Scottish Mutual's latest with-profit bond aims to offer a wide choice of flexible income options and potential for additional bonuses.
Most feel the bond fits well in the market although Moorfield says: "This compliments existing products but it's not as attractive as the bond from Clerical Medical or Norwich Union on headline bonus rates. It's not likely to be first choice." However, Macfarlane says: "The bond fits into the with-profits market well. Scottish Mutual is a leading provider in this area and name awareness should give it an advantage."
Buswell says: "Timing isn't everything I know but this particular launch by Scottish Mutual offering a very attractive 8.75 per cent minimum return couldn't have happened at a better time for the company. Equity markets around the world are in turmoil and a product offering this sort of initial rate will be very popular."
Ison goes on to explain who the bond may be suitable for. She says: "With-profit bonds are typically suited to the 50 to 75 year old age group looking for steady growth or income but safe in the knowledge they can sleep easy at night. This is particularly relevant in today's turbulent markets." Macfarlane says: "It's for low risk long term investors." Bruce and Moorfield mention the appeal of with-profit bonds to traditional building society investors. Buswell adds: "Traditionally, with-profit bonds have been popular with the more risk adverse investor. This is typically the more mature person looking for cautious growth. But in the current climate, this may well stretch to younger people as well."
Due to the number of with-profit bonds already on the market, some of the panel are unable to find any specific marketing opportunities for this product. Macfarlane says: "The market is already well saturated with this type of product. However, with-profit bonds tend to be useful for providing a regular, high income facility. As such, the maximum income and capital protection option may be attractive to some clients." Ison agrees adding: "The only new twist is in marketing the maximum income option." But Buswell remains very upbeat about the opportunities. He says: "Just compare 8.75 per cent against equity markets and building society accounts over the last year and very little marketing needs to be done."
Moving on to discuss the bond's main useful features, Moorfield says: "The main feature I like is the maximum income with capital protection. It will give this product a head start for the older, income seeking investor." Ison adds: "The regular income options provide flexibility to meet most customer needs." Buswell agrees saying: "There is a good, wide choice of income options giving a fixed amount or fixed percentage of the fund. The maximum income with capital protection, ensuring no capital erosion, is a very good additional selling point."
Macfarlane highlights the competitive bonus rate, high allocation rates and the 10 year bonus followed by a continuous five year loyalty bonus. Bruce likes the absence of an initial charge, no charge for withdrawals and no market value adjuster on death or the tenth anniversary of the bond.
Analysing the MVA guarantee further, Macfarlane is more sceptical calling it a marketing gimmick. Most agree that while it's nice to have, for most clients, it becomes irrelevant. Moorfield says: "It's useful but not crucial. My experience is that investors retain with-profit bonds and therefore MVAs are not a big issue." Ison adds: "The ability to take withdrawals up to 7.5 per cent a year is standard in the market. But not many competitors offer a guarantee date. Of those that do, most are at 10 years. Scottish Mutual state, however, that the guarantee date can be at any later anniversary date. I question the value of the guarantee date as do many customers retain their investment for 10 years or more? In addition, customers must exercise the MVA free guarantee within 4 weeks following the guarantee date, which is very restrictive."
The panel express diverse views on the bond's flexibility. Moorfield says the flexibility is good while Buswell says: "As with all with-profit bonds, there is very limited flexibility." Macfarlane says: "The flexibility is low. With-profit bonds indeed most bonds with high tail end charges tend to be inflexible." Ison reckons the flexibility is good but says she would like to see clients being allowed to top-up their investment rather than take out a new plan. Bruce says: "The bond is not very flexible in the early years, with high early encashment charges."
Discussing Scottish Mutual's past performance track record, Buswell says: "This can only be described as average as far as with-profit bonds are concerned." Macfarlane sees it differently calling its record excellent. Ison adds: "Its past performance is average despite the obvious strength provided by its parent company, Abbey National. But we are still to see this come through in improved performance." Bruce says: "The bonus rates have stood up well over the past five years. However, total returns are fairly average."
Most of the panel are happy with Scottish Mutual's reputation, particularly since the acquisition of the company by Abbey National. Bruce says: "Scottish Mutual has a good reputation in the market being a financially secure company, part of the Abbey National group. Ison adds: "Scottish Mutual's reputation has improved considerably since the acquisition by Abbey National, to a much more forward thinking impulsive company." Moorfield says: "The backing of Abbey National enhances its perception and enables Scottish Mutual to offer quality products."
Most agree the charges are fair although Macfarlane thinks the surrender charges are high. Buswell says: "The charging structure is among the best and clearest in the market."
The panel are also impressed with the literature. Moorfield calls it very professional and well presented.
Summing up, Buswell says: "In the final analysis, any investment is only as good as its performance. Scottish Mutual is giving this product every chance and I wish it luck."
(Average marks out of 10)
Bonus rate 8.0
Past performance 6.8
Reputation in market 7.6
Product literature 8.2
John Bruce, partner, Gillies & Campbell, Richard Moorfield, partner, J Tricketts, Bruce Macfarlane, partner, Capital Trust Financial Management, Jackie Ison, business support manager, Halifax IFA, Alan Buswell, proprietor, Glenburn Financial Services.
WITH PROFITS BOND
WITH PROFIT INVESTMENT BOND
Type: Single-premium unitised with-profit bond designed to provide capital growth and/or income over the medium to long term.
Minimum investment: £5,000.
Bonus rate: Annual – 6.75 per cent, terminal – 2 per cent.
Allocation rates: Lives assured of 79 and younger – 100 per cent, over 79 – 98 per cent. Allocation rates can be enhanced by up to 6.67 per cent if full commission is sacrificed.
Charges: Annual – 1.5 per cent, early surrender – 9 per cent in year one decreasing by 2 per cent a year until 1 per cent in year five. Bonuses are paid net of annual charges.
Options: Choice of three income options fixed, percentage or maximum with capital protection.
Loyalty bonus: Bonus units of 1 per cent paid after 10 years and every five years thereafter.
Commission: Initial only – 6.25 per cent. Initial and renewal – ranges from 4 per cent initial and 0.5 per cent renewal, 2.88 per cent initial and 0.75 per cent renewal or 1.75 per cent initial and 1 per cent renewal.
Tel: 0141 565 5600.