Investment bonds .vs. standalone OEICs

dunstonh

That's pretty hard to believe if an S&S ISA was th alternative vehicle being considered. Seems more likely if investing outside a tax wrapper was the not particularly efficient alternative investment method.

it was comparing unwrapped vs bond. Everybody knows that ISA beats both of those.

Also, remember that the FSA is cost focused. So, it would happily compare an internal fund with an external on charges without looking at other reasons. There are currently investment bonds available where you can get a reduction in yield of nearly 0.1% p.a. over 10 years using only internal funds.

I have seen RIY in the negative over 5 years in the past (i.e. the charges were less than the initial allocation).

jamesd

Negative would indeed be an interesting reduction in yield. I do hope that the FSA would at least consider relative performance and not only costs.

Rollinghome

Anyone advised to buy investment bonds might want to read the original report closely.

That article intended for advisers suggests there was “no significant detriment in investing in bonds over collectives”. They say the FSA found that “30% of advice on investment bonds in the files it reviewed were unsuitable while the suitability of advice in a further 50% of cases were unclear”. That’s 80% that were questionable.

And “Accordingly, and considering the current levels of detriment, we do not consider it an appropriate use of FSA resource to tackle the bonds vs collectives risk of unsuitability with firms in respect of past business other than in extreme situations”.

A lack of FSA resources isn’t an endorsement and anyone buying on a commission basis would be wise to ask exactly why they were being recommended.

dunstonh

Anyone reading the article closely would note that the detriment was on tax and the fact the charges were mostly lower would have offset that (plus more). Whereas historically, the perception was that they were more expensive.

Negative would indeed be an interesting reduction in yield. I do hope that the FSA would at least consider relative performance and not only costs.

With justification and explanation yes. However, you can understand them focusing on cost and tax as they are the two known figures in the calculation. Returns are an unknown.

spotted_orchid

Can I raise a related question regarding offshore investment bonds. Am I correct in understanding that for offshore bonds, any gains of the underlying assets are not taxed at source (income tax or CGT as appropriate) with the whole gain being reinvested, leading to a higher overall growth rate for the bond.

Thanks