FRIENDS PROVIDENT INTERNATIONAL

RESERVE INVESTMENT BOND

(FPI RESERVE)

Summary

Friends Provident International has over 40 years of experience in the international life assurance market. They provide savings, investment and protection solutions to customers in Asia and the UAE and have offices in Dubai, Hong Kong, UK, Singapore and the Isle of Man. Friends Provident International Limited (FPIL) is now owned by International Financial Group Limited (IFGL).

IFGL provides investment, savings and protection solutions to international investors around the world and the group comprises of RL360, RL360 Services, Ardan International and Friends Provident International.

> Well known brand.

> Popular and widely sold.

> Can be a very expensive option since many advisers choose it for maximum commission.

> New Isle of Man rules prevent access to certain funds which many investors may want access to.

> Many countries do not recognise any tax concessions.

> Commonly mis-sold.

Key Features

  • The plan can be set up in 1 of 8 currencies including Pound sterling (GBP), Euro (EUR), United States dollar (USD) Swiss franc (CHF), Australian dollar (AUD), Hong Kong dollar (HKD), Japanese yen (JPY) and Swedish kroner (SEK)..

  • It has a capital redemption and whole of life variation.

  • You can invest from GBP 50,000 for at least 5 years or an early cash-in charge may apply.

  • FPI funds are “mirror funds” which are a copy of the underlying fund and therefore may give different returns than the underlying fund it is mirrored from, and may have higher costs.

  • Reserve 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.

Charges

You can choose how you want to be charged. You can either opt for FPI’s establishment charge structure, or its annual policy charge structure. If you’re considering a Reserve Bond, research the charges carefully, and consider the impact of them. 

 

Many salespeople don’t make it clear that there are different charging options - and financial consequences if the wrong approach is chosen. It may also be the case, and often is, that a charging structure that suits the 'adviser' best is presented to the client.

ESTABLISHMENT CHARGE STRUCTURE:

For any investment made from £50,000 up to £1,000,000 you either pay: - 

8.5% on the very first day you establish the bond. 

 

Or,

 

you pay an annual percentage of your premium, over either 5, 8 or 10 years. 

 

For any premium over £1,000,000 (or currency equivalent), if you choose to pay on day one it is 8%.  Otherwise, again, you can choose to pay an annual percentage over 5, 8 or 10 years: 

Premium From

50,000

1,000,000 

Day One

8.5%

8% 

5 year (p.a.)

1.9%

1.86% 

8 year (p.a.)

1.25%

1.21% 

10 year (p.a.)

1%

1% 

It’s very important to keep in mind that there is no way out of paying this establishment charge. Therefore, know that financial penalties will apply if you cash-in your policy during the establishment charge period. This is because FPI pays commission to your 'adviser' on the day you establish the bond, and unless you opt to pay your charges up front too, FPI has to claw back its initial financial outlay from your investment.  

FPI is never going to be left out of pocket…the charges will always fall to you to pay. 

 

If you decide to add premiums to your bond, the minimum is £5,000 (or currency equivalent), then you will also be charged an establishment charge on that premium too. But you can choose a different establishment charge period for any additional premiums if you want to, or even pay them up front, which works out cheaper.

The establishment charge is just the beginning. You also pay a fixed quarterly administration charge – every single quarter for the entire lifetime of the policy.  At the moment that is as follows: -

Currency

GBP

EUR 

CHF

USD

AUD

HKD

JPY

SEK

Quarterly Admin Charge

99.5

108.7

124.3

126

161.8

1,010

14,220

1,030

You may also pay a trail commission to whoever sold you the bond. 

This is an amount of money that is added to the above administration charge as a percentage of the policy value, and it is just paid to the 'adviser'. So, if you’re thinking of setting up a Reserve Investment Bond through an 'adviser', explicitly state you do not want to be paying trail commission. Often, many 'advisers' will not tell clients that they will be paying trail commissions.

Other Charges that apply:

  • Dealing charges

  • Asset exchange charge

  • Ad hoc charge

  • Interest on an overdrawn GTA

  • Inflation (FPI says: “Our appointed actuary sets the fixed sterling amounts once a year, 28 days before the end of December, in line with Isle of Man inflation. We may increase the charges above the rate of inflation if there are increases in our costs above inflation.”)

  • External fund charges

  • Investment adviser’s charges

  • Delivery and receipt charges

  • Safe custody charges

  • Stockbroker fees

  • Discretionary fund manager’s charges

ANNUAL POLICY CHARGE STRUCTURE:

The amount you pay is a percentage of either the value of the policy on the day the payment is due, or the total premium paid in – whichever is highest on that date. 

You might assume it would always be based on the value of the policy, as surely it should grow, right?  Well, no, as the value of investments can rise or fall, and you may decide to withdraw some funds or partially encash your bond during its lifetime.  Then, the value of the policy would be lower than all the premiums ever paid in.  At which point, FPI would start basing your charges on the sum of all the premiums ever paid in – because that way, they get more money.

The annual percentage you pay is in turn determined by the value of the total premiums you’ve paid into your Reserve.

Total premium from

100,000

500,000 

1,000,000

1,500,000

Annual policy charge

0.35%

0.25%

0.20%

0.15%

Unfortunately, the fees don’t stop with the annual policy charge. There is a hefty initial charge which can either be taken on day one, or spread out quarterly over 5 years. The initial charge is deducted from the General Transaction Account (GTA) in your policy currency, and it’s based on the amount of money you invest. This means it doesn’t change even if the value of your investment does…so if you partially encash, it will still be based on the overall amount you invested.

So, you either pay a flat 7% on day one…or, you pay 1.506% a year, split into quarterly payments, for 5 years. If you don’t fancy handing over 7% of your investment on day one, keep in mind that even if you encash the whole product early, FPI will still claw back this fee as an early cash-in charge. This initial charge will also become due on any additional premiums you pay.

As above, there may be trail commission taken to pay your financial salesperson every year. And then there is a quarterly administration charge payable, unless your initial premium is over £500,000 or currency equivalent, and then this fee is waivered.

Other Charges that apply:

  • Dealing charges

  • Asset exchange charge

  • Ad hoc charge

  • Interest on an overdrawn GTA

  • Inflation (FPI says: “Our appointed actuary sets the fixed sterling amounts once a year, 28 days before the end of December, in line with Isle of Man inflation. We may increase the charges above the rate of inflation if there are increases in our costs above inflation.”)

  • External fund charges

  • Investment adviser’s charges

  • Delivery and receipt charges

  • Safe custody charges

  • Stockbroker fees

  • Discretionary fund manager’s charges

Reserve Bond Within a QROPS or SIPP

Offshore investment bonds, like the FPI Reserve, are sometimes wrapped within a pension. Like many other offshore investment bonds, we have seen (all too often) the FPI Reserve Bond being used or sold to investors within QROPS and SIPPs. The pension is a tax wrapper, the bond is an investment platform (albeit another tax wrapper normally too), and this is sold as a solution for a flexible and tax effective way of managing retirement income.

However, the FPI Reserve Bond should not be used within a QROPS or a SIPP, because when you start to drawdown your pension, the charges on the FPI Reserve Bond can remain based on the original investment, which means that charges will effectively rise pro rata as your capital decreases. The effect is an erosion of your remaining capital at an exponential rate. 

Final Verdict

If your financial adviser works on a transparent up-front fee only basis, taking no excessive commission from their recommendations, then the FPI Reserve Bond could be considered by those requiring a bond wrapper.

However, it’s fair to say, in the majority of cases, the FPI Reserve Bond ends up being an expensive option when you compare it with a pure platform custodian plan. This bond has also been widely mis-sold over the years, leaving many investors out of pocket.

Furthermore, the potential tax benefits are often not only outweighed by charges, but not even applicable in many cases. Be aware that the tax benefits of portfolio bonds such as these are not always relevant depending on your nationality and where you live. Sometimes, there may be detrimental tax effects of such products. Many offshore advisers will sell the product with no consideration for the clients' specific position.

 

If you have or are considering purchasing a Friends Provident International Reserve Bond, make sure you understand your personal tax position today and what it could be in the future, and weigh up any benefits you believe you’re getting against the bond’s lack of flexibility, and high charges - which all too often are not explained fully, and can last up to 10 years (or for the lifetime of the bond).

The FPI Reserve doesn’t offer you access to a full range of discounted funds, direct equities or passive funds to invest in. Also, many investment themes that investors are looking to access have been restricted due to new rules in the Isle of Man.

Himalaya

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