish figures every 6 months on the actual commissions taken by IFAs on products. The figures currently published for Investment Bonds show that the average commission taken is 40% lower than the maximum. An average meaning some will take more (including the maximum) and some will take less. So, whilst you look at the FSA tables at products on maximum commission basis, you do have to consider that the average IFA will be taking 40% less commission than they are entitled to and that will impact the figures on those FSA tables.

Another distortion (to both FSA tables and the FSA commission publications) is that different IFAs will be paid different commission amounts for placing exactly the same product on exactly the same terms. The difference on an investment bond could range from 2.25% plus 0.5% trail to 5% plus trail. The one earnining 2.25% is already below the average and hasnt rebated a penny. The IFA getting 5% can rebate 1.7% to match the current FSA average. Or you can go to a new model basis advisor and just pay 1%. Ideally go to a new model advisor who has negotiated top commission rates as you then get the biggest rebates. Different business models adding to the mix!

So, when looking at the FSA tables, you to remember that they show the maximums. As I said, that is comparable to the RRP (recommended retail price) but like any retail business, you can get things cheaper than that RRP and current stats published by regulator on real business placed shows the the average commission is 40% lower than the maximum.

SOME ADVISERS LIE. They write down what the company expects to see rather than the truth of their clients circumstances so the customer fits the sale rather than the other way around.

Some ambulance chasers do and look what they have done to the image of the claims companies. Every profession has people that let all the others down. You cannot believe the number of times I cringe at what some other advisors do or say. However, the number of bad transactions compared to the overall number done is tiny and at least the industry gives decent protection to the consumer to sort the problem cases out.

You only ever hear bad news cases. This board always wants to slag off advisors. Its no wonder that most of the IFAs that have posted here in the past have left.

Supernova

Thanks all,

I'm trying to follow this. I know I should do a maxi-ISA first - the IFA mentioned Investec Cautious managed but never followed that up. Where's a good place to start research?

The charges on the bond amount to £2190 after 10 years (effect £3470 at 6%) Equates to a reduction of .9% at 6% growth.

I like the idea of a fund manager. Is there a minimum amount they consider? How do you find one you trust?

I's all a bit of a maze, which is why I keep putting it off (that and the endowment experience of course).

Supernova

...oh and I have no idea if I will be a basic rate taxpayer in the future. I was thinking about my pension being in a state so that I wasn't. But I daresay that would come under some clever tax-planning if I had an Investment Bond to consider.

Chrismaths

Depends what you mean by fund manager. A fund manager manages a fund (like a unit trust/OEIC/Investment trust etc) - So Investec Cautious managed has a fund manager - They don't provide you with financial advice and you don't get to speak to them - they just manage money - so the minimum is usually around £1000! I'm an investment manager - which means I manage our clients' money and provide advice relating to investments to our clients, and we tend to deal in amounts from £50k-100k upwards - although most of the big boys won't touch anything below £250k these days. We manage money in direct portfolios (incl PEPs and ISAs), or wrapped in offshore investment bonds or SIPPs (or a combination). However as investment managers, we tend not to advise on the wrappers themselves in anything but simple cases - that is best left to Financial planners and good quality IFAs. Hope this clarifies things, Chris.

Supernova

Yes, thanks Chris.

moneytroll

"I, like many other advisors now, work on the new model basis. This means we take 1% intial and 0.5% trail regardless of the investment product sold. So, if you take a larger commission paying product which may have unfavourable terms on maximum commission basis, that could potentially become quite cheap because of the rebates or reduced amc."

I don't quite understand: is this on top of the charges that the funds/managers themselves impose or including? If the latter, then it's somehow very cheap... (funds in an ISA UT typically impose 5% ic + 1.5% amc + 0.3% on miscellenous stuff).

What would be your (or this New Model's) "typical" TER for a customer? Could you possibly clarify? (sorry it's still a little bit of a maze for me to understand the charging structure)

thanks

dunstonh

moneytroll wrote:

"I, like many other advisors now, work on the new model basis. This means we take 1% intial and 0.5% trail regardless of the investment product sold. So, if you take a larger commission paying product which may have unfavourable terms on maximum commission basis, that could potentially become quite cheap because of the rebates or reduced amc."

I don't quite understand: is this on top of the charges that the funds/managers themselves impose or including? If the latter, then it's somehow very cheap... (funds in an ISA UT typically impose 5% ic + 1.5% amc + 0.3% on miscellenous stuff).

What would be your (or this New Model's) "typical" TER for a customer? Could you possibly clarify? (sorry it's still a little bit of a maze for me to understand the charging structure)

thanks

The fund managers typically have an initial charge of between 3 and 5% with an annual management charge. These charges assume that someone is being paid around 3-4% initial commission and 0.5% of the value annually.

IFAs have the ability to rebate some/all of that commission. These are generally referred to on here as discount IFAs or discount brokers. The difference being IFA suggesting advice given or broker where no advice is given.

The new model basis tends to assume 0% initial commission kept on no advice business and 1% initial kept on advice based business.

So, if the initial charge on a fund was 3%, then 1% kept by the IFA and 2% rebated means that you only pay 1% initial charge. Do it yourself and you are 1% better off. Do it through a full cost IFA (one that doesnt rebate) and you pay the 3%.

On an investment bond there is no initial charges. Commissions "can" be higher than unit trust funds so when 4% initial commission is rebated and there is an initial allocation of 3.5%, this means your investment is increased by 7.5% overnight.

moneytroll

Brilliant - thanks a lot Dunston. Perfectly clear now in regards to init. charges. It's also quite logical that you pay the 1% extra for the advice or 0% if you don't want advice.

In regrards to annual managm. charges, I understand that the 1.5% (imposed by the fund) assumes that someone (discount IFA) will get 0.5% from it.
How do those "extra/miscel. expenses" (also imposed by UT/OEIC funds) fit into the picture? They are sometimes well above 1%! (for no apparent reason) What's the point of having them separately? Those are tricky to spot and can easily be overlooked as they are not mentioned together with the rest of the charges!

However, these will add up significantly (unnecessarily) into the overall portfolio over many years, IMO.

(sorry to barge in with this, but would be useful to understand the whole picture)