You only have to look at the figures relating to insurance bond sales to realise the effect that the recent tax changes have had on the market.
Bond sales are down, and I believe this is predominantly due to the change in tax rules that have put these products at a disadvantage to collectives. Historically it was claimed that bonds were sold because of the commission rates, isn’t it interesting to see how quiet these critics have been now that bond sales have declined?
In these days off levelled commissions and CAR there is no evidence that a bias remains to bonds. But, it should be remembered that bonds held appeal, many investors like them because they were simple products, that generated simple income payments, and often gave access to lower risk funds such as distribution or with profits. Many clients don’t want to be involved in portfolios, they don’t want to take an interest in their investments, they just want a straight forward product that does what it says it will do.
Like many advisers we have been recommending portfolios of collectives, often platform based, because we see these as a more tax efficient alternative under the new tax rules. Higher net worth investors and the more informed individuals are happy with collective portfolios and welcome the CGT advantages. But many clients don’t see these portfolios of collectives in the same way, especially elderly clients. What they see is a complicated product that generates masses of paper, detailing every single movement and charge in intricate detail, what they see is a product that confuses them.
We are looking at hole in the market here, a space where a product provider could make a killing if they could offer a simple product, based on collectives, that uncomplicated investors could understand and identify with. An investment that pays a regular income based on capital withdrawal, generates simple statements that don’t confuse, perhaps even a product where the client has an option to take a simplified statement rather than a detailed breakdown if that suits them best.
There has to be a better, more tax efficient alternative to bonds, one that unsophisticated investors can easily understand and identify with. Then again, the track record of the financial services industry in creating simple products isn’t great!
Adrian Shandley is managing director at Premier Wealth Management
The views expressed in the blog are those of the individual.IFAonline
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