Type: Unit-linked bond
Aim: Growth and income by investing in up to 10 internally and externally managed funds
Minimum investment: Lump sum £10,000
Minimum-maximum ages: 18-79
Fund links: 63 funds from M&G, Prudential and seven external fund managers
Switches: Unlimited free switching
Allocation rate: 92-100% depending on IFA commission
Charges: Establishment charge up to 1.6% a year in first five years depending on IFA commission, fund charges annual 0.95-1.7% depending on funds chosen
Commission: Negotiable with client on initial and renewal basis up to equivalent of 8% initial
Tel: 0808 234 0808
This unit-linked bond from Prudential is a factory gate priced product which allows IFAs the flexibility to agree with their clients on what remuneration level and structure best fits with their circumstance.
Independent Personal Financial Management director Luke Gibbon observes that this is a single premium bond where the basic product has only an annual management charge.
“The advisor can then agree their remuneration and format of that remuneration through fees or commission, both initial and trail, with the client. These fees are then added as an additional cost to the basic product. The costs of initial commission or fees can be deducted immediately or spread over five years with a penalty on surrender within this period. The idea being is that there is clarity to the client about what they are paying for the basic product and for the advice,” says Gibbon.
Gibbon points out that as IFAs already have to offer clients the option between fees and commission, and then fully disclose commission, factory gate pricing will not make much difference. “I do not think that presenting costs in this format will make much, if any, difference. Furthermore I would suggest that discussions and agreement on the basis of advisor remuneration should take place well before product selection and recommendation is made,” he says.
Gibbon says this is essentially a single premium bond with a choice of 63 funds. “The client can invest in up to 10 funds at any one time. The policy allows programmed and discretionary switching and also an automatic rebalancing once a year, which may be of interest to some clients,” he says.
According to Gibbon, bonds are attractive if a client wants to switch regularly, wants a set level of income or if it is being used in conjunction with a trust. “As an investment medium I prefer the route of investment funds or investment trusts due to their favourable tax treatment and often lower charges,” he says.
Looking at the potential drawbacks of the product Gibbon says: “With regard to the fund options, out of the 63 funds offered, 46 are Prudential or M & G funds and 17 are from external fund managers. This is quite limited. I believe Axa has a choice of 56 internal funds and 128 external funds under its bond.”
Gibbon also believes the factory gate pricing argument Prudential puts forward can, in effect, be replicated with other bonds. He thinks that this cost being promoted as a new feature should not be a reason for using the bond.
“Regular withdrawals are limited to the greater of 5 per cent of the fund value or initial investment, which is limited compared to other companies. The policy also allows for natural income to be taken but spread evenly over the year,” he says.
He thinks other single premium bonds will compete with this product and also expects competition from investment funds and investment trusts, possibly using a supermarket or wrap to make switching easier.
Gibbon concludes: “Overall, I do not think this product really offers anything new and is not as flexible as some other products.”
Suitability to market: Average
Advisor remuneration: Average