I read the commentary from Hargreaves Lansdown on Skandia's new enhanced allocation bond (Money Marketing, April 29) with some surprise. At Skandia, we are constantly striving to provide innovative solutions to meet differing client needs. This pioneering approach has brought many new ideas and products to the market which have generally been well received by IFAs and often copied by our competitors.
Of course, not all new products will be liked by everyone or be suitable for all clients but neither do they need to be.
The enhanced allocation bond was designed with a specific type of client in mind – investors in closed with-profits funds which are paying zero or near zero bonuses and which are unlikely to recovery quickly due to their asset/liability position and low or even zero allocation to equities.
These investors believed they were on a one-way street to solid investment performance, with perhaps 50 per cent of their investment in equities, but are being forced to reevaluate as a matter of urgency. Many are concluding that sitting tight is not an option and that unit-linked products offer a superior, if unsmoothed, mediumto longterm investment alternative.
Given the high MVRs that apply to many with-profits funds, IFAs have been requesting alternatives with which they can help clients breach the psychological barriers that are preventing them from cashing in a with-profits bond at a large loss, even if they are in agreement with their IFA that they really ought to act.
Skandia's enhanced allocation bond, with 120 per cent allocation, is the first product in the market which offers IFAs a positive solution to this problem and which will undoubtedly help many clients do the right thing.
Of course, there is no such thing as a free lunch and establishment charges and exit penalties are higher and last for longer than is the case for our other bond products. But we aim to take a responsible approach to product development and marketing and clearly set out both the positives and negatives of this type of structure in the product literature.
Sold to the right client, who intends to hold the product for 10 years or more, we believe the enhanced allocation bond offers excellent value. For IFAs and clients who are less comfortable with the longer tie-in period, our other MultiBond products offer a strong alternative.
More criticism is reserved for the enhanced allocation bond's “limited” fund choice which, it is claimed, carries “a greater capital risk than with-profits”. I am not so sure many investors in the aforementioned closed with-profits funds with large MVRs would agree.
Aside from a deposit fund, the five funds available are all managed by Skandia Investment Management. These funds offer IFAs the ability to structure balanced portfolios which match clients' different attitudes to risk and investment goals. The funds are all invested with several underlying fund managers – the multi-manager approach which Skandia pioneered 20 years ago – meaning clients' money is not the responsibility of only one investment team.
Skandia Investment Management manages asset allocation to the agreed risk level, sel- ects the best managers in each sector and then actively monit-ors their performance, meaning clients and their advisers do not need to maintain an active involvement in the portfolio, just like a with-profits fund.
The article would also appear to welcome the demise of singlepremium unit-linked bonds in general – not a consensus view among IFAs if recent sales of these products is anything to go by. Of course, unit-linked bonds may not be the right product for every client but I am sure many other IFAs would miss their various benefits if they disappeared tomorrow.
I would strongly refute the claim that the enhanced allocation bond is “a recipe for complete disaster” and welcome IFAs who want to find out more about an innovative new investment opportunity to contact their local Skandia sales office for more detailed information.
Investment marketing manager, Skandia,