Investment Bonds

dunstonh

EdInvestor wrote:

Comment today from Gavin Lumsden, editor in Chief of Citywire:



*Perhaps this was the one you attended?

No, the one I went to was a regional roadshow with multiple topics. New model was one of the agenda items. It was given about 60 minutes. I think the national coverage was aiming to be around 6000 IFAs.

Supernova

Mus wrote:

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


This is from the personal example I was given by the IFA and are somewhat lower than the figures on the FSA site. Are these reasonable charges? The CL document says it is £1250 taken out of the establishment charge of .099% pm over 5 years.

Hi guys, remember me? ;-) - so, can I conclude that these charges are not reasonable?

Chrismaths

That's right. Sorry, wandered off on a tangent there!

The £1250 establishment charge equates to an inital charge of 5%, but from the figures you've given it's hard to work out what the ongoing is (probably between .4% and .5%). But as the NMA discussion hopefully shows, you can get better, impartial advice for less money.

EdInvestor

Hi Mus

Yep, that's right.

Here's what dunstonh says:.

The Canada Life bond on this thread is being recommended on old model basis. If Mus was to see a new model advisor on 1% plus 0.5% p.a., they would find a saving of around £1000 straight away due to only 1% being taken. This would either result in less charges or increased allocation (in the case of bonds). Plus, the portfolio would usually be built better and information presented better.

Just trying to figure out how you can find one of these New Model chappies now You should be able to get lower charges and a better choice of funds likely to produce better performance.

dunstonh

The charges are not unreasonable. Cheaper than an advisor from a bank but can be bettered by an IFA on new model basis. On new model basis, you would save around £1000. You would almost certainly get a better sector spread. You would also get the ISA allowance used and the rest could go towards the investment bond (the tax wrapper is right for your tax status) rather than the whole amount going to the investment bond. You could consider paying off part of the mortgage but thats an personal opinion of the individual rather than an advice issue really. i.e. a mortgage be charged 5% isnt worth being paid off with an investment with potential 10% if you accept the volatility that goes with investments.

I think that points to you not using that IFA.

Chrismaths

Or you could use my ZDP idea and avoid tax entirely... Whether an investment bond is the best investment in this circumstance is a matter of opinion.

dunstonh

Chrismaths wrote:

Or you could use my ZDP idea and avoid tax entirely... Whether an investment bond is the best investment in this circumstance is a matter of opinion.

I doubt the IFA is authorised to make that sort of recommendation. It's quite easy to eliminate ITs in favour of OEICs and in this case you can eliminate OEICS with the investment bond.

edit: copy and paste of a bit on IFA authorisation with ITs:

Shares in investment trusts are stockmarket-listed securities and as such most advisers are not authorised to recommend investment trusts directly. However, where appropriate, advisers can recommend investment trust savings schemes. Investment trust savings schemes typically accept single lump sum investments in addition to regular contributions.

Chrismaths

Fair enough - As an investment manager I'm not used to those sorts of restrictions! Same old story of cheap to those who can afford it...

dunstonh

Its interesting as I am finding conflicting information on IT authorisation. I have fired off an email to a compliance bod asking for some documentary evidence of the current position on IFAs and ITs.

I bet it will come back and say that CF21/CF22 (which covers IFAs) allows advice of packaged products and ITs fall both inside and outside of that authorisation allowing some to be recommended and others not. That is my current understanding. I also bet that I wont get a response back this week It wont do my CPD any harm having an hour on it for a refresher on ITs. :whistle:

Chrismaths

Yes, I'm CF27, so that's a difference. I understand that IFAs can't recommend individual shares, that makes sense, but there is no logical reason why they shouldn't be able to recommend collectives irrespective of how it's been set up. But then the FSA are not renowned for logic. Up till now, it hasn't been an issue because ITs don't pay any commissions, so IFAs haven't recommended them.