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AWD highlights concerns over bond churning

AWD Chase De Vere has warned investors seeking to move out of insurance bonds may be worse off after taking tax and charges into account.

The group’s head of investment steering Anthony Coyte says investors could be duped into churning their bond holdings to offer additional commissions to brokers.

He says: “It could take up to nine years for a basic rate taxpayer using a bond to provide income to recoup the additional charges incurred by switching to a slightly more tax efficient collective with the same underlying asset allocation. It’s not quite as bad for those investing for growth, but even here the additional charges could take four years to recover. With these time scales bond holders will definitely be worse off in the early years if they switch.

“There may be many very good reasons for advisers to recommend a switch, such as rebalancing a portfolio, availability of more suitable Oeic funds outside the bond wrapper or poor performance of the current underlying investments in the bond – but if an investor is being told to switch just because of the Budget tax changes they should smell a rat.”



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