After the case study that I recently wrote about I wanted to cover and bond platform which is Friends Providence Reserve Bond review and understand the hidden fees (commission).
If you have any questions, please use the chat or press the button below and I can arrange a time to call if required.
Please note there is no personal financial advice here, this is just my opinion mixed with factual data (prices) and what I have experienced in the offshore market. If you need personal financial advice, please contact me or speak to a qualified and competent advisor.
Like many offshore bonds, this is one that can be laced with the commission and unless advised adequately for your situation without commission these products are not feasible for most individuals. I will link to previous articles at the end for further reading on offshore bonds.
I will go over the Friends Providence Reserve bond review. If you have any questions, please contact me using the button below.
The Review
Friends Provident International is a financial services provider catering specifically to expatriates. The company offers a range of savings, investment, and protection plans to customers based in the United Arab Emirates and Asia. With offices located in Dubai, Hong Kong, Singapore, and the Isle of Man, Friends Provident International has a workforce of around 500 employees who are committed to providing financial solutions that meet the needs of expats living and working overseas. As a trusted and established brand in the industry, Friends Provident International is dedicated to delivering innovative, reliable, and flexible financial solutions to its customers.
The International Reserve Investment Bond offered by Friends Provident is a lump-sum investment product designed for potential capital growth over the medium to long term (minimum of five years). This product has two plan options: whole of life and capital redemption. The whole-of-life version comes with an element of life cover, while the capital redemption version provides a guaranteed maturity value. However, regular withdrawals can be made, which will reduce the capital value. Withdrawals made from the capital redemption version will also decrease the guaranteed maturity value.
This investment product offers two investment options: collective investments and personalised assets. The collective investments option provides access to more than 150 funds from some of the world’s leading fund managers, covering all major markets and asset classes. The personalised assets version may include international equities, fixed-interest securities, structured notes, and deposits.
The policy can be denominated in US dollar, GB pound, Hong Kong dollar, Japanese yen, Swedish krona, or Euro. The Reserve Investment Bond is suitable for customers who have a lump sum to invest for a minimum of five years and seek capital growth or regular withdrawals, or a combination of both. This plan is available to customers aged 18 and over. If the plan has lives assured, the minimum age is 2 years old and at least one life assured must be 80 or younger.
The Friends Provident Reserve Investment Bond can be used to meet the complex tax planning needs of clients. By holding assets in a tax-efficient environment, investors can defer and plan taxation, without paying tax on capital increases or income distributions until a specified time. While the underlying annual management fees can be higher than if accessing the fund manager directly, performance statistics are updated monthly, and fund prices updated daily on the fund fact sheets via FPI’s Fund Centre in an easy-to-use format.
What are the primary risks associated with the Reserve Investment Bond?
The value of your plan is contingent on the performance of the investments, which may fluctuate. It is possible that you could receive less than what you have paid in. If you choose the capital redemption version of the plan and cash it in at the end of the 99-year term, Friends Provident International (FPI) guarantees the value. However, if you cash in the plan before the term ends, you may receive less than what was illustrated, due to factors such as lower investment returns, higher FPI charges, or withdrawals exceeding the anticipated amount.
What are the applicable charges for me?
FPI offers two charging structures for the Reserve Investment Bond, which vary based on your agreement with your adviser. Your adviser should provide you with an illustration and personal charging structure that details all applicable charges. FPI charges for setting up and administering the policy and offers a choice between two charging structures:
- Establishment Charge Structure: With this option, an establishment charge applies, typically 1% per annum for ten years, even if the fund value decreases. If the policy is encashed before the end of the establishment period, surrender costs of 10% reducing by 1% per year will apply. The 1% is the highest charge of 10 years and you will be paying the IFA upto 7% commission up front. The lowest charging structure 0.15% on a 10 year charging structure.
- Annual Policy Charge Structure: If you choose this option, you will either incur an initial charge or an annual policy charge. If you cash in the policy during the initial charge period, an exit penalty will apply, which is equal to the outstanding initial charges. However, this charge does not apply if the initial charge is paid upfront. FPI also takes a fixed administration charge on the first day of each calendar quarter.
What happens if I want to access my money?
If you cash in your policy during the initial charge period, you will incur an early cash-in charge equivalent to the outstanding initial charges. However, if you choose the upfront initial charge period, there will be no lock-in or surrender penalty.
What happens to my Reserve if I die?
The outcome depends on whether you have a whole of life plan or a capital redemption plan. With a whole of life plan, the plan will end if you die, and FPI will pay a lump sum equal to 101% of the cash-in value. If the plan is set up on multiple lives, it will continue after the first death, and FPI will pay out 101% of the cash-in value or, if lower, the cash-in value on the death of the last survivor. With a capital redemption plan, the plan will continue until it is fully cashed in or matures at the end of the 99-year term. After your death, the plan may be assigned to beneficiaries or cashed in by your personal representatives or trustees, with the cash-in value paid out. However, the death benefit is not a guaranteed amount, as it depends on the cash-in value at the time of death.
My View:
As linked in my previous blog would highly urge people that are already in this or have been proposed to fully understand the rationale why going into this product and question any IFA that offers this as it is a commission-based offshore bond.
When you have FCA-regulated platforms such as Novia/Morningstar and low-cost platforms such as Saxo why does it make sense for most people to go into a high cost in a flexible structure like this?
These are normally “sold” on a tax basis but this is rarely used. And have met many IFAs that don’t understand the full tax implantations. For example, they differ from country to country and don’t normally travel well in the E.U.
If you are in this would opt for a lower cost platform if you have been proposed this in most cases would stay well clear.
Should you have any questions about the bond, or if you are currently invested in a bond, you can contact me using the button below and arrange a time to call if it is required.
