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Product matters

If the letter I received from Skandia giving details of its new enhanced allocation bond was dated April 1 I would have been in stitches.

The terms of its new enhanced allocation bond has everything that a compliance team fears – a “too good to be true” allocation rate of 120 per cent, followed by an early encashment charge of 25 per cent in the first year, reducing by 2.5 per cent a year over 10 years. Add in limited fund choice and high charges at 2.55 per cent a year and this is a recipe for complete disaster.

This bond is targeted to attract with-profits policyholders to offset the MVAs they would pay on encashment.

But the underlying principle is that you do not get something for nothing and those insurers who continue to take the “high allocation now, claw it back later” approach to product design, are doing the whole financial services profession a disservice.

What is even more sad is that some IFAs will actually recommend this to clients.

The product seems to ignore the fact that most people in with profits are on the lower end of the risk scale, yet five of the six fund choices available carry greater capital risk than with-profits and the other is a deposit fund -who would want to invest in a deposit fund with a 2.55 per cent charge?

The with-profits bond is probably all but dead, arguably the unit-linked bond is in its twilight years, particularly if the tax treatment changes. If this new Skandia bond is anything to go by, the quicker the better.

Danny Cox is head of individual advice at Hargreaves Lansdown

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