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Skandia targets trustees

Skandia&#39s pension trustee bond is a unit-linked bond that invests in unit

trusts, Oeics and investment trusts.

Considering how the bond fits into the market, Elms says: “With the fund

choice and access to Skandia&#39s with-profits-type guaranteed pension fund,

this offers real choice to trustees without the admin hassle of

multi-providers.”

Bumford says: “With the increasing popularity of self-invested personal

pensions, this product will provide a useful vehicle to consolidate

collective investment holdings under one contract.

“The majority of trustee bonds have, up until now, provided access to the

provider&#39s in-house funds only. This contract will therefore give the

opportunity to achieve much greater diversification and also to reposition

fund holdings to take account of poor performance – an important issue as

clients will increasingly require investment managers to take action on

funds where returns do not meet the agreed benchmark.”

Looking at the types of client for whom the bond may be suitable, Reid

suggests clients who want access to the whole market but do not wish to

actively manage a portfolio containing lots of small holdings. He adds: ”

It is good for drawdown cases, allowing simple reweighting of holdings

following encashment for income.”

Bumford feels the bond would be suitable for clients preferring collective

investments, especially where the pension fund amounts to less than

£250,000.

Elms suggests Sipp and SSAS members, particularly those who want

cost-effective diversified investments via insured funds.

Looking at areas where the bond provides marketing opportunities, Elms

suggests “the usual situations where funds are held on deposit, the

guaranteed pension fund and where the client wants the benefit of

diversified investment without the hassle of self-investment”.

Reid feels the bond will provide no additional marketing opportunities for

his firm.

Bumford says: “The provision of consolidated investment statements and

simple switching procedures will give investment managers the opportunity

to simplify their Sipp and SSAS administration. This will also reduce the

volume of paperwork that is often sent direct to clients by the fund

managers. Any product that streamlines administration and makes this more

user-friendly in the hands of the consumer must succeed.”

Moving on to the main useful features and strong points of the bond, Reid

cites access to a variety of funds and managers plus relatively cheap and

easy switching.

Bumford likes the relatively low limit on initial and top-up premiums, the

wide range of funds and the penalty-free switches.

Elms lists the guaranteed pension fund, free switching, fund choice and

simplicity.

Casting an eye over the loyalty bonus rates, Bumford says: “In the new

climate of simplified charging structures alongside stakeholder pensions,

the loyalty bonus adds an unnecessary tier of complexity.”

Elms says loyalty bonuses are a useful lock-in while Reid suggests they

are ” a potential mitigation of high charges”.

Turning to the disadvantages of the product, Bumford says: “Probably, the

main disadvantage is the two-tier charging structure, an inevitable feature

of insurance policies using external fund managers. Since the majority of

investors are unlikely to withdraw contributions within the first year, the

encashment charge is a feature which many investors would see as

unnecessary.”

Considering the flexibility offered by the bond, Reid suggests it is the

only justification for selection.

Bumford says the range of internal and external funds is extensive and

gives investment managers considerable flexiblity with their portfolio

construction. He also mentions the internal switching facility.

Elms says: “Skandia pioneered the trend towards external fund managers and

is still the leader in the field.”

The panel&#39s opinion of Skandia&#39s reputation is favourable. Bumford says:

“Skandia has a significant lead in providing contracts which give access to

the top investment companies and, in this respect, the trustee bond

fulfils expectations. Some aspects of previous complex charging structures

do, however, still remain and leave scope for improvement.”

Elms says he rates Skandia very highly but that, commercially, it is the

best-kept secret in the market. Reid simply calls its reputation good.

Asked about Skandia&#39s past performance record, Elms says: “We consistently

find that throughout its range – life, pensions, unit trusts, offshore –

over 50 per cent of its funds are in the first or second quartile, which is

our yardstick.”

Reid calls it better than average. Bumford says: “Despite the wide range

of external investment options, the track record of Skandia&#39s own funds

also shows its ability to compete and will provide a useful fallback

position.”

Considering which products may provide the main competition to the bond,

Reid says: “Other offices now offer limited external fund links. The

competition would depend on client needs.”

Elms cites other providers of trustee bonds with external fund managers,

for example, Sun Life, Scottish Equitable and Scottish Life.

Bumford says: “At present, there is little competition from other

providers of unit-linked trustee bonds. However, looking to the future, the

fund supermarkets will almost certainly take up the challenge of securing

trustee investments.”

Asked whether the charges are fair and reasonable, Bumford says: “Overall

charges are comparable with direct investment into unit trusts and

investment trusts.” He also mentions that the switching facility avoids

having to sell a holding with one fund manager and buy with another,

therefore paying another set of charges.

Reid says the charges are about the norm.

Moving on to commission, Reid says: “We are not in a position to comment

as are fee-based advisers.”

Bumford feels that the Sipp and SSAS markets will move towards a fee basis

and that commission will become less of an issue. However, he feels the

commission payments on this contract are fair compared with competitors.

Elms simply says the commission is fair and reasonable.

On the subject of the product literature, Bumford says: “It provides a

satisfactory explanation of the contract details. However, given that the

major selling point is the extensive range of investment options, client

literature detailing the available funds and, more important, the

associated charges would be helpful. It may be that this is available but

is not issued as a matter of course.”

Elms and Reid think that the product literature is acceptable and readable.

Summing up, Elms says: “Skandia has established itself as an efficient

product packager delivering initiatives and service. It has earned the

support of the IFA community.”

John Bumford, Client manager, Gee & Company,

Alan Reid, Director, Peter Ruddy & Partners,

Jonathan Elms, Partner, Teare Rose

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