with profits bond

whiteflag_3

dunstonh wrote:

Owners/partners/directors tend not to as much.

and they carry the ongoing liability ( into retirement :eek: ) for the advice they give...........it does focus the mind a little;)

moneytroll

"Because in 150 years of them being around, they had always done the job and they do contain certain guarantees."

I didnt know w/p funds were around for such a long time! So they must do well in most market conditions then? How come they were never criticized in previous crashes/bearmarkets and only in 2001-2003? What exactly changed?

dunstonh

whiteflag wrote:

and they carry the ongoing liability ( into retirement :eek: ) for the advice they give...........it does focus the mind a little;)

Totally agree and we have both mentioned this in the past.

If you know that you personally are going to be liable for the advice you give, then you do a much better job of it than if you knew you had no personal liability.

"Because in 150 years of them being around, they had always done the job and they do contain certain guarantees."

I didnt know w/p funds were around for such a long time! So they must do well in most market conditions then? How come they were never criticized in previous crashes/bearmarkets and only in 2001-2003? What exactly changed?

They suited the old UK economy and not the current one. Plus you had new accountancy standards and increased FSA solvency requirements which put pressure on them to reduce liabilities. You also had the stockmarket crash which was the worst in recent times following a period in the 80s in particular where the funds were run by the marketing men and not the accountants where the with profits funds were used to virtually give money away that they didnt have.

Whilst companies like NU and Pru can still offer very good with profits offerings with some degrees of capital security, most couldnt afford to or didnt want to afford to.

moneytroll

How does one go about managing w/p Investment Bonds? (I want to switch to other life funds/have control over where they are invested etc). Is it better to do it directly through Clerical Medical or through a broker or a New Model Adviser? Can it be done through HL for example at a reasonable cost?

dunstonh

HL wont take this on as it appears no servicing commission being paid. Re-issuing the policy (i.e. surrendering it and reinvesting it) with no initial commission but with trail to be paid is an option and it would cover your 4% (and a little bit more). However, it would result in the tax trigger occuring.

If you want to pick your own funds then you can do so and send the request to CM. HL will not recommend funds on their execution only service. An NMA would recommend funds but because there is no servicing commission payable to cover costs (unless you re-issue as above), then a fee is likely.

missile

If it were my investment I would wait until 5 year aniversary dates and then cash each in. Although they are moves to make them a litlle more transparent, MVR and Terminal bonus rates seem to be at the discretion of the fund managers. Now that WPB are less fashionable, I suspect they do not have the same incentive to award good returns to attract new business.

I would not dare disagree with dunstonh, he is obviously very knowledgeable, but if one bond has reached 5 years and the other is due in November, there would seem little point in switching if you withdraw at 5 years?

I believe some bonds allow penalty free withdrawal AT the 5 year anniversary. They may or may not allow you same terms AFTER said anniversary? You might like to check the small print and/or ask Clerical to confirm.

dunstonh

I would not dare disagree with dunstonh, he is obviously very knowledgeable, but if one bond has reached 5 years and the other is due in November, there would seem little point in switching if you withdraw at 5 years?

If you surrender, then things to consider are:

1 - Tax. Gross roll up comes to an end.
2 - after 5th anniversary annual charges go down making it cheaper in the future
3 - over 100 alternative funds exist with no bid/offer spread to invest into them. Switching funds incurs no tax liability.

This is not a with profits bond. It is a investment bond offering a wide range of funds with one of them being a unitised with profits. It cannot be compared with a conventional with profits bond.

moneytroll

Missile: "I would not dare disagree with dunstonh, he is obviously very knowledgeable, but if one bond has reached 5 years and the other is due in November, there would seem little point in switching if you withdraw at 5 years?"

Dunston:
"1 - Tax. Gross roll up comes to an end.
2 - after 5th anniversary annual charges go down making it cheaper in the future
3 - over 100 alternative funds exist with no bid/offer spread to invest into them. Switching funds incurs no tax liability."

If it was an onshore IB, I would probably just cash it in after 5 years, but because there's this gros roll-up and I would have to pay tax as soon as I cash it in (possibly at high rate), it might be worth sticking with the wrapper and simply change the underlying funds (to a healthy/diversified spread of various funds and CM seems to offer enough good funds to achieve this).

I am curious about DH's 2nd point: Do charges actually go down or is the 9% exit penalty charge simply removed but the same annual charge is kept? ( i think charges are also somewhat higher on their UT/OEIC mirror funds than on w/p fund but this is something i need to investigate with CM. Also, if they are much higher than equivalent funds outside the investment bonds, then the tax hit might be worth taking and cash them in after all).

one (slightly) worrying thing about CMI (or Natwest who arranged it) is the fact that in the last 4 years, I have not received any info/updates on the performance of the fund. maybe they felt so embarrassed about the performance that decided not to break the bad news...

many thanks for the helpful comments

dunstonh

I am curious about DH's 2nd point: Do charges actually go down or is the 9% exit penalty charge simply removed but the same annual charge is kept? ( i think charges are also somewhat higher on their UT/OEIC mirror funds than on w/p fund but this is something i need to investigate with CM. Also, if they are much higher than equivalent funds outside the investment bonds, then the tax hit might be worth taking and cash them in after all).

The exit penalty (this 9% you mention) is only applicable in the early years and is a step down penalty. 5 years on and this potential charge will cease to exist. The establishment charge ceases after the 5th anniversary and that is a good reason to keep.

Internal CM funds will be cheap. Unfortunatly, CM internal funds dont tend to be good performers. Although utilising the low risk internal funds, especially property, would make sense. External funds will cost more. That is the nature of using the most popular funds.

It is quite possible that some will be a litle cheaper in unit trusts. However, you need to balance up the gross roll up and the fact you have no CGT to worry about. That will probably offset any small differences in charges and if you do utilise some of the internal CM funds, then they certainly wont be cheaper on unit trusts.

one (slightly) worrying thing about CMI (or Natwest who arranged it) is the fact that in the last 4 years, I have not received any info/updates on the performance of the fund. maybe they felt so embarrassed about the performance that decided not to break the bad news...

Old model basis advice. Take the money up front and run. You can get the contract re-assigned to an NMA. The NMA may not earn from it but if you have other bits running with that NMA, then they will usually service the lot. The NMA would almost certainly cost analyse it as well. I know I would and even without figures, I could guess what the outcome would be.

moneytroll

Ouch - just checked with CMI and the only funds i can switch to are their internal funds! (not sure why they impose this restriction but it's a major one). if i wanted to switch to external ones, i would have to surrender my policy and start over. I am trapped! All the funds i wanted to switch to, were external ones (because the internal ones are not such good performers, as DH pointed out correctly).
not sure what to do now...
maybe switch to a few of their in-house property/bond funds (from any gains i made) and withdraw the actual capital...