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Simon Willoughby: What is behind the boom in platform offshore bond sales?

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The relationship between platforms and offshore life companies has always been a little strange.

When platforms first emerged in a meaningful way in the UK over 10 years ago, it is fair to say that the offshore life sector treated this development with much suspicion. It was viewed as an ‘antipodean intrusion’, largely because back then portfolio bonds were the only way to hold a wide range of assets within a single wrapper structure.

Over the years, this attitude has changed as shown by recent research carried out for us by The Platforum.

In the 12 months to the end of September 2013, new offshore portfolio bonds by premium sold in the UK and written on-platform nearly doubled from 18.2 per cent to 35.6 per cent.

The research period covered the introduction of RDR in January 2013 which led, not surprisingly, to a spike in platform usage for portfolio bonds. However, even if the ‘RDR effect’ is removed from these figures, the adjusted full year growth figure following the introduction of RDR is still something like 25 per cent.

If this trend continues, platforms are likely to exceed 50 per cent of UK portfolio bond sales before the end of 2015.

Despite this increase, off-platform sales remain an integral part of the offshore life sector, especially where more complex personal tax planning is involved, and off-platform is where most of the bigger ticket business is still written.

However, the rise and rise of portfolio bonds on-platform cannot be denied, driven largely by the operational and cost efficiencies of platforms, especially in relation to straightforward tax wrapper business.  

One of the other key messages emerging from the research is the renewed level of interest of platforms in portfolio bonds. Measured by assets under management on the major platforms, portfolio bonds account for between 0.1 per cent and 8.3 per cent of platform assets, suggesting this remains an underdeveloped aspect of the platform market.

With the recent reduction to the annual limit for pension contributions, and further cuts anticipated, there is a realisation that portfolio bonds have an increasingly important part to play in providing tax-efficient solutions for clients when conventional onshore tax breaks are exhausted.

The relationship between platforms and portfolio bond providers has changed immeasurably over the past 10 years. From this new research it is clear that platforms are likely to become a more important channel for offshore life companies, but perhaps more significantly, portfolio bonds themselves are set to become a more relevant product offering for platform clients.

Simon Willoughby is head of proposition at Axa Wealth International

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