Advisers have warned life offices against using a “broad brush” approach to promote the benefits of bonds over mutual funds for self-preservation purposes following the capital gains tax changes.
Accountants Financial Services managing director Paul Scarff says there is a flaw in the assumptions used by Standard Life head of savings and investment Ian McLeod, writing in last week’s Money Marketing.
McLeod’s tables showed in 17 out of 30 scenarios that life bonds were a better option for the client while in 12 cases, there was a minimal difference between the two. A mutual fund came out as the best option in only one scenario.
But Scarff says the calculations did not take into account the difference in net returns between bonds and mutuals.
For example, he says the last three-year annualised return, up to April 1, for the Invesco Perpetual high-income fund was 13.63 per cent while the same fund within Standard Life’s capital investment bond returned only 11.1 per cent, a difference of over 22 per cent.
Scarff says: “It may be wise for life companies to remember that quality advisers are already well aware of the comparisons, having made their own analysis, and will welcome no less than a balanced view. IFAs are also likely to quickly sense anything remotely smelling of attempts of self-preservation from bond providers.”
Informed Choice joint managing director Martin Bamford says: “A broad brush approach would be wrong and individual cases require individual consideration.”
Standard Life head of pensions policy John Lawson says: “The tool we used to calculate the figures has been built by PricewaterhouseCoopers so it is completely impartial. We are not trying to browbeat advisers into the view that bonds are the only way ahead.”