Offshore bonds seem attractive for a number of reasons and the main one is the deferral of tax. I have questioned why not use a platform instead also if you are living in a zero or low tax environment is it worth paying the higher cost?
I have written before that they do have uses and pointed out from the ATO tax treaty. But, the problem is mostly on how they are sold that might not be needed for a lot of individuals that have these bonds.
That is why I wanted to write this blog on ‘Popular Offshore Bonds for Expats Explained’.
Investors Trust Access Portfolio Bond
Investors trust is a global brand representing the ITA group. ITA is the parent company that is formed of three companies, insurance based in the Cayman Islands, Puerto Rico, (both rated A-), and ITA Asia based in Labuan.
The Access portfolio is a lump sum option that offers an open range of funds, stocks, notes and bonds. ITA, have done the options below:
- Access Portfolio 5000 Series
- Access Portfolio 8000 Series
- Access Portfolio Plus
I have written an article about, ITA,
Investors Trust (IT) offers a lump-sum product, called the Access Portfolio Bond to global investors.
This article will review the product and explain why some investors will get good returns and others won’t get good returns from their investment.
If you have an Investors Trust Access Portfolio or have been proposed one and want a second opinion, you can email me or contact me on the chat function below.
The article will also briefly review the fixed income and platinum portfolios as well – two other lump-sum options on Investors Trust.
Who are Investors Trust
Investors Trust is a firm based out of Puerto Rico, Malaysia and the Cayman Islands with service offices in the United States and Latin America.
They have been in the market since the early 1990s and have about $2 billion in assets under management (AUM).
They have both local and global clients with a big reach in Latin America and the Asia Pacific in particular.
Where is the platform sold?
Worldwide, but often in expat-focused areas such as Dubai, Shanghai, Saudi Arabia, Hong Kong, Singapore, Brussels, Bangkok, Kuala Lumpur, Qatar and various other locations.
For locals, Latin America, Japan, China, Russia and South Korea are probably the biggest markets.
What are the account minimums?
For the Access Portfolio, $75,000USD, 75,000 Euros and 50,000GBP are the minimum account sizes.
The minimum additional investments are 5,000GBP, 7,500USD and 7,500 Euros respectively for top-ups.
What is the duration of the investment?
Different periods can be chosen. 5 years, 8 years and open-ended charging structures can be picked on day one.
There are no early surrender charges if the open charging structure is put in place. In comparison, early surrender charges exist if you wish to leave the investment early on the 5 years and 8-year options.
The three different products are called the Access 5000 series, the Access Portfolio 8000 Series and the Access Portfolio Plus
What are the costs of the platform?
It depends on which option is chosen. The Access Portfolio Plus only costs 1% per year for admin charges, whereas the Access 500 Series is charged at 1.8% per year and a policy fee of 180USD per quarter.
To be fair to ITA they do outline the costs of the portfolios and it does differ depending on the options. These charges can be reduced, down depending on the IFA and commissions. The lowest charge I have asked about is 0.26% on the 8000 Assess platforms
https://www.investors-trust.com/products/product-family/access-portfolio/
What are the positives of the platform?
The main positives are:
- Investors Trust offers an excellent online system, with ease of topping up, withdrawal and other admin done efficiently. The costs are also reasonable depending on the charging structure chosen.
- Passive investments like ETF index trackers can also be picked, thereby reducing cost.
- In general, they have excellent and varied fund choices. Perhaps less than 1-2 other platforms but more than some other options in the market
- There is a borrowing facility although this is expensive.
- Regardless of the option you pick, it is quite flexible, in terms of withdrawals. Within 5 years, it is usually 100% flexible.
- Multi jurisdictions is a key advantage of the Investors Trust system. You have the option between Malaysia, Puerto Rico or Cayman.
- Importantly, each of the three locations offers checks and balances. Your assets are always separate to the companies assets. This is very different to investing with a bank, where the institution uses your money to lend to depositors. This lowers risk a lot.
- Good banking system with HSBC used for the USD bank accounts.
- You can pay online, even for lump sums, or via bank transfer. Of course, with bigger lump sums, it isn’t very practical to invest $200,000 by card, unless you pay $10,000 per time. For smaller amounts, this feature is excellent, as it lowers the cost in most cases.
- It is usually a tax efficient option. Investors Trust don’t give out tax advice, and indeed tax rules can always change quickly. What is true though is that they are based in tax efficient locations. Therefore, especially for expats that are living in low or 0% capital gains environments, this is a good option. In comparison, if you use a platform located in a high-tax country which decides to apply capital gains even to non residents, you could get hit by taxes.
- Compared to some of the typical investments in the expat market like those discussed below, this is a good option.
What are the negatives associated with this option?
The main negatives are:
- The fact that numerous fund options can be chosen is great, but it does mean that some clients are in expensive funds, whereas cheaper options exist on the same platform. Two investors who have different funds will get very different results, even on the same platform.
- The minimums are higher than some other options
- American expats can’t be accepted for this platform and there are additional restrictions, such as Hong Kong residents, and those in places under US sanctions, such as Iran. However, this is still much more flexible than some providers, that have a huge list of countries they can’t accept for.
- Only USD, Euros and Pounds are available. This is a small issue though, in this day and age, with countless ultra cheap options available for Australian, Japanese and other investors.
Are the majority of clients happy?
I have met countless happy clients who are in this lump sum option.
I have also met numerous people that have lost contact with their advisor, or been put into unsuitable investment options within the platform.
What have been some of the best performing funds on this investment platform?
That depends on which timeframes you look at. In recent years, US markets have done best, with emerging and energy-linked ETFs, facing downward pressure, with a lower oil price.
Sometimes today’s winners are tomorrow’s losers and vice versa.
A great example of this is if you compare US and international stocks.
Historically, each has a period of overperformance according to work from Fidelity.
So it always pays to have a well-diversified portfolio.
What are the full list of investment managers available?
On the access portfolio, there are too many options to list here, but the most popular ones include:
- Ishares
- Blackrock
- Morgan Stanley
- Pimco
- Janus Henderson
- Franklin Templeton
- MFS
- Investec
- Fidelity
- AllianceBernstein
Vanguard isn’t available on this platform but the iShares S&P500 index performs almost identically to Vanguard’s equivalent.
What about if you don’t have $75,000 or currency equivalent?
Investors Trust does have a smaller lump sum product called the Platinum.
It starts from $10,000/10,000GBP/10,000 Euros. This product has fewer investment choices than the access portfolio but does have some of the better fund options, such as the S&P500 index fund.
In general, the fees associated with the Platinum can be higher than the Access portfolio, but that depends on which option you select, as there are three options associated with the Platinum portfolios.
Are there any other lump sum options?
For people looking for pure income Investors Trust has a fixed income portfolio.
This portfolio gives you the option to invest for 3, 5 and 15 years. The 3 and 5-year rates are fixed, with a minimum contribution of $10,000.
The rates on offer are very low though, 2.25% for 3 years and 3% for 5 years, so this should only be considered as a slightly better option than keeping your money in the bank.
What can you do if you have an Investors Trust plan which isn’t performing well?
If you have an Investors Trust Access Portfolio and you aren’t satisfied with the returns, there could be two reasons for this.
Either the markets aren’t performing well, which can’t be helped in the short term or the second reason is that bad funds have been picked.
In which case, it should be much easier to make the account work more efficiently. If you have this plan, don’t hesitate to contact me below.
Conclusion
- In general, Investors Trust is an excellent option in the expat market, but only if it is used in the right way.
- Investor A, with advisory firm A, can do much better than investor B, with advisory company B, on the same platform.
- So in many ways, the advisor you pick is more important than the platform itself.
RL360 Oracle and PIMs Review
RL360 is part of International Financial Group Limited (IFGL). Oracle has no dealing, custody charges or cash accounts to worry about.
Note that the PIMs is not in use but a lot of expats may still have the policy in use so I will review it.
I have said in a number of reviews and articles that offshore bonds are more expensive than other options. However, if used properly they do have their uses.
What is their Personalised Investment Management Service (PIMS)?
RL360 PIMS is a single premium offshore savings policy issued in the Isle of Man by RL360 Insurance Company Limited (RL360). It has a wide range of tax-efficient investment options available which offer the potential for growth over the medium to long term.
It is a portfolio bond offering a choice between fully open and guided architecture. It is available in seven policy currencies. PIMS can be used in a trust and also offers the ability to appoint a discretionary fund manager or an investment adviser. The investment options cater to almost all attitudes to risk.
If you are considering an RL360 PIMS Plan then ensure you fully understand the local taxation position.
Life Assurance or Capital Redemption?
Life assurance
- A PIMS policy on a life assurance basis can be set up in one of two ways:
- Single life – There is only 1 life assured and when they die the policy comes to an end.
- Joint life last death – There can be up to 6 lives assured on the policy, and it comes to an end when the last life assured dies.
Capital redemption
- A PIMS policy on a capital redemption basis will remain in-force for a total of 99 years at which point it will mature and we will pay out the surrender value.
- A PIMS policy on a capital redemption basis will remain in-force for a total of 99 years at which point it will mature and we will pay out the surrender value.
- You cannot change the basis of your policy after it has been issued.
What are Sub-policies?
PIMS can be structured in up to 100 sub-policies. This is for added flexibility and may provide tax advantages depending on your location. Fewer sub-policies may be chosen if required, but unless this is detailed in your PIMS application RL360 will automatically set up the policy with 100 sub-policies.
What’s the difference between PIMS Focused and PIMS Flexible?
- PIMS Focused policyholders can invest into a defined range of investment funds
- PIMS Flexible policyholders can invest into any investment acceptable to RL360.
Please be aware that these aren’t the current version of investments that they offer. They have been updated since these products. I shall write a new article for the updated products.
Am I eligible for RL360’s PIMS?
PIMS is available to individuals, companies and trustees provided they are not subject to any legislation which prevents them from making an investment. Individuals need to be 18 years of age or older to apply for PIMS.
Where the policy basis is life assurance RL360 cannot accept the application if the youngest life assured is 85 years of age or older.
What’s the investment choice?
PIMS Focused policyholders can invest into a defined range of approximately 1,000 investment funds. Accordingly, PIMS Focused has a lower charging structure than PIMS Flexible which is fully open-architecture.
Leading Fund Houses offer a wide choice of investment funds. You choose from 999 funds covering all the major world markets and investment classes. The fund’s section contains performance statistics which are updated monthly, fund prices which are updated daily and Fund Fact Sheets on each fund.
They will, after consideration also accept other external funds.
Is the PIMS multi-currency?
Set up your policy as one of seven major world currencies – the British Pound (GBP), Euro (EUR), United States dollar (USD), Swiss franc (CHF), Australian dollar (AUD), Hong Kong dollar (HKD), or Japanese yen (JPY).
The currency of your PIMS policy cannot be changed after the issue.
Your policy will be valued in this currency and fees will be deducted in this currency.
What’s the minimum amount I can contribute to my RL360 PIMS plan?
Premiums are subject to the minimum premium levels for your policy currency which in GBP are £50,000 initial and £5,000 additional.
Initial and additional premiums paid into PIMS can be made in any currency that is acceptable to RL360.
How do I get a valuation or see my plan statements?
You can access this via your account, you can see savings and investments at anytime 24/7 with the RL360° online platform, accessible from anywhere with internet access.
What are the charges?
PIMS has been designed with a charging structure that can be tailored to best suit your needs. There are 3 main elements to the charging structure that can be used separately or in combination:
- Allocation rate – this is the rate at which your premium is applied to the policy. This can be below, equal to or above 100% of your premium if other charging elements are chosen.
- Establishment fee – this is a fee that is taken over a set period of time – 5 years, 8 years, or 10 years – as a percentage of your premium. An early surrender fee will apply during the same period.
- Percentage administration fee – this is a fee that is taken throughout the lifetime of your policy as a percentage of the higher of your premium or its current policy value. An early surrender fee will apply and you can choose from 8 years or 10 years.
It is possible to reduce the allocation rate of a PIMS policy so that all fees relating to the initial premium are deducted on the policy start date. Alternatively, rather than reduce your premium at the start of the policy, you can pay fees through the establishment or percentage administration fees.
By doing this you can enhance your allocation rate beyond 100%, up to a maximum of 112.25% for PIMS Flexible policies or 113.50% for PIMS Focused policies (this also depends on your premium amount).
In addition to the 3 main flexible elements, there is also a flat administration fee. This is a fixed amount that increases each year with inflation. It is taken from the cash account on the quarterly anniversary of the policy start date. The fee continues to be taken until the policy comes to an end.
A dealing fee of £20 GBP (or currency equivalent) is deducted for each purchase, sale, transfer or exchange of an investment-linked to a PIMS policy. The first 10 transactions (1 buy and 1 sell = 2 transactions) are free from dealing fees.
For cash deposit accounts (only available under PIMS Flexible) there is a GBP20 (or currency equivalent) fee for each deposit placed or each withdrawal taken from an account.
The investment fees applied will depend on the investments to which your PIMS policy is linked. Fees can include but are not limited to, initial and annual management charges, performance fees and exit fees.
Fees are determined by the investment manager. In some cases RL360 will receive institutional discounts not available to individual investors, meaning that the initial charges that you have to pay will be lower than via direct investment.
Where RL360 is required to perform a foreign exchange (FX) transaction, this will be done at a rate determined by RL360, based on those commercially available in the market.
What happens if I want to close the plan early, or withdraw some cash?
A partial surrender on your RL360 PIMS Plan may be treated as a one-off withdrawal. There are minimum acceptable one-off withdrawals, regular withdrawals and minimum PIMS policy values after a withdrawal.
(For example – in GBP one-off minimum is – £500, regular is = £250 – minimum policy value = £25,000 – note the minimum policy value must not drop below the figure shown or 15% of the premiums paid to date, whichever is the higher)
One-off withdrawals can be paid in an easily exchanged currency.
Regular withdrawals will be paid in the PIMS policy currency and can be taken monthly, quarterly, half-yearly or yearly. Regular withdrawals can be set up when you apply for a PIMS policy or be requested at a later date.
A full encashment results in penalties being applied in the early years through surrender charges linked to the term of the policy. In effect, this means that on policies the first 5, or more typically 8 – 10, years may have quite high surrender charges imposed. It is important to be aware that the RL360 PIMS Plan is a long term plan, if you decided to cancel the plan early you could lose a proportion of the money you have invested.
Quilter International Executive redemption bond
Quilter International (formerly known as Old Mutual International) is one of the leading providers of advice, investments and wealth management both in the UK and internationally.
Quilter International is part of Quilter plc and manages around £107.4 billion of investments (as at 30th June 2020).
Old Mutual International (formally known as Royal Skandia) is the international arm of Old Mutual Wealth which is now Quilter, one of the leading retail investment businesses. Old Mutual Wealth oversees £123.5 billion in customer investments (as of 31 December 2016).
Old Mutual Wealth is part of Old Mutual plc, a FTSE 100 group that provides life assurance, asset management, banking, and general insurance. Old Mutual is trusted by more than 19.4 million customers across the world and has a total of £394.9 billion assets under management (as of 31 December 2016).
The Collective Investment Bond (CIB)
The Old Mutual International Collective Investment Bond is an offshore whole of life assurance policy providing benefits on the death of the relevant life assured (or ‘bond’) that accepts single premiums.
SelfSelect: offers a choice of more than 1,300 funds from over 100 fund management groups, spanning a broad range of asset classes, sectors and markets. This enables you and you and your adviser the freedom and flexibility to build a bespoke portfolio from a market-wide selection of funds.
WealthSelect: offers a choice of around 60 fully-researched funds from some of the UK’s best-known investment houses, together with packaged Old Mutual Global Investors funds.
Minimums: Lump sum minimum of £10,000. You can make additional lump-sum payments into your policy at any time with a minimum of £2,500. However, you will pay any initial fund charges on all contributions.
Currency: The Old Mutual International Collective Investment Bond can be set up as a policy in 1 of 3 currencies including Pound sterling (GBP), Euro (EUR), United States dollar (USD).
Eligibility: The Old Mutual International Collective Investment Bond is a regular premium, whole of life, life assurance contract issued by Old Mutual International (OMI). It is available to most international investors outside of the main regulated territories such as the UK, the USA, and Australia.
Choice of external custodian: The structure of a bond means that you need a custodian to hold, on Old Mutual international’s behalf, the assets that you decide to link to your bond. You can choose your own custodian, which is likely to be the financial institution you currently have a relationship with and who are advising you.
If you don’t have your own custodian, then Old Mutual international will use its own appointed custodian to play this important role for you.
Charges: will depend on the type of plan you take out from Old Mutual International as they offer different charging structures largely linked to the amount of commission or earnings being taken by the third party salesman or adviser. They should, but may not always be the case provide you with a charges schedule, which will detail:
- The costs Old Mutual international levy for setting up and managing your bond
- The administrative costs of the fund managers
- Fees charged by your financial adviser.
Early surrender: A full encashment will result in exit penalties being applied in the early years through surrender charges linked to the term of the policy. The amount of this charge reflects the cost of Old Mutual International’s set up fee, including any payments (such as commission) made by Old Mutual International to your financial adviser. This charge may also apply if you cash in part of your bond and the amount remaining is less than either 25% of your total investment, or £10,000/US$15,000/€15 000 (or another currency equivalent).
Old Mutual International has a great reputation but, in the pursuit of offering the flexibility of charging structure to all types of advisers, they have created a product that has the same name but completely different costs.
Those costs are dictated by the adviser and we have seen evidence to suggest that some advisers and adviser companies take the maximum commissions.
What is the Old Mutual International Executive Redemption Bond (ERB)?
This review is based on the Isle of Man based Offshore/International Old Mutual International (OMI) Executive Bond products exclusively. OMI provides investment solutions for both expatriates and the local markets around the world, including Africa, Asia, mainland Europe, Latin America, the Middle East, and the United Kingdom.
The Old Mutual International Executive Redemption Bond is an offshore, whole of life policy (or ‘bond’) that accepts single premiums. The Executive Redemption Bond is a capital redemption contract with a 99-year fixed term. It continues until the end of the term unless cashed in earlier. At the end of the term, the bond has a guaranteed value of at least twice the premium amount you have paid (less any withdrawals or surrenders).
The ERB bond is issued in the form of a single policy or several separate policies known as a “cluster of policies”. The initial charging term is fixed (based upon the charging structure agreed) at the time of the policy activation and this cannot be varied or waived; therefore, early encashment of the policy results in a “surrender charge” or “early withdrawal charge”.
If you are considering an Old Mutual International (OMI) Executive Bond then ensure you fully understand the local taxation position and weigh any benefits against flexibility requirements, access, and charges.
What investment options do I have?
Many international investors find managing a portfolio of funds an administrative burden. With the International Executive Redemption Bond, Old Mutual International takes care of this by establishing a portfolio of Old Mutual International funds within the account and managing any paperwork on your behalf.
Normally if a particular investment is underperforming, then changing strategy or fund manager may mean you suffer not only exit penalties and new initial charges on a new investment, but also a possible tax liability as well. By choosing an Executive Redemption Bond, you potentially avoid this problem.
The Executive Redemption Bond provides flexibility and freedom of choice, through access to a wide range of investment asset types from multiple providers.
This wide investment choice is known as open architecture. It enables you to invest in mutual funds, stocks and shares, fixed-interest securities, multi-currency deposits, hedge funds, structured notes, exchange-traded funds, and other alternative investments, which means you can customise your portfolio precisely to your individual needs and preferences, without having to compromise in order to fit in with pre-set rules and parameters.
The structure of a bond means that you need a custodian to hold on Old Mutual international’s behalf of the assets that you decide to link to your bond. You can choose your own custodian, which is likely to be the financial institution you currently have a relationship with and who are advising you. If you don’t have your own custodian, then Old Mutual international will use its own appointed custodian to play this important role for you.
Lump-sum minimum of £50,000. You can make additional lump-sum payments into your policy at any time with a minimum of £2,500. However, you will pay any initial fund charges on all contributions.
There is an annual policy charge which is fixed at the outset. There may also be a percentage of the value of your fund to cover management costs in the early years which is typically 1% per annum and will last for 10 years sometimes through a lifetime.
Fund management charges are typically between 1–2.5% pa each year- depending on the funds chosen, but these are not typically listed by OMI at the point of purchase but is the role of your adviser to help you better understand these costings.
Additionally, there may be an adviser charge to manage the portfolio, this is also typically between 0.75% – 1.5% per annum depending on the chosen advisers service provided.
In the main, the OMI Executive Bond charges are clearly shown and any professional should be able to interpret them.
What if I need to cancel the policy or make a withdrawal?
Full encashment will result in exit penalties being applied in the early years through surrender charges linked to the term of the policy. The amount of this charge reflects the cost of Old Mutual International’s set up fee, including any payments made by Old Mutual International to your financial adviser.
Old Mutual International has a great reputation but, in the pursuit of offering the flexibility of charging structure to all types of advisers, they have created a product that has the same name but completely different costs.
One-off or regular withdrawals, which will be free of charge as long as you leave in a surrender value of £10,000/US$15,000/€15,000 (or another currency equivalent), or at least 25% of your total investment, whichever is higher.
What happens on the death of a policyholder?
The treatment of your policy when a death occurs depends on whether there are surviving policyholders. If a policyholder has died and at least one policyholder is still alive, the bond will continue and will automatically transfer to the surviving policyholder(s).
If the last policyholder has died, the bond will continue until the end of the 99-year term. Ownership of the bond will pass to one of the following parties:
- If there is a nominated beneficiary, ownership will be transferred to them.
- If the bond is subject to a trust, then the bond is still owned by the trust and a trustee must be appointed as a policyholder.
In all other cases, ownership will be transferred to the legal personal representatives of the deceased policyholder’s estate. They can then choose whether to keep the bond and appoint a beneficiary to become the policyholder by executing a deed of assignment or encash the bond to pay the proceeds to your estate’s beneficiaries.
Old-Mutual-Collective-Investment-Bond-Terms-And-Conditions
Old-Mutual-Collective-Investment-Bond-Brochure
Old-Mutual-Collective-Investment-Bond-Profile
Old-Mutual-Collective-Investment-Bond-Instruction-Form-And-Guidance-Notes-Isle-Of-Man
Friends Provident International Reserve Investment Bond
Friends Provident International has over 40 years of experience in the international life assurance market.
Friends Provident International Limited (FPIL) is now owned by International Financial Group Limited (IFGL).
Friends Provident International Premier Advance Savings Plan Features
Premier Advance is a unit-linked regular payment savings plan designed to be held as a medium to long-term investment.
Investment Choice – The 100 risk-rated funds covering all the major world markets and investment classes. The fund’s section contains performance statistics which are updated monthly, fund prices which are updated daily and Fund Fact Sheets on each fund.
Multi-Currency – The FPI Premier Advance may be denominated in US dollar, GB pound, Hong Kong dollar, Japanese yen, Swedish krona (SEK) or Euro. Benefits will be paid in the plan currency.
Minimums – £300 per month. You can pay additional amounts via a number of different methods including credit card. Payment by credit card into the FPI Premier Advance will result in a charge of between 1% and 1.95% of each payment additional cost.
FPI Bond Review
What is their International Reserve Investment Bond?
It’s an international lump-sum investment product that offers potential for capital growth over the medium to long term (five years +). It has two plan options – whole of life and capital redemption. The whole of life version includes an element of life cover, whereas the capital redemption version provides a guaranteed maturity value.
It can provide you with regular withdrawals, although please note this will reduce your capital value. If the capital redemption version has been chosen, withdrawals will also reduce the guaranteed maturity value.
These structures, used in the correct way, can be used to meet the complex tax planning needs of clients. The Friends Provident Reserve Investment Bond provides the investor with the ability to defer and plan taxation. Being able to hold assets in a tax-efficient environment and pay no tax on the capital increases or income distributions until a time specified by you and your financial adviser, can be an invaluable planning tool.
What are the investment options within the product?
It then has two investment options – collective investments and personalised assets.
It gives you access to the world’s investment markets through unit trusts, investment trusts and open-ended investment companies. The personalised assets version could also include international equities, fixed interest securities, structured notes and deposits.
Access to more than 150 funds from some of the world’s leading fund managers offering a reasonable choice of investments, although the underlying annual management fees can be expensive – and certainly higher than if accessing the fund manager directly.
The funds are risk-rated and cover all of the major markets and asset classes.
Performance statistics are updated monthly, and fund prices are updated daily on the fund fact sheets via FPI’s Fund Centre in an easy to use format.
What currency can I invest in?
The policy can be denominated in:
- US dollar
- GB pound
- Hong Kong dollar
- Japanese yen
- Swedish krona
- Euro.
Who is the Reserve Investment Bond suitable for?
Friends Provident International Reserve is an international investment plan suitable for customers with a lump sum to invest for a minimum of five years, who seek capital growth or regular withdrawals, or a combination of both.
Reserve is available to those who are 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 8 or younger.
What are the main risks with the Reserve Investment Bond?
What you get back in the future depends on how well the investments perform. The value of the plan can go up and down. You could get back less than you’ve paid in.
FPI only guarantee the value if the capital redemption version is chosen and the plan is cashed in at the end of the 99-year fixed term.
When you cash in your plan, you may get back less than your illustration shows. This could happen for several reasons, for example, if:
- Investment returns are lower than shown
- FPI charges are higher than shown
- You take out more money than shown.
What are the Charges applicable to me?
The Friends Provident Reserve Investment Bond has two key charging structures which are entirely dependent upon what is agreed and disclosed between you and your adviser. if you’ve been recommended the FPI Reserve Bond, your financial adviser should provide you with an illustration and personal charging structure. This will detail all charges that are taken from your investment.
FPI charge for setting up and administering the policy and offer the choice between two charging structures:
Establishment Charge Structure:
If the establishment charge structure is chosen, the establishment charge will apply. This can be 1% per annum for 10 years which means that on a £500,000 investment the charge will be £50,000 even if the fund decreases. There will be surrender costs of 10% reducing by 1% per year if the policy is encashed before the end of the 10 year establishment period.
Annual Policy Charge Structure:
If the annual policy charge structure is chosen, then the initial charge or an annual policy charge will apply.
If you cash in your policy during an initial charge period, an exit penalty will apply. The amount of this charge will be equal to the outstanding initial charges. This charge will not apply if the initial charge is paid upfront.
Administration charge:
FPI will take a fixed amount on the first day of each calendar quarter for the lifetime of the policy.
It depends on the currency you save in – but in GBP it’s £99.50 per quarter, every quarter for the lifetime of your policy…
What happens if I want to access my money?
If you cash-in your policy during an initial charge period, an early cash-in charge will apply. The amount of this charge will be equal to the outstanding initial charges. This charge does not apply if the upfront initial charge period is chosen. Details on how it is treated is available in the relevant brochure.
However, if you select the upfront initial charge period then there is no lock in – no surrender penalty.
What happens to my Reserve if I die?
This depends on whether you have a whole of life plan or a capital redemption plan has been selected.
Whole of life plan – If you set the plan up on your own life, the plan will end if you die. FPI will pay a lump sum equal to 101% of the cash-in value.
You can set up the plan on up to ten lives, so that it continues after the first death. FPI pay 101% of the cash-in value, or, if lower, the cash-in value on the death of the last survivor only and the plan will then end.
The death benefit is not a guaranteed amount because we cannot guarantee the value of your plan. It will depend on the cash-in value at the time of death.
Capital redemption plan – As there are no lives assured, the plan continues until it is fully cashed in, or until it matures at the end of the 99-year term. Following your death the plan may be assigned to the beneficiaries or cashed in by your personal representatives, or by the trustees if the plan is written in trust. If cashed in, the cash-in value of the plan will be paid.
What are the positives of the plan?
- You can earn more than in the bank even with high costs
- Low-cost options, such as index funds, are available, but seldom used, within this product.
What are the negatives of the plan?
- It is expensive
- Used alongside expensive funds and trustee fees in QROPS/SIPPS for British expats, the fees compound.
- Many high-risk products like structured notes are used in tandem with this product. This often leads to losses.
Utmost International Professional Portfolio Plan
Guernsey-based Generali Worldwide has officially been named Utmost International. Formerly known as Generali Worldwide Professional Portfolio Bond.
The minimum investment amount for the plan is US$150,000 (or currency equivalent) in a lump sum contribution or investment assets, or a combination of both.
Should you invest in an offshore bond?
Investing in a bond can have great tax benefits for the right person but can carry alot of costs and are inflexible, so ensuring it is right for you if you have one of these bonds feel free to get in touch.
Summary
After reading all that, it’s probably got a few more questions spinning around on certain topics or situations.
In my opinions, bonds can be a good investment if they are used effectively and not just sold to every expat because they are ‘tax-efficient’. You need to consider why you would want them in your portfolio.
As with any investment, but more so bonds, you need to check the fees. They have been well known for paying high commissions to advisors which is why they have been used. However, when you start adding in trusts, bonds, platforms and advisors the fees can start to compound if they aren’t clearly shown.
Finally, getting the right product, especially when it comes to insurance products. Make sure speak to a financial advisor if you are unsure and get the right products for you. You can always review your financial investments on independent rating sites like Morningstar.
As always, if you have any questions, please email me on info@investmentsforexpats.com
