Canada Life Flexible Investment Bond

Brownie_2

Hi,

I have recently recieved an inheritance of £50,000 and have been advised by an IFA to place it in a Canada Life Flexible Investment Bond in the following funds:

Investec Managed Distribution Fund 10%
M&G Global Basics Fund 5%
New Star Tactical Portfolio 10%
Canlife Cautious Managed 15%
Invesco Perpetual Income 10%
M&G Recovery Fund 5%
SVM Continental Europe 5%
Canlife Defensive 15%
CF Midas Balanced Income 15%
Canlife UK Property 10%

I would be interested in anyones opinion about this Bond idea.

I am a basic rate tax payer, have £14,000 in ISA's and cash, and have no outstanding debt apart from my mortgage of £100,000.

Thanks,

Brownie

dunstonh

Why the bond tax wrapper? What is making the bond more attractive than unit trusts?

Bonds typically start being best value over £100k but £50k could still be it being a good choice if there are tax reasons for doing it.

Are you over 65 with earnings close to £20,900?

The general pecking order is
1 - ISA
2 - Unit trust/Oeic/sicav
3 - investment bond

However, 2 and 3 can swap places depending on your personal circumstances. However, the majority of the times would see the order above. Especially on investments less than £100k. We don't know your circumstances so cannot judge the order.

However, it is worth noting that Canada life pay a good commission. Take a look at your illustration and look a the amount of commission. If its around £3500 then you are paying full whack for it. You should be aiming to get half of that amount at least rebated. If they dont do that, then find another IFA as most IFAs will discount. Its mainly salesforce or employed IFAs that wont (because they cant most of the time). You should be aiming for 1.8% commission. So, that commission figure should be around £900.

Brownie_2

Thanks dunstonh. I understand what you're saying about the commission. I'll look into that. I've used my isa allowance this year and the 104% allocation, unlimited free funds switching, etc with the bond seem like good features. If you have any comments about the suggested choice of funds, I'd be particularly grateful.

dunstonh

I'll look into that. I've used my isa allowance this year and the 104% allocation, unlimited free funds switching, etc with the bond seem like good features.

Whilst the unlimited free funds switching sounds attractive, you can get this on unit trusts for between free and 0.25% typically. If you rebalance say £5000 a funds a year, then even at 0.25% thats only £12.50.

The allocation may seem attractive as well but look at the annual management charge. The fact you are only getting 4% allocation suggests that full commission is being taken. That coupled with the fact that mostly external funds (which are available in unit trust form) means that the ongoing annual management charges are likely to be higher than on unit trust form. This could see that extra 4% allocation wiped out within 5 years.

Investment bonds can be very good when used well but they tend to be overused. Use of certain providers puts me on guard straight away. Canada Life is one of those. I would look at the reduction in yield over 10 years (near the back of the illustration). A good priced bond would see it typically less than 1.5% and that can often justify its use above the unit trust.

If you have any comments about the suggested choice of funds, I'd be particularly grateful.

Investment funds are opinion and no-one will ever pick the same funds. My only comment would be why cautious, balanced and distribution funds are being mixed with specific focused funds. If the funds were more focused (niche areas for example) I could understand that but I dont see a need to mix in those funds as they are. I repeat that fund choice is opinion though. There is nothing wrong with the actual funds.

Cook_County

I am not an IFA - what I would have an issue with if this was my money is why (assuming the wrapper is suitable) you'd be buying all of the funds on one random day as against keping in cash and gradually investing?