CAPITAL PORTFOLIO BOND
Type: Unit-linked bond.
Aim: Income or growth by investing in unit-linked funds.
Minimum investment: Lump sum £5,000.
Fund links: Choice of 136 funds from AIG, Aberdeen, Gartmore, M&G, Newton, Deutsche, Invesco Perpetual, JPMorgan Fleming, Threadneedle, ABN Amro, Exeter, Fidelity, Jupiter.
Allocation rates: Penalty free charging structure, £5,000-£14,999 – 99.5 per cent, £15,000-£49,999 – 99.5 per cent, £50,000 plus – 99.5 per cent, enhanced allocation charging structure, £5,000-£14,999 -102 per cent, £15,000-£49,999 – 103 per cent, £50,000 plus -104 per cent, total allocation charging stucture, £5,000-£14,999 – 100 per cent, £15,000-£49,999 – 100.5 per cent, £50,000 plus – 101 per cent.
Charges: Initial 5 per cent penalty free and enhanced allocation charging structures, annual up to 1 per cent.
Switches: Unlimited switches a year.
Commission: Choice of initial 5.5 per cent, initial 4.5 per cent, renewal 0.25 per cent, initial 3.5 per cent, renewal 0.5 per cent, initial 2 per cent, renewal 0.6 per cent, initial 1 per cent, renewal 0.7 per cent, renewal 0.8 per cent.
Tel: 0700 244 5433.
The panel: Howard Horne, Principal, Howard Horne Financial Services,
David Mullin, Proprietor, Assured Investment Services,
Ian Bird, Account executive, Adams Tingle Financial Services.
Company's reputation 7.4
Past performance 4.4
Product literature 7.0
AIG Life's capital portfolio bond is a unit-linked bond that gives investors access to a range of AIG Life guaranteed funds, tracker funds and its cash fund. Fifty-seven external funds from managers such as Aberdeen, Fidelity and Gartmore are also available. These cover a range of sectors including technology, property, global utilities and UK blue chip funds.
Considering how the bond fits into the market Horne says: “This is a capital investment bond which sets out to restrict any losses by quarterly guarantees. Given the current volatility of the world markets, it may be successful.” Bird says: “It fits very well. It is a good all-singing all-dancing bond offering a wide range of funds and types of funds, although I suspect a number of other providers will soon offer similar products. There are no with-profits options, which are often important.”
Mullin says: “With the very nervous outlook a lot of clients currently have, in view of recent events and market conditions generally over the last 12 to 18 months, the AIG bond offers an investment profile from the very cautious to the adventurous investor. Consequently, it fits the current market very well.”
Identifying the type of client the bond may attract Mullin says: “Any client who wants to improve on a cash deposit in a bank or building society. Or someone wanting the ability to switch between the various fund choices as their circumstances alter in the future.” Bird opts for most bond investors, mainly higher-rate taxpayers. Horne says: “The more sophisticated client who wishes to have a portfolio of investments rather than a single fund, yet a cautious investor who wishes to introduce guaranteed values to this part of his investments.”
Looking at the potential marketing opportunities for the bond, Bird can see no specific ones. Horne says: “For firms who wish to push investments into controlled risks.” Bird thinks it provides no specific marketing opportunities. Mullin says: “The main benefit will be the ability for any client investing in AIG to enjoy the benefit of guaranteed funds or to take a gamble on the markets, all within the same investment. This should therefore give any investor a greater confidence that the bond will adapt to his circumstances, whatever they may be.”
Discussing the positive features of the bond, Bird says: “The wide choice of funds, particularly with active, tracker and guaranteed funds.” He also highlights the free switching. Mullin lists the choice of funds available, the allocation rates and charging structure, commission flexibility, guaranteed funds available if required, well known external fund managers and that it is revising the fund make-up in the future. Horne says: “The cap on any losses. It is particularly suitable for cautious investors in volatile markets.”
Assessing the bonus Horne says: “The addition of bonus allocations after five to 10 years enhances client loyalty. Most investment bonds are for the long term anyway, so the addition is a good extra.” Bird agrees. He says: “The bonus is good as it encourages a long-term view of the investment.”
Looking at the drawbacks of the bond Mullin says: “The only disadvantage will be in establishing the combination for a client of the extensive fund choices which are available.” Horne says: “Any form of guarantee has a price. Capping the losses also means restricting the gains. This could prove a limitation over the medium or long term.” Bird says: “The charges are fairly high, but not uncompetitive. It is very complicated and time-consuming to explain the charges and options. It could also be seen as investing in the US which many UK clients are wary of, particularly now.”
The panel review the flexibility of the bond. Bird thinks the switches are very good but the rest of it is nothing special. Mullin says: “The flexibility covers two distinct areas. Firstly, the allocation rates and charges which I think have been very clearly laid down and secondly, the make-up of the bond itself. The first is quite a simple choice depending on what the investment is required for, but the second will take a fairly extensive discussion with any client to ensure that they understand the full extent of exactly what is on offer.” Horne says: “There is a choice of policy charge structure as well as funds and the ability to switch between the funds. So generally, its flexibility is good.”
The panel switch their attention to the company's reputation. Bird says:” AIG has a very good reputation among IFAs but the man on the street will not have heard of it.” Mullin thinks its reputation is very good. Horne says: “Good. AIG Life has a reputation as a secure company with some innovative ideas.”
Looking at past performance Bird points out that the company's past performance is not applicable to the tracker and guaranteed funds because they are not actively managed. He thinks the use of external fund managers is sensible.
Mullin says: “AIG has primarily been known for its guaranteed products, which have always been one of the best. This type of investment offers a good combination of its own expertise, but with external fund links on offer.” Horne thinks AIG's past performance is good.
Identifying where the competition will come from Mullin says: “Compared with the other life companies already dealing in managed funds, the benefits that AIG has added with this product is the fund choices and range of managers. This should offer a definite advantage over the majority of other bonds, with Skandia being the only real exception.” Bird can see no competition for the bond.
Weighing up the charges, Horne says: “The charges can be structured and can be agreed with the client. This leads to more open discussion.” Mullin thinks the charges are reasonable but Bird thinks the extra annual management charge on the external funds is very high.
Horne and Mullin think the commission is reasonable, but Bird thinks it is fair only from the IFA's perspective, not from the investor's viewpoint.
Looking at the product literature Mullin says: “The literature is quite explicit, but due to the extent of fund choices, it needs to be read very carefully to ensure a clear understanding of which combination to choose.” Horne says: “It is good. It seems pretty clear and has a high quality look and feel.” Bird says: “The design is fairly good, but there are lots of large blocks of quite small print. It looks a bit tedious to read although it is well written.”
Summing up, Bird says: “It needs a no-loss guarantee and death benefit but overall an attractive product. The charges could be cheaper.”