Investment bonds typically have three sets of charges:
- Investment bond provider charges. These are usually tiered so that the bigger the investment, the lower the charges. Typically these charges are on-going and consist of an annual management charge and may also include fixed charges which are usually deducted quarterly.
- Fund charges. Where the investment bond has access to externally managed funds, these funds have on-going charges which vary considerably depending on the type of fund. The investment bond providers can negotiate institutional terms with the fund management companies. These discounts can vary significantly and need to be considered prior to deciding which investment bond provider to use. For example, investment trust charges can be very different depending on how you access the fund. Other funds, such as exchange traded funds tend to be neutrally priced, so it makes little or no difference how you access the funds.
- Adviser charges. These are fees which are payable from the investment bond provider to the adviser firm. There are several different types of adviser charge:
- Initial adviser charges. This is a one off payment and is paid as the investment bond is started. These charges vary considerably between the adviser firms and can be as high as 7%. Our initial adviser charge is nothing, allowing clients to invest all of their money into the bond since we can invariably offer an allocation rate of 100%.
- On-going adviser charges. These are yearly charges paid by the investment bond provider to the adviser firm. The amount charges by adviser firms varies considerably and can be as high as 1% per annum. We charge 0.25% per annum for the duration of the bond.
- Ad hoc charges. These are one off payments made by the investment bond provider to the adviser firm. We do not make any ad hoc charges.
Some charges are more opaque and can lack transparency. With profit funds in particular can be charged very differently with charges sometimes being deducted from the capital of the fund, other times being deducted from the yearly bonuses added.
The best way to compare charges is to obtain a Key Features Illustration which discloses all three of the charges mentioned above. This can allow you to make a “like for like” comparison between the different investment bond providers and the adviser firms. The differences between the institutional discounts negotiated by the investment bond providers with the fund management companies can then be transparent and you can obtain a “total expense ratio” which includes all three of the charges. You can also obtain a “Reduction in Yield” figure which shows the effect the charges have on predefined future growth rates.