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Widows&#39 might

Scottish Widows – Flexible Investment Bond

Type: Single-premium investment bond.

Aim: Growth by investing in a range of Scottish Widows funds and externally managed funds.

Minimum investment: £5,000 new clients, £1,000 existing clients.

Fund links: Choice of 10 of the following funds – mixed, consensus mixed, safety plus, European, UK equity, international, North American, Japanese, UK equity index, fixed interest, property, indexed stock, cash, global equity, environmental, unitised with-profits, Fidelity managed, Fleming managed, Gartmore managed, Mercury managed, Newton managed, Perpetual managed, Schroder managed.

Allocation rates: Single life (age 3-75), joint life (age 3-79) – 100 per cent up to £24,999, 101 per cent £25,000-£49,999, 101.5 per cent above £50,000. Single life (ages 76-80), joint life (ages 80-84) – 99 per cent up to £24,999, 100 per cent £25,000-£49,999, 100.5 per cent above £50,000. Single life (ages 81-85), joint life (ages 85-89) – 98 per cent up to £24,999, 99 per cent £25,000-£49,999, 99.5 per cent above £50,000.

Charges: Initial 1 per cent, annual 0.75 per cent for Scottish Widows unit-linked funds, 0.85 per cent for unitised with-profits fund, 1.1-1.64 per cent for externally managed funds.

Switches: Four switches free each year then £15-£35.

Options: None.

Commission: Initial 6.25 per cent or 3.75 per cent, renewal 0.5 per cent.

Tel: 0131 655 6000.

Broker Panel:-

Luke Gibbon – Proprietor, Independent Personal Financial Management

Nick McCrory – Partner, Armstrong McCrory Financial Services

Brian Pack – Principal, Brian Pack Financial Services

Alan Buswell – Proprietor, Glenburn Financial Services

Broker Ratings (ave. marks out of 10):-

Flexibility: 7.0

Bonus rate: 6.3

Company&#39s reputation: 7.0

Past performance: 7.5

Charges: 7.0

Commission: 6.5

Product literature: 6.0

Scottish Widows&#39 Flexible Investment Bond is a unit-linked bond offering 23 internally and externally managed funds, including a unitised with-profits fund. Investors can choose to invest in up to 10 of the funds.

The panel agree the bond fits into the market well. Gibbon says: “I would use the bond predominantly for its with-profits fund. The unit-linked options would be useful for trustee investment.”

Pack also thinks it will fit in well because of its flexibility and number of funds it offers.

McCrory says: “Its flexibility and its risk spread make it attractive to many sectors of the market. The use of external funds means there are some 23 funds, including its own with-profits fund.”

Moving on to the types of client for whom the product is suitable, Gibbon identif-ies people in or approaching retirement. McCrory also opts for older age groups looking for income or growth using funds selected according to their attitude to risk.

Buswell suggests “any client with sufficient spare funds who is prepared to invest for the longer term as part of an overall investment portfolio”.

Pack believes that, with 23 funds available, the bond would suit any type of investor.

The panel offer a variety of opinions on the product&#39s strong points and useful features. Pack says: “It has a very strong name awareness and the 23 funds are excellent.” He thinks the inclusion of external funds is useful.

Buswell thinks the bond has been placed in the middle of the market with no particular strong points or weaknesses.

McCrory points to the wide range of funds, fair charging structure and ability to spread the risk. He also thinks four free switches a year could be useful for people approach-ing retirement.

Asked to rate the bond&#39s flexibility, Pack and McCrory believe it is good. Pack thinks four free switches a year is good and adds that the choice of 10 from 23 funds is valuable.

Gibbon and Buswell are less enthusiastic. Buswell says: “There is nothing particularly special about this bond. It has all the usual features currently available.”

Moving on to the types of marketing opportunity the bond is likely to provide, Buswell thinks the Scottish Widows name will provide the main opportunity.

Pack says: “It is an extra string to my bow.” McCrory says: “With a good deal of windfall money around, it could provide opportunities for reinvestment using the capital gains tax allowance.”

Assessing the bonus rates on the unitised with-profits fund, Pack and Buswell think they are average. McCrory says: “The reversionary bonus of 5 per cent is the magic figure for IFAs and the terminal bonus is added twice a year. That is a disadvantage to those seeking immediate income. I would recommend a lie-in period of 12 months.”

Moving on to the disadvantages of the product, Buswell says: “There is so much competition out there for this type of product, one wonders how much of the market it will take.”

McCrory thinks there is an element of double charging as the total annual management charge on external funds is split between Scottish Widows and the external fund managers.

Commenting on Scottish Widows&#39 reputation, Pack says: “It is very good and well known. It is held in high regard.”

Gibbon supports this view. He says: “My experience is that Scottish Widows has an excellent reputation.”

Buswell says: “Among the general public, its reputation would be one of the strongest. However, within the IFA fraternity, it is probably not quite so good. The company has tended to languish in the middle of the pack for the last 10 years or so and gives the impression of lacking direction.”

McCrory thinks Scottish Widows has a good reputation. He says: “Now, with the merger or, more accurately, the takeover by Lloyds TSB, its assets under management are some £90bn. It is a huge financial base to enhance what always was a good reputation, albeit a sleeping giant for a number of years.”

Switching their attention to Widows&#39 past performance record, the panel&#39s response is mixed. Pack says: “Overall, it is very good and consistent.”

Gibbon says: “The with-profits past performance record is good. Let&#39s hope this continues under Lloyds TSB. But, in my opinion, Scottish Widows&#39 unit-linked record is poor.”

McCrory thinks it compares favourably with other companies in the market.

Identifying which companies are likely to provide the main competition to this product, Gibbon suggests Prudential and Standard Life&#39s with-profits bonds.

Buswell says: “In the with-profits sector, both Prudential and CGNU seem to have the bulk of the market. In the unit-linked sector, Skandia comes instantly to mind.”

McCrory goes for with-profits bonds offered by CGNU, Prudential, Scottish Mutual, Standard Life and Royal & Sun Alliance.

The panel hold opposing views on whether the charges are fair and reasonable. Pack and McCrory think they are fair. However, Gibbon says: “They are on the high side but, as we can reinvest part of the commission, this brings them in line with other companies.”

Moving on to whether the commission is fair and reasonable, Gibbon says: “The commission level is higher than normal but we take a reduced level. Whether it is fair and reasonable depends on whether you consider the question from an individual case or as a general viewpoint.”

Buswell says: “I do not think I am alone in saying the level of commission being offered on these products is becoming too high. I know we can always reduce the amount that we, as advisers, take but is it responsible of the life companies to be offering such large commission in the first place?”

Looking at the product literature, Buswell says: “It is fairly ordinary, to be honest. There is nothing in there that is particularly attractive or that grabbed my attention.”

Pack says: “It is lucid and in plain English and the example sheets are good.”

Gibbons think the literature is as good as any other. McCrory says: “It is as colourful and attractive as I would expect from Scottish Widows.”


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