Type: Unit trust income plan
Aim: Income and growth by investing in a cash fund and/or choice of four Way funds of funds
Minimum investment: Lump sum £25,000
Investment split: 25% Elite income cash trust or Way global cautious portfolio, 75% Way global total return portfolio, Way global blue managed portfolio or Way global red active portfolio
Charges: Elite income cash trust 0.5%, a year, Way global cautious portfolio and Way global total return portfolio initial 5%, annual 1.45%, Way global blue managed portfolio and Way global red active portfolio initial 5%, annual 2%
Commission: Way global blue managed portfolio and Way global red active portfolio initial 3%, renewal 1%, Way global total return portfolio and Way global cautious portfolio initial 3%, renewal 0.5%
Tel: 01202 890895
The Way Group has revamped the Way income plan. It has reduced the annual charge on the cash fund, made a cautious fund of funds available as an alternative to the cash fund and developed a software package enabling advisers and clients to compare returns from the plan with competitor income products.
Knight O’Byrne Independent Financial Planners director Diane Knight has many clients in the Way income plan and they are happy with the income they receive. “The plan offers the potential for a rising income stream with a known amount paid each month to help the client plan their budget effectively,” she says.
She believes the plan is suitable for cautious investors as five years of income is held in a cash pool. “When monthly withdrawals are made from an equity pool, the client’s plan can suffer greater capital loss due to the effects of reverse pound cost averaging as more units needs to be encashed to provide the income payment. This does not happen with the Way income plan as the income is a withdrawal payable from cash,” she says.
In Knight’s view, the plan is extremely tax efficient, especially for higher rate taxpayers as it takes advantage of the client’s capital gains tax allowance which frequently goes unused. “The income, payable from the cash pool is a return of capital and not taxable as income. The liability to income tax is small as it is only payable on the interest earned on the cash pool,” she says.
Knight thinks the plan offers the best of both worlds. “Investors have the potential for a rising income stream over the medium term provided by the equity pool rebalancing and certainty of income provided by the cash pool,” she says.
Knight observes that the client has the choice of an income level of 3-7 per cent a year on the total amount invested. “The average income selected is 5 per cent a year, which is equivalent to an income of 6.41 per cent gross to basic rate taxpayers and 8.33 per cent to higher-rate taxpayers,” she says. She adds that every time a rebalancing takes place there is always a further five years of income held in the cash pool.
Considering the potential drawbacks of the plan Knight says: “Clients sometimes get confused over the paperwork they receive when rebalancing takes place. To overcome this problem, we inform them in advance about the correspondence they can expect to receive,” she says.
There are no competitors to this plan in Knight’s view but she would be happy to consider similar products.
Suitability to market: Good
Investment strategy: Good
Adviser remuneration: Good