L&G Investment Charges Terminology

Limes

Looking for anyone with an answer please!!!

L&G's Investment site mentions annual mangement charges and other annual expenses on their funds.
Elsewhere however (http://www.legalandgeneral.com/investment/portfolio_bond.jsp) they refer to an Annual Fund Charge, which I can tell from the numbers is a different beast from the other charges already mentioned but would really like to understand what this refers to and how it differs.

Any help much appreciated!

dunstonh

L&G have a number of versions of their bond over the years and even the current version differs to which distribution channel you buy it through. i.e. tied adviser, IFA or direct (also IFAs have 2 versions availalble as well with different terms). Direct is worst one of the three. Make sure the charges of the plan you are looking at matches the version of the plan you have.

Apart from the annual manangement charges, you have an initial charge (which is often wiped out with initial allocations and discounts - but that depends on where you are buying it and how) and there is a five year reducing penalty on surrender. As long as you dont surrender in the first 5 years, you wont pay that.

Is this a bond you already have or is it one you are thinking about? It isnt the best onshore bond at present for charges but it quite high up the list if bought through one of the distribution channels but less so if bought through the others.

Limes

I was just trying to compare it against some different providers funds and trying to weigh up the pros and cons in terms of initial investments and various charges that are applied. I've no experience with investments so was just trying to get my head around some basics and couldn't work out what the difference between management fees and annual funds charges might be.

The point you make about a reducing surrender penalty is interesting as I noticed somewhere they charge a withdrawal fee on investments made before a certain date but not after - is this the same thing just different terminology and is this general practice amongst fund providers - to tie people in to stabilise the fund possibly?

Another question as well, you mentioned that there are vast differences between distribution channels. Why is Direct so much worse than the other channels? I can only assume that there is some incentive for advisers /IFAs as this is where the bulk of business comes from as far as I understand?

dunstonh

The point you make about a reducing surrender penalty is interesting as I noticed somewhere they charge a withdrawal fee on investments made before a certain date but not after - is this the same thing just different terminology and is this general practice amongst fund providers - to tie people in to stabilise the fund possibly?

With invesmtment bonds there is usually a "stepped down" early surrender penalty. With other tax wrappers, such as ISAs and unit trusts there is not. However, on a like-for-like basis, the have higher upfront charges than investment bonds. Old versions may have had different rules on them and that could be the date issue. It could also refer to Market Value reductions which would only apply to one particular fund.

The charge is actually on the tax wrapper and not one the funds themselves so has nothing to do with stabilising the funds. It is to do with the contracts having no initial charge and the insurers wanting to cover their costs. It is now possible to buy onshore bonds with the same charging structure as unit trusts with some providers and that removes any possible 5 year tie in.

Another question as well, you mentioned that there are vast differences between distribution channels. Why is Direct so much worse than the other channels? I can only assume that there is some incentive for advisers /IFAs as this is where the bulk of business comes from as far as I understand?

IFAs take all the brunt of the cost, liability and admin. With many contracts now, the IFAs even set them up for the provider and all the provider gets is a cheque to match up with that application. However, if done with their own salesforce or direct, it requires the insurer to do all the work and take the brunt of the cost. Also, IFAs can buy the L&G product from L&G or Cofunds and its currently got better terms if bought through cofunds. Very similar to the Standard Life where you can buy the Standard Life product elsewhere cheaper than getting it from Standard Life.

Scottish Widows products sold through LTSB branches are cut down with features to make them simpler and more suitable for their lower skilled salesforce and generally low knowledge customer base.

EdInvestor

There is a quite lucid explanation of the features of this product here.

You may also like to look at the FSA site for more info on the very high charges typically attached to investment bonds.

https://www.fsa.gov.uk/tables.

If you are not a high rate taxpayer, you should almost certainly avoid this product.

dunstonh

You may also like to look at the FSA site for more info on the very high charges typically attached to investment bonds.

www.fsa.gov.uk/tables.

If you are not a high rate taxpayer, you should almost certainly avoid this product.

Wrong again. There is nothing wrong with the product. It can work out a lot cheaper than unit trusts over a 10 year period if bought through the right distribution channels. There are a range of reasons for buying a bond instead of collectives and being a higher rate tax payer is only one of them (although even then its not always a valid reason in itself).