Type: Unit-linked bond
Aim: Growth and income by investing in a range of best of breed funds, managed portfolio funds and secure capital portfolio funds
Minimum investment: Lump sum £20,000
Fund links: Five managed portfolio funds, four secure capital portfolios and 40 externally managed ‘best of breed’ funds from 10 fund management groups
Allocation rates: Maximum allocation option 100.5-102.5%, fully accessible option 95.5-97.5%
Switches: Unlimited free switches
Options: Secure capital option
Charges: Maximum allocation option – establishment charge annual 1% for first five years, fully accessible option initial 2.5-4.5%, annual 1.1%, guarantee charges guarantee charges range between 0.7 per cent and 2.35 per cent, fund charges annual 0.1-0.95% depending on fund
Commission: Subject to negotiation
Tel: 0845 370 6040
The Metlife investment bond is open to investors with at least £20,000 and provides access to a secure capital option through a range of four secure capital portfolios. The other fund links comprise managed portfolios and best of breed funds from external fund management groups such as Fidelity, Jupiter and New Star.
Origen Financial Services technical manager Bob Perkins thinks that as Metlife is part of a large US insurance company, there are not too many issues surrounding its financial strength but he feels that brand awareness may initially be a barrier. “However, it does have the advantage of being able to look objectively at what appeals to the UK market and then design products to niche-fill. The niche it has identified is the cautious investor that may traditionally have invested in a with profits fund and is seeking a degree of capital security,” he says.
Perkins regards this product is an innovative addition to market. “It may have appeal for individuals who like a measure of security but that comes with a significant cost. Advisers need to appreciate the main feature of the plan, which is the secure capital option and how it works,” he says.
Perkins explains that the option guarantees that the original invested capital is returned at the end of 10 years. If, after five years and again after 7.5 years, the invested fund value is greater than the secure capital value, the latter is increased to lock in the investment growth. “However, the overall charging structure undoubtedly places a drag on the potential for capital growth and if all that a client will get after 10 years is their money back, I would question whether it is a particularly good deal,” he says.
Perkins considers the literature good and in relatively plain language but complains that the charges are complicated and the terms of the secure capital option take some reading to understand.
Features that Perkins finds interesting are phased investment, which enables funds to be exposed to the markets in tranches rather than all at once, and the loyalty bonus in years five and 10.
However, he adds that the minimum investment is quite high and the secure capital portfolio funds are restrictive, but he expects this due to the need to meet the guarantee. “I would anticipate that it would be used for a small part of an overall portfolio, though the high minimum premium might prove unattractive in many cases,” says Perkins.
Turning to the potential drawbacks Perkins says: “The issues for me revolve primarily around the charges. Ignoring the secure capital portfolios, the bond offers a good range of risk-graded managed funds and external fund links. However, the bond charges are relatively high starting at 3.4 per cent for the maximum allocation version and 2.5 per cent for the fully accessible version.”
Perkins says that if an investor chooses the Met Life balanced managed fund, the annual management charge of 2.13 per cent is higher than the typical range of 0.8-1.5 per cent.
“If you include the secure capital portfolios, the annual charges are 4.753- 6.589 per cent for the maximum allocation version and 3.753-5.589 per cent for the fully accessible version.
“Even at the lower end of these scales the invested capital has got to really go some to produce significant returns in excess of the original capital guarantee,” says Perkins. He think advisers might start to question the value of the guarantees against a well constructed and diversified portfolio, which advisers would generally expect to return more that the original capital over a 10 year period.
Perkins thinks the lock-ins at 5 and 7.5 years are useful but says it would arguably be better to offer investors more frequent lock-ins. “The value of these lock-ins is mitigated by the high charges applied – the performance of the funds year-on-year may need to be at least 6.589 per cent before the policyholder makes any gain at all.”
Perkins thinks structured products could provide the main competition. “Among investment bonds, there are a good number of cheaper alternatives with wide fund choices which are arguably better suited to clients of those advisers who adopt a portfolio construction approach within a bond wrapper,” he says.
Perkins concludes: “This would seem to me to be an expensive niche product which I would not generally expect to recommend. I am naturally cautious of any product that clients are locked into for 10 years, even with options, because circumstances can change so rapidly. The value of a 10 year guarantee is questionable.”
Suitability to market: Good
Investment choice: Average
Adviser remuneration: Average