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Wraps to put price pressure on bonds

Investment bond charges will fall as a result of competition in the wrap market, according to research firm Defaqto.

The consultancy argues that wraps will bring downward pressure on bond charges because most wraps have clean structures. This is because they do not generally support indemnity commission and because advisers set charges.

It says the public is beginning to question the relative costs of bonds and other products. It adds that in a survey of IFAs, bonds have become the investment product of choice for estate planning, with consumers increasingly buying offshore products to mitigate tax.

The firm warns that the Treasury in its quest for revenue may look again at the taxation of unit-linked bonds. It warns that life companies not offering a wrap proposition may be left behind.

Defaqto head of investment Fraser Donaldson says: “Bonds offer so many advantages in financial planning that I am not surprised that the market is powering ahead. Onshore bonds are the bulk of the market but offshore bonds sales are growing faster as they overcome customer and adviser perceptions of high price. The industry is poised to benefit from market forces but providers need to continue to develop confidence and trust among advisers.”

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