Type: With-profits bond
Aim: Income or growth
Minimum investment: Lump sum £5,000
Bonus rates: With-profits growth 4%, with-profits income 4.75%
Allocations rates: 98.25-103.25% depends on age and premium level
Charges: Initial 0.5%, annual with-profits growth 0.85%, with-profits income 1%
Commission: Subject to negotiation
Tel: 0845 8432111
Bonus rate 2.0
Company's reputation 6.7
Past performance 3.0
Product literature 3.0
Ian Bird, account executive, Adams Tingle, Alan Lakey, partner, Highclere Financial Services, Peter Pickup, principal Peter Pickup IFA
Scottish Widows' flexible options bond is a with-profits bond that invests in the funds from 12 external fund managers and 17 Scottish widows funds, including two new with-profits funds. One is designed for income and the other designed for growth.
The panel kick off with how the bond fits into the market. Bird says: "Very well indeed. The growth fund is nothing new in terms of asset mix compared to other with-profits funds. The income fund is unique in the market place for a with-profits fund." Pickup thinks it fits in as part of an overall investment portfolio as the low to medium risk element, particularly suitable if looking for income. However Lakey says: "It is trumpeted in some quarters as a new transparent with-profits device, but it proves to be a tired wolf in sheep's clothing."
Commenting on the types of clients for whom this bond is suitable, Lakey is negative. He says: I am not sure I can think of anybody I dislike enough to offer one to." Pickup says: "Low to medium risk investors who prefer steady growth without too much risk. Retired elderly clients who want very small risks may also be very suitable." Bird says: "Advocates of with-profits funds. However, a new fund will not have the historical potential financial strength of an established with-profits fund. Generally, I think it is suitable for those seeking income. For instance, in retirement."
Looking at the marketing opportunities the bond will provide, Pickup thinks it is a good alternative to direct stockmarket investments and it is very suitable now in view of recent stockmarket problems. However, Bird says: "Generally very few, but it is a new option for those seeking income." Lakey agrees and adds: "Although it may prove useful in helping to sell other more worthwhile products."
The panel then assess the main useful features and strong points of the bond. Bird says: "The simplified charges and the good assets of the underlying fund." Lakey thinks the Scottish Widows name counts for something and Pickup says: "The low charges, the 5 per cent withdrawals with tax deferred for higher rate tax payers and the good household name."
Commenting on the bonus rates for the bond, Lakey and Bird say they were not given in the literature provided. Pickup says: "Very average in comparison."
Turning to the bond's drawbacks, Bird says: "The high charges for external managers. Why does Scottish Widows still charge 1 per cent annual management charge if they are not managing any money?" Pickup mentions the charges are not listed specifically in the key features document. Lakey also lists the indecipherable literature, confusing terminology and Scottish Widows' lacklustre investment performance.
Considering the flexibility of the bond, Bird says: "Fine, given the long-term nature of the product." Pickup and Lakey disagree. Pickup says: "Good but not unique." Lakey says: "There is nothing new here. Free switching is only to be expected."
Next, the panel comment on Scottish Widows' reputation. Pickup and Bird think it is good. Bird says: "Generally it is good, but it lost something when it was bought by Lloyds TSB." Lakey says: It was once extremely high, but sadly a malaise has overtaken the Company since the Lloyds TSB invasion. It is no longer highly respected, it is merely another company."
The panel put Scottish Widows' past performance record under the spotlight next. Bird says: "The traditional with-profits performance is very good, but most of the unit-linked funds were very poor up to three or four years ago. It has recognised this and now makes extensive use of links to other investment managers." Lakey says: "The unit-linked funds have been below average over recent years. With-profits returns are a shadow of their past glories." Pickup thinks it is average.
Commenting on which products they see providing the main competition, Lakey says: "Clerical Medical, Standard Life, Skandia Life and Merchant Investors." Bird suggests Scottish Equitable's performance bond, Prudential's with-profits bond and Legal & General's with-profits bond. Pickup says: "With-profits bonds and investment bonds, particularly from Legal & General, Liverpool Victoria, Norwich Union and Standard Life."
Analysing whether the charges are fair and reasonable, the panel have mixed opinions. Lakey says: "No. Although the external fund links are well and good, the doubling up of charges means that many options now approach the same dizzy heights as GAN Life's charges." Bird thinks the initial charge is reasonable but thinks the annual management charge for external funds is not. Pickup says: "I cannot tell from the key features exactly what the charges are."
The panel think the commission is fair and reasonable although there was not much detail given in the literature.
As far as the literature is concerned, the panel have mixed views. Bird says: "It looks good and is well written, but I am not so keen on large chunks of text – a necessary evil though." Pickup says: "It is adequate but I could not find a record of past performance." Lakey says: "It is not suitable for a client, even I barely comprehended it. Awash with jargon and buzz words, it can only confuse and frighten the investor. Think again!"
To sum up, Bird says: "In general a good, competitive product, but I have concerns about the high charges for external funds and the financial strength. That is, the ability to smooth returns in a new with-profits fund." Pickup says: "The BestInvest independent guide to with-profits bonds states it is below average in all areas."