Type: With-profits bond.
Aim: Income and growth by investing in unitised with-profits and up to 12 unit-linked funds.
Minimum investment: £5,000.
Bonus rate: 5.25 per cent.
Allocation rates: Option one – £5,000-£19,999 – 95 per cent, £20,000-£29,999 95.25 per cent, £30,000-£49,999 – 95.5 per cent, £50,000 and above 96 per cent. Option two – £5,000-£19,999 – 97 per cent, £20,000-£29,999 – 97.25 per cent £30,000-£49,999 – 97.5 per cent, £50,000 and above 98 per cent. Option three £5,000-£19,999 – 100 per cent, £20,000-£29,999 – 100.25 per cent, £30,000-£49,999 – 100.5 per cent, £50,000 and above 101 per cent.
Charges: Annual options one and two – 2 per cent, option three 2 per cent in first three years, thereafter 1 per cent.
Commission: Choice of initial 6.25 per cent, initial 6.25 per cent renewal up to 0.75 per cent or initial 4 per cent renewal 0.5 per cent.
Tel: 0500 546546.
The Panel: James Alder, Financial planning officer, Advisory & Brokerage Services,
David Mullin, Director, Assured Investment Services,
Kieran Connolly, Financial Adviser, Chambers & Newman IFA.
Bonus rate 7.0
Company's reputation 7.0
Past performance 6.7
Product literature 9.0
Eagle Star has introduced a unitised with-profits bond that offers investors the choice of three charging options.
It aims for income and growth by investing in a range of 12 unit-linked funds, including a with-profits fund with a current annual bonus rate of 5.25 per cent.
Looking at how the bond fits into the market, Alder says: “In our view, the Eagle Star bond falls within the second tier of companies when recommending with-profits bonds and we feel Eagle Star does not enjoy the same exposure as, say, Prudential or Norwich Union.”
Mullin says: “It offers a stable investment option for a low-risk investor, which is very attractive in the current climate.” Connolly thinks it is yet another variation of the with-profits theme.
Moving on to the types of clients the bond could suit, Mullin says: “It is ideally for low-risk clients and as a first real investment opportunity. It could also form the base for any portfolio.” Connolly says: “It is for lower and higher-risk taxpayers over the medium term.”
Alder says: “With regard to the Eagle Star bond specifically, the contract guarantees that a market value reduction (MVR) generally applied on surrenders during adverse market conditions will not be applied on death, the 10th anniversary or regular withdrawals of up to 7.5 per cent a year. Therefore, our view is that it is suitable for lower-risk investors who are not prepared for the value of their investment to fall and require a reasonably high level of income.”
Assessing the marketing opportunities the bond is likely to provide, Connolly says: “It is nothing special.” Alder says: “Because of the structure of the bond, we feel the Eagle Star bond could be aimed at lower-risk investors who require a reasonably high level of income, together with capital security.” Mullin says: “We already use comparable products offered by Norwich Union and Scottish Widows. Eagle Star will provide further choice for clients, plus a spread for anyone wanting to split their investments.”
Pointing out the main useful features, Alder says: “The main strong point is the various MVR guarantees, which gives lower-risk investors peace of mind. The bond also offers flexibility in that there are three charging structures to appeal to investors with differing investment needs.” Mullin lists guaranteed returns, no negative returns, additional terminal bonus possibilities and the choice of initial allocations and charges as strong points. He believes Eagle Star is a well known name and feels this is an advantage. Connolly says: “A relatively clean contract can be set up at the outset.”
Turning to the bonus rate, Mullin says: “It is an acceptable level in the current economic situation. This is not a headline rate which will have to be reduced after the initial launch period.” Alder says: “The bonus rate, currently 5.25, is one of the highest reversionary bonus rates in the market. The terminal bonus rate is policy specific and cannot be quantified. But historically, with lower terminal bonus than some of its competitors, the total return has been average.” But Connolly thinks it is a normal rate for this type of product.
Moving on to the drawbacks of the bond, Alder says: “The Eagle Star name is not as well known as other insurance companies in the with-profits market. Historically, its actual results have been average.” Mullin says: “Used correctly, the bond allows investors who may be nervous about the market trend to invest, but with a five-year timescale to avoid any charges. The higher allocation rates also incur the 2 per cent fund charge during the first three years, therefore negating the possible benefit for the higher allocation.” Connolly thinks the disadvantages are the same as all other bonds.
Addressing the bond's flexibility, Connolly thinks it is okay. Alder says: “The bond offers three different versions to cater for different investment needs.” Mullin says: “The flexibility is in line with most of the current with-profits bonds offered by its competitors. It is well presented, which should make it easier for clients to understand.”
Examining the company's reputation, Mullin simply says it is excellent. Connolly thinks the company has a good reputation and Alder says: “The company is financially secure and has the reputation of being a steady with-profit office without being spectacular.”
Discussing Eagle Star's past performance, Alder says: “While the reversionary bonuses have been reasonably high, the company's past performance record has been average, owing to the level of terminal bonus applied on encashment.” Mullin says: “For this type of investment bond, it compares favourably with their opposition in the market. It has combined the best of traditional with-profits and unit-linked fund management.” Connolly thinks the company's past performance is fine.
Identifying the likely competition the bond will face, Connolly opts for Norwich Union and Pudential. Mullin agrees, but also considers Scottish Mutual and Scottish Widows as worthy competitors. Alder cites Prudential, Norwich Union, Clerical Medical and Standard Life.
Discussing the charges, Connolly thinks the charges are fair. Alder says: “The Eagle Star bond is competitively charged when compared to other with-profit bond providers. As already stated, the contract offers three charging structures to suit different needs.” Mullin says: “The charges reflect the allocation rate classes equally, compared to what is currently on offer in the marketplace.” Mullin and Connolly think the commission is okay. Alder says: The standard level of commission is 6.25 per cent initial or 4 per cent initial plus 0.5 per cent renewal. While not being the highest level of commission paid, we feel it is fair and reasonable when compared to other providers.”
Looking at the product literature, Alder says: “It is fairly user-friendly and clear, which is important so that clients fully understand the terms of the product.” Connolly believes it is good and Mullin thinks it is very good.
Summing up, Mullin says: “I would have preferred a lower equity exposure overall, with a higher proportion in the property sectors.” Alder says: “It is a good all-round bond, but the performance track record lets the side down.”