Standard Life pitches into the great bonds v funds debate

There has, for a long time, been reasons for and against using either. What has changed?

Funny old world, life offices who sold bonds by the shed load now say they are a duff product, almost as sickening as Towry Law denouncing the commission that got them where they are now.

Silly old Standard Life

I thought that Standard Life's trade body, the ABI, was lobbying the Treasury to even up the tax treatment of bonds before the last budget.

Now it's technical dept has worked out that bonds arent worse than unit trusts after all.

Either the ABI or Standard Life's technical dept is wrong. Surely it's time a good journo found out which of them couldnt do their figures

Priceless!

Bearing in mind that the vast majority of investors don't utilise their Capital Gains Tax Allowances on anything like a regular basis then what would the figures show then?

As Ian Macdonald says bonds will suit some clients, OEIC's & UT's others. It all depends on the situation.

It's just propaganda to me - I'd trust this as much as I trust the risk profiling & portfolio planning tools on insurance company websites (i.e. not at all). ABI & insurance companies will try to make anything fit their own agenda & self promotion......

Evan - glad to see somebody else who dislikes the holier than thou Towry Law - I used to work there & saw it in action. Slightly hypocritical stance methinks!!

Another analysis with figures can be found here:

http://www.dealersgroup.com.au/files/PCC_Nick_Edwards.pdf

The standard life version is here BTW:

http://www.adviserzone.com/ezines/savings_investment_instant/issue6/story1.php

Hint... the outcomes are different. Standard Life have assumed a relatively high yield for UK equities which favours the Life Bond oddly enough.

I think Standard are simply giving out nice words to put in Reasons Why letters and saying its OK to keep taking the 7% commission. Nothing as intelligent as everyone seems to think.

I love the old 7% commission statement thrown in, no surprises there then!!!

I am currently reviewing my portfolios, to implement after the current stock market slide, some funds in and others out, I offer a high quality review process which clients have to pay for, this means on some of my portfolios the TERs are approaching 3.4% (including fees), far far higher than the TERs on a bond which has paid a high commission to an adviser for the sale.

I have just taken over a very high net worth client this week from a local IFA who has a similar charging structure to myself (after reading the literature) however they do not have the robust review process that I have installed and the charges are the same;

So I wouldnt be so quick to point out commission even if you are fee based adviser, as I see a few companies falling flat on their face in their future; it has little to do with what the adviser earns in commission/fees and more to do with the service and agreement at point of sale, it may turn out in the future that full commission salesman with no ongoing service (stated clearly in their suitability letter) may come out smelling of roses and pompous advisers offering a service which amounts to nothing, but costs the client a lot of performance could find themselves at the receiving end.

As far as I am concerned I will be advising the same clients as before to take investment bonds because I have always been advice and client circumstance led, I see a lot of fools putting their surnames to NEVER using onshore bonds, I still see many uses, that too could end up another complaints area - not selling investment bonds!! Wouldnt that be ironic.

I recently spoke to an adviser who tells me their company policy is anyone over a certain income level is automatically given OEICS to utilise their capital gains allowances, full stop no exceptions, however they do not ask the further question do they already utilise them elsewhere!!!

Some of my clients use them fully in share portfolios which leaves none left for me.

My motto never say never!!

There is a lot of merit in what Standard Life and other bond providers have said, take out the relevant bits drop the rest same as usual.

Obviously touched a nerve Ian,

not the commission just the amounts.

Not you personally Phil only your 7% statement the rest wasnt targeted at you personally!!

Phil, how can a Wrap be a Wrap when it pays commission-unrelated question?

Why none of the unit trust providers pay 7% commission.

I've never worked out why they dont just hike the commissions to match that payable on bonds to create a level playing field

Some unit trusts pay 4%, so its not like there is a magic 3 limit.

I dont care about whether it is right or not, I was just wondering why

Only available to primary advisers in the future it seems.

Can anyone answer how a Wrap can pay commission and be allowed to call itself a Wrap??

If it pays commission then how technically does it differ from a platform.

I use a platform for simple transactions, either commission or fee and a pure fee Wrap, then I stumbled over a Wrap (which in my opinion is rubbish) which paid the previous adviser commission, how can it do that?

99.8% of the UK population pay no CGT.

Fairly simple arithmatic should tell Standard Life that only 0.2% of the population use their full CGT allowance.

Their first comment becomes fairly damning without further analysis.

Hi Ian,

In the nicest way I think that you share a confused view of the world of wrap. A wrap as opposed to a platform should simply be the delivery vehicle for a client proposition. The remuneration process shouldn't impact on this at all.

Obviously some provider wraps rely on fund rebates for their running costs and this usually means that commission has to be used to provide the relevant cash channel for the rebates.

For us the only benefit in not using commission is the ability to switch funds without the obvious implication of financial bias in your recommendations.

Hope that helps, if not get in touch and I will try and do it better.

phil@argylefinancialgroup.co.uk.

Incidentally my only concern with commission levels is the imbalance with market returns.

Do you inform your clients that they are paying 3.4% each and every year for your advice and the fund managers "expertise"?

If you do, and they accept that, what benchmark do you use, because if your portfolios are beating the benchmark every year by more than 3.4% then I think you should be bottling your investment review process and selling it on to us mere mortals!

If you are not then what value are you adding through your investment "portfolios"? Why not put together a portfolio of trackers and half the TER?

Thanks for your reply Phil, I am trying to keep my Wrap proposition pure fee, however taking over other IFAs clients on other Wraps has thrown up this anomally.

Andrew, if you charge fees for services surrounding a portfolio of investments it is easy to run up high TERs if they are all calculated in to the service, my charge is not simply for managing their money it is comprehensive projections and goal orientated manangement roled in to one. I get the feeling that some IFAs arent adding up all of the fees relative to the size of the client's portfolio, 3.4% may be low for some IFAs, when a complaint arises I am sure calculations will be done.

My clients do know what they are paying for, but as you point out it is a dangerous business just pointing to other advisers earnings levels ie commission as if it is the only consideration, the most important consideration in my opinion is charge (effectively the client's bill) relative to service.

Performance looks after itself, earn them no money and they are gone.

I never use trackers, but passives at 0.5% amc with asset allocations may be the future, dpends upon their asset allocation modelling.

It's funny reading this so long after this one started. I find I agree with the issues nearly everyone has raised here. That includes seeing Ian's point about about TERs and I also get the feeling that some IFAs arent adding up all of the fees relative to the size of the client's portfolio.

There seem to be a lot more people out there than I thought charge 1% of people's funds under managament, that was why I liked the idea of teh advsier quoetd on Citywire a littlewhile ago who charges a much mroe modest %, but across their net assets instead.

I think subconsciously that's the way I've been going with clients as we often take less than our standard Tariff terms suggest.

On the original debate. It remains as always, horses for courses, just the numbers in the race have changed a little. We haven't done any bond business recently and I'm a little shy of doing so. It doesn't mean I will not do them when appropriate, simply that I will dig deeper to make sure I can sleep at night knowing I've done what I think is right by the client.

Whether we take 3% or 7% is immaterial. We routinely take 3% and I can't remember the last time I took more than 3% on a bond it was that long ago.

I really do wonder how many advsiers out there still take 7% or so on smalee cases, let alone large cases.

I would be interested to see stats from the ABI on this as surely they keep a record of them and as such know who those who are potentially bringing the advcie chain in to disrepute are. But of course, to do that they'd need to actually put in to practice what the FSA are asking them to do, i.e. Treat Clients Fairly.

Another well written and informative article providing a balanced view of where the Glaziers may be at right now. Keep up the good work.