commission v fees

EdInvestor

This article in the Times makes many useful points, in particular that these bonds are aimed at higher rate, not basic rate taxpayers, as the latter can normally invest directly on a tax free basis, so they are better off outside the bond.

This second article looks at further fears of misselling, relating to the combination of bonds and trusts, as we have here.

Check charges here, under investment bonds.

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

Note that these high charges apply to a comparatively small amount of money and a very large discount should be applicable for larger sums placed in bonds (by HRTs.)

Chrismaths

This bond is for a TRUST Ed - can you tell me what the tax rate applicable to trusts is? I'll give you a clue, it's the same as the higher rate. So why use a trust? Because they can help in avoiding Inheritance tax, when you combine a trust with an offshore bond (that pays no tax in the bond), you end up paying no tax (apart from unreclaimable stuff like the dividend tax credit on UK shares), and when the trust comes to be wound up, you can assign segments of the bond to the beneficiaries (who may be basic or non-taxpayers) - so that higher rate tax is never paid. It works very well.

I use AXA IOM for all of our offshore business, because they are one of the cheapest around, and they are rare in that they seem to have a clue what they are doing. However, I've never been a fan of Allocation rates because they serve to create confusion, and obfuscate the true charges. So when I use AXA, their charges are 1% upfront plus £90 per quarter. Simple, and dirt cheap.

But Ed, please don't keep parading your ignorance. Yes, the OP can get it cheaper - that's what the people in the know on this board have already said, and suggested that the OP does. But the vehicle is correct.

dunstonh

This second article looks at further fears of misselling, relating to the combination of bonds and trusts, as we have here.

So, you are saying that this is a mis-sale because the product matches one that a newspaper fears could lead to a tiny minority mis-sales (something that hasnt been raised in the financial press or the industry)? Every product can be mis-sold. House insurance, car insurance, ISAs etc. The papers only ever focus on the negative. The fact that over 80% of advisers have never had a complaint (stats provided by the FOS) should give confidence that in the vast majority of transactions, the advice will be good. If it isnt, then there is a robust mechanism which exists to make sure the consumer is not financially disadvantaged. (oh, and the articles carried errors in them as well).

The adviser will have to justify why they havent chosen ISA, OEICs/UTs and onshore bonds in their report. You cant just pick a product and do it because you like the colour of the leaflet. As an NMA IFA I get paid the same on commission regardless of the tax wrapper and I still do bonds (onshore and offshore).

Ed, what investment tax wrapper/product type would you use which can placed in trust?

www.fsa.gov.uk/tables

Note that these high charges apply to a comparatively small amount of money and a very large discount should be applicable for larger sums placed in bonds by HRTs.

Again, Ed is highly misleading you with those tables. On the last investment bond thread Ed was informed that the FSA tables only go up to £25,000 with investment value. Investment bonds dont really start to get competitive until £50,000 and even more so at £100,000 and £250,000. So, if you look at those tables using a figure of £25,000 then it is not at all reflective of the charges you paying. Despite Ed acknowledging this in the last thread, we still see the FSA tables highlighted again.

Market_Oracle

janemw wrote:

An elderly family member has a substatial amount to invest (over £500k), and we're looking for ways to minimise IHT. Long term care may be required at a later date. An IFA has recommended an investment with AXA IOM (Isle of Man), and I'm happy that they're a reputable company. However it's the fees v commission that I don't understand.

Investment will be boosted by 7%.
An establishment charge of 0.625% every quarter for 5 years.
An admin charge evry quarter of £17.
Average initial investment charges of 0.5% and ongoing 1% pa.
Initial commission to the IFA is £15,600, followed by 0.5% pa.

The effect of the deductions to date is illustrated at £25k for the first year, risng to a cumulative of £152k after 10 years.

Do these charges seem reasonable? I haven't clue really, altough I suppose % wise it works out to about 5%.

Help!

And at the end of it all, your likely to end up less than £500k , bung it into something safe until you better understand savings and investment, something like a high interest instant access account.

dunstonh

And at the end of it all, your likely to end up less than £500k , bung it into something safe until you better understand savings and investment, something like a high interest instant access account.

How on earth can you say that? We know nothing about the investment funds and with the same investment funds available in ISAs, Unit Trusts and OEICs, you are basically saying that anyone that invests in the UK is going to lose money.

Market_Oracle

dunstonh wrote:

How on earth can you say that? We know nothing about the investment funds and with the same investment funds available in ISAs, Unit Trusts and OEICs, you are basically saying that anyone that invests in the UK is going to lose money.

If they don't understand the product their being sold, completely, fully then they definetly should NOT put £500k into it !

The last thing they want is in a year or twos time to realise they are in the wrong investment !

Chrismaths

We're talking about a wrapper here, like an ISA or PEP or SIPP. There is no investment risk attached to the wrapper, simply a different tax treatment. The bond could invest into more or less anything - Equity based unit trusts, bonds or even cash. So if the OP does have no risk tolerance, they could put the money in the bond into a savings account. But who are you to say they have no risk tolerance? Have you done a factfind?

EdInvestor

dunstonh wrote:

So, you are saying that this is a mis-sale because the product matches one that a newspaper fears could lead to a tiny minority mis-sales (something that hasnt been raised in the financial press or the industry)?

Single premium investment bonds are the second largest cause of misselling complaints to the Ombudsman after endowment mortgages.

And given that so many of those missold are likely to be elderly people, unable to cope with the complaint process (or to believe that the nice young fellow who persuaded them to put their money into the bond was actually a shark playing on their fears of tax bogeymen), it wouldn't be surprising if the figures understate the actual numbers.

dunstonh

Single premium investment bonds are the second largest cause of misselling complaints to the Ombudsman after endowment mortgages.

And what type of investment bonds were the issue with these? Not the type that is being discussed in this thread. The section on SPIB on that page doesnt even mention Offshore investment bonds. Most complaints are about precipice bonds and with profits bonds.

Also, lets look at the numbers. 4541 cases complained about bonds. Thats all. Mortgages get over 3900 and current accounts 3500. Are you saying that we shouldnt have mortgages and current accounts because some people complain?

Why dont you try answering some of the questions and key points on this thread rather than trying to scaremonger with your inaccurate and misleading information?

EdInvestor

Also, lets look at the numbers. 4541 cases complained about bonds. Thats all. Mortgages get over 3900 and current accounts 3500.

And how common are mortgages and current bank accounts by comparison, would you think?

I'd have thought two thirds of the population probably haven't even heard of investment bonds.

Not quite the case with bank accounts and mortgages.