Inurance Bond -- Good or Bad?????

Apreciar

OK total ignorance, but what is RIY and what is a New Model Adviser. What are the benefits of a bond against say a svings account B&b, ING etc.?

dunstonh

RIY = reduction in yield. Its the way to measure the equivalent cost per annum over a defined period. 10 years being a common measure although it can be calculated on 5 year basis as well.

New Model Adviser = This is a particular business model for IFAs. The term IFA covers a range of business models and this is perhaps why you get a big difference in the quality of different advisers. New Model advisers take a smaller amount of the initial commission and rebate the rest. The amount is usually fixed between 1 and 2% (compared to 5-7% on old model). The renewal commissions also provide ongoing servicing such as portfolio reports, ongoing advice etc (compared to the hit and miss basis of old models).

It does make the old model bad. There are some very good advisers work on the old model basis. It does however make it more expensive compared to new model.

What are the benefits of a bond against say a svings account B&b, ING etc.?

Not comparable. A savings account will pay you interest to which you will pay 40% tax on. You will struggle to keep up with inflation with the interest. An investment bond is just a tax wrapper (one of many) which allows investments to be held within. The wrapper can be tax efficient and the range of investments that can be contained within the investment bond can be life funds, unit trusts and oeics (to name a few).

Investments typically means taking some degree of investment risk. This can range from very low to very high. However, the investment returns over time, when coupled with the right tax wrapper, have the potential to grow by more than a bank or building society account.

ReportInvestor

dunstonh wrote:

There are some very good advisers work on the old model basis. It does however make it more expensive compared to new model.

I do love clarity from IFAs

I'd be tempted to stick to the "new model" like dh, and avoid the "old model".

Could dh confirm?

payless

montycat wrote:

Payless ,from what I can remember ,the Portman are paid the commission but ,because they are a Building society it got passed back to me in a 6 month high interest bond .
It was a dual bond -not advertised on their website .1/3 went into the 6 month bond ,the rest into a high interest 6 month bond .

having seen the sale of NU bonds by many a mutual building society I would love to know the full story here .. how much did you invest / how much rebated in cash to a bs account ?

payless

ReportInvestor wrote:

In our wonderful world of financial services, a financial adviser like dh - even though he is not a mutual and, unlike the Portman, does seek a healthy profit for himself so that is not doomed to reply to MSE threads into eternity - could pay you back more commission than the Portman, in spite of the Portman's cuddly status and economies of scale advantages over dh.

But another IFA might or might not beat the Portman.

are you saying portman gets much less commission than an IFA ??

ReportInvestor

payless wrote:

having seen the sale of NU bonds by many a mutual building society I would love to know the full story here

I concur. Tell us more .

ReportInvestor

payless wrote:

are you saying portman gets much less commission than an IFA ??

No. I'm saying they might get more............ or less.

dunstonh

are you saying portman gets much less commission than an IFA ??

Possibly. NUs default commission on investment bonds is just 4%. I know another IFA who gets 6.5%. I get 7.5%. It all depends on the level of business placed. The commission differences have no impact on the level of charges. Its just normal economies of scale.

I do love clarity from IFAs

I'd be tempted to stick to the "new model" like dh, and avoid the "old model".

Could dh confirm?

I would confirm that but I am a new model adviser so what do you expect

Fact: A new model adviser taking 1% initial commission is cheaper than an old model taking 7%.

Taking your 1% RIY figure, you'd need a RIY on the OEIC/UT portfolio over 20 years of 1.64% to equal the tax lost, for a higher rate taxpayer. This also fails to take into account the £7000 pa ISA allowance (possibly £14,000 if married). Figures swap around a bit if you change the mix of income/capital growth etc, but that's still a pretty big kick you'd have to take to get down to there...

So, on that basis, £7k ISA (each if applicable) and a low cost bond does beat most OEICs.

Just to play with the figures more, it is possible to get a RIY in negatives on investment bonds over 5 years with the right provider arranged on the right terms.

ReportInvestor

dunstonh wrote:

Fact: A new model adviser taking 1% initial commission is cheaper than an old model taking 7%.

So clearly one IFA is not the same as another IFA. You're best off with dh when in doubt .

And both types of IFA are different from / probably superior to tied advisers.

Whatever that term means nowadays

Chrismaths

dunstonh wrote:

So, on that basis, £7k ISA (each if applicable) and a low cost bond does beat most OEICs.

Just to play with the figures more, it is possible to get a RIY in negatives on investment bonds over 5 years with the right provider arranged on the right terms.

I also made an oopsy. I forgot to deduct the 20% of the net gain for the bond, representing the HR tax! silly me. That takes the RIY required for OEICs up to 2.35%.

Since in both circumstances you'd use the 1st year's ISA, you can ignore that for calculation purposes. Using OEICS, you'd continue to use ISA allowances, whereas in the bond you wouldn't be.

I've got nothing against bonds dh, I just don't like onshore ones for this reason. I can only think of very convoluted circumstances where an onshore one would be more appropriate than an offshore one or some decent management with collectives and ISAs. I think we can probably agree to differ on this one!

All the best, Chris.