Investment Bonds

dunstonh

baby_boomer wrote:

How can I get one of those?

Any new model IFA can offer those terms.

I still don't see the point of the wrapper for someone like Mus.With the IB you can take 5% out "tax free" from your capital.

But outside the wrapper, you can cash in 9k a year in capital gains tax free anway- so if you have a 100k fund, that's a 9% withdrawal from capital tax free p.a.

A higher rate taxpayer pays 25% tax on dividend income.So if his 100k is earning a 5% dividend yield of 5k, his tax bill will be a teeny 1,250.

Why pay that £1250 when you do not need to?

If you want to invest into funds, you have a range of ways to do it nowadays as the same funds are generally available across the different tax wrappers. After you decide where you want to invest, you then look at the most tax efficient way to do it and a way that suits you and not anyone else. In this case, the investment bond offers advantages over the OEIC/UT because it can avoid higher rate tax and give no personal CGT liability. If you look at charges you can get it cheap.

You have to consider the personality of the individual. If unit trust/IT investments are used, will the person (Mus in this case) remember to sell some of the investment each year and buy it back (incurring more costs, albeit small)? Many people dont want that sort of responsibility.

You have to start looking at investment bonds in a new light Ed and stop treating them on the assumption that they are all priced the same as the most expensive version. You cannot measure everything by the lowest common denominator. Otherwise we are all chavs and hoodies They dont have to be expensive and they can be cheaper than unit trusts as well as offering tax advantages to certain groups.

EdInvestor

dunstonh wrote:

Any new model IFA can offer those terms.

But these people hardly seem to exist (yet)....

You have to start looking at investment bonds in a new light Ed and stop treating them on the assumption that they are all priced the same as the most expensive version. You cannot measure everything by the lowest common denominator.

Yes but let's be realistic.Look at the advice that gets reported on this website - it's all "Old Model" - high upfront commission with lacklustre, even rubbish funds.

32% hasnt been that hard to get over the last couple of years. I did a valuation report yesterday for someone averaging 35.9% p.a. for the last years. That portfolio was nothing special and just about medium risk.[/qiote]

You know that and I know that - indeed I will get more than that because I pay hardly any charges and get additional high dividend returns.

But nobody going with an Old Model IFA is going to get that.

Well done for being a pioneer, but I think you've got a way to go to convert the rest of your colleagues, sadly:(

And until we get people reporting they are getting New Model service, I'm not going to apologise for pointing out the damage that the Old Model advisor is going to do to their wallet.[Especially since in many cases the DIY very low cost solution is really quite straightforward when people can access the relevant information.]

The more investors know about the high costs and low performance of the Old Model,the more they are likely to push their advisors to change.And thus the faster the New Model will become the norm, not the exception.I realise you are in a difficult position, but it surely isn't in your interest to support Old Model thinking either.

EdInvestor

dunstonh wrote:

Any new model IFA can offer those terms.

But these people hardly seem to exist (yet)....

You have to start looking at investment bonds in a new light Ed and stop treating them on the assumption that they are all priced the same as the most expensive version. You cannot measure everything by the lowest common denominator.

Yes but let's be realistic.Look at the advice that gets reported on this website - it's all "Old Model" - high upfront commission with lacklustre, even rubbish funds.

32% hasnt been that hard to get over the last couple of years. I did a valuation report yesterday for someone averaging 35.9% p.a. for the last years. That portfolio was nothing special and just about medium risk.

You know that and I know that - indeed I will get more than that because I pay hardly any charges and get additional high dividend returns.

But nobody going with an Old Model IFA is going to get that.

Well done for being a pioneer,:T but I think you've got a way to go to convert the rest of your colleagues, sadly:(

And until we get people reporting they are getting New Model service, I'm not going to apologise for pointing out the damage that the Old Model advisor is going to do to their wallet.[Especially since in many cases the DIY very low cost solution is really quite straightforward when people can access the relevant information.]

The more investors know about the high costs and low performance of the Old Model,the more they are likely to push their advisors to change.And thus the faster the New Model will become the norm, not the exception.I realise you are in a difficult position, but it surely isn't in your interest to support Old Model thinking either.

dunstonh

But these people hardly seem to exist (yet)....

There are enough to support a weekly publication. That publication names firms every week that are on new model basis. It is new and the numbers that work on new model basis are a minority probably but its growing.

It will be harder to find a new model basis advisor at this time but if you dont ask, you dont get. Get the advisor to agree 1% plus 0.5% at the start regardless of the investment wrapper.

Yes but let's be realistic.Look at the advice that gets reported on this website - it's all "Old Model" - high upfront commission with lacklustre, even rubbish funds....snip
..... I realise you are in a difficult position, but it surely isn't in your interest to support Old Model thinking either.

Just because much of it is old model basis, that is still better than going to the bank for financial advice where you pay even more and get even worse products. Yet people do that. We are in effect picking on the average and not picking on the worst extremes, which are the banks, building societies and tied agents (AXA, St James Place etc)

Your train of thought is to eliminate a perfectly valid product on the basis that it can be bought on very expensive terms with no consideration that it can be bought much cheaper through other distribution channels. You promote non-advice channels offering products on low charges. Yet they are in the minority as well.

Comparing a product on maximum cost basis against a different product on low cost basis is not a fair comparison. You should compare both on either maximum cost basis or low cost basis.

Supernova

EdInvestor wrote:

Insurer it's with Friend's Provident
Guaranteed sum assured £32K (Sum !!!!!! £21K)
Declared bonuses £11K
Surrender value (ring up and ask) £23K
Maturity date 09/2012
Monthly premium £101.90


Ta

M

EdInvestor

Hi Mus

Mus wrote:

I have a £56K endowment mortgage due to mature in 6.5 years with a £9K-£19K projected shortfall - I'm on variable 1% above base.

OK let's see if we can sort this out.

If you surrendered the endowment and put it on deposit @4% also paying in the premiums to maturity, you should end up with 37,396.:( If you are paying 6% interest on the mortgage and instead used the surrender value to reduce the mortgage also paying in the endowment premiums to maturity, the net return would be 41,439.

So that's likely to be a better result than staying with the endowment.FP's fund is unlikely to produce more than around 4% I'd have thought as it's got less than half in equities.At least you got your DM windfall

So I would suggest you went off to see a mortgage broker with a view to surrendering the endowment, using it to reduce the amount owed, and then remortgaging the new lower amount at a lower interest rate - also devoting the old endowment premium money to repaying the mortgage.That will then then get the shortfall sorted and your mortgage would be paid off at the end, no further worries about that.

Leaving aside the vexed question of the investment bond for a moment, and looking at your overall financial picture, it looks to me that you have enough in pensions now with the 2 state ones (good idea to get an update forecast here), the company and the private one.Perhaps 18-20k p.a in retirment at a guess. But pensions are taxed, so the thing you need to do is start building up your investment ISA so that you have some income in retirement which isn't taxed.

You say you have FP shares and some shares in your company. May I ask you if it bothers you that the value of these shares goes up and down?

Your IFA appears to have judged you as risk averse, and yet ownership of individual shares would not normally suggest that.

Supernova

EdInvestor wrote:

You say you have FP shares and some shares in your company. May I ask you if it bothers you that the value of these shares goes up and down?
Your IFA appears to have judged you as risk averse, and yet ownership of individual shares would not normally suggest that.

It doesn't really bother me as the FP were windfall and most of the company stock were stock options at a fairly low price.

I'd definitely be willing to put ISAs into shares but have no idea which fund yet at all. I was probably a bit more nervous about the £25K.

I'll give some thought to the Endowment situation too - thanks.

EdInvestor

Maybe the best thing for you to do is to invest the ISA and see how you go.

I would suggest you look at "Equity Income" funds, which are a less risky way of investing in the stockmarket than growth funds or trackers. Look under that sector on this website to see the top rated ones:

https://www.citywire.co.uk/Finds/Home.aspx

Regarding the commercial property fund suggestion from the IFA, could I inquire what company your personal pension fund is with?The reason is that many of the best property funds are run by the big insurance companies and are available to pension customers.

Whereas many of the best equity funds are run by fund managers and are available to ISA customers.

So it can be better to put some of your pension money in property and your ISA money in equities.

If you moved some of the pension money into your pension company's property fund and maxed out your ISA at 7k a year in equity investments from now until you retire, I think you should be fine given your existing cash savings, and assuming you arrange to get the mortgage paid off at the same time.

No real need IMHO for the bond: after putting 7k into the ISA annually, if you have any spare money I would tend either to overpay the mortgage or add it to savings.