Let’s review the Reserve Bond offering from Friends Provident International. At the end of this article, you should be able to find out if it’s a product worth including in your investment basket, or if it’ll be better to steer clear of it.
As a relatively large international insurance company, Friends Provident International have clients all around the world.
Traditionally most of their clients have been based in the UAE, Singapore and other major expat hubs.
However, they have clients all around the world, including local clients based in Africa and beyond.
If you want to invest as an expat or high-net-worth individual, which is what I specialize in, you can email me (advice@adamfayed.com) or use WhatsApp (+44-7393-450-837).
This includes if you have a policy and aren’t happy.
Who is Friends Provident International?
Friends Provident is a renowned financial organization that caters to the needs of expats. The firm specializes in providing certain financial services such as savings, investment, and protection plans in the United Arab Emirates (UAE) and Asia, particularly in Dubai, Hong Kong, Singapore, and the Isle of Man.
Understanding the Reserve Bond
What is the Friends Provident International Reserve Bond?
This investment product is available globally and provides the opportunity for growth of capital over an extended period, typically five years or more. Customers looking for capital growth, regular withdrawals, or a mix of the two are a good fit for the Reserve Bond, which is tailored to investors with a large quantity of money to invest.
The offering is available to anyone who is at least 18 years old. If the policy involves lives assured, which means that the policy’s payout is dependent on the survival of one or more individuals, the minimum age for the lives assured is 2 years old. Additionally, at least one life assured must be 80 years old or younger.
You can choose between whole of life and capital redemption plans, with former including a life cover element, while the latter has a guaranteed maturity value. Regular withdrawals can be made from the product, but it is essential to note that this will reduce the value of the capital or the guaranteed maturity value in the case of the capital redemption option.
What investment options are offered?
With the Reserve Bond, you can choose from over 150 different funds from top fund managers. The investment product offers two choices for investing your money – collective investments and personalized assets.
Collective investments allow you to invest in different types of funds, such as unit trusts, investment trusts, and open-ended investment businesses. This means you can invest in different markets around the world. Personalized assets, on the other hand, enables you to buy into specific types of assets, such as international stocks, bonds, and structured notes.
Do note that there are annual management fees that can be higher than if you were to invest directly with the fund manager.
The funds are rated for risk and cover different markets and asset classes. This means you can choose funds that are in line with your investment targets and appetite for risk. Choosing external funds is an option too, but it may be too costly.
You can track the performance of your investments by checking monthly performance statistics, and fund prices are updated daily on the fund fact sheets.
The investment product being offered has a list of assets that are typically excluded from being invested in. These assets include shares in companies that are part of the same group as Friends Provident International Ltd., commodities, real property, futures and options, precious metals, UK National Savings and investments products, US mutual funds (except those that are discretionary-managed), and FPI mirror funds.
Friends Provident International Reserve Bond: What’s the investment minimum?
You may deposit a lump sum worth at least 100,000 pounds into your Reserve Bond account. Additionally, you have the option to make extra bulk payments at any time. If you choose the yearly policy charge option, the additional payment amounts to 5,000 pounds or 10,000 pounds.
Credit cards may be used to make further payments at no cost. This is useful for clients who want to pay with a credit card and receive rewards.
What currencies can I use to invest?
The plan could be valued in US dollars, British pounds, Hong Kong dollars, Japanese yen, Swedish krona, or Euros.
Are there tax advantages?
Friends Provident International enjoys tax-free profits in the Isle of Man and the United Kingdom thanks to the company’s Isle of Man registration. This provides potential tax benefits to policyholders, as any funds held in the policy accumulate tax-free, except for any withholding tax on investment income, which is deducted at the source in the country of origin.
Asset trades may incur personal taxes depending on your place of residence. This indicates that you could be required to pay taxes on any profits obtained from the exchange of assets.
Friends Provident Reserve Bond holders may postpone or plan ahead for their tax obligations. With the guidance of a financial planner, you may own assets in a tax-efficient manner and defer paying taxes on capital gains or income distributions.
Remember that tax laws might change, and your tax obligation is dependent on your country of residence as well as individual circumstances. Therefore, it’s best to consult a tax expert about your investments’ tax implications and potential tax liabilities.
What fees are assessed?
Key Policy Charges
The Friends Provident International Reserve Bond has two ways of charging fees, which will depend on what you and your financial adviser agree upon. Your financial adviser should provide you with a document that shows all the fees that will be taken from your investment.
If you cash in your policy while still owing introductory charges, you will be subject to an early cash-in fee in the amount of those unpaid premiums. However, if you choose the upfront initial charge period, there will be no early cash-in charge or lock-in period.
A fixed administration charge is taken from your General Transaction Account every quarter throughout the life of your policy. The amount of this charge will depend on the charging structure you choose and the initial amount of your investment. You can choose between two charging structures, the establishment charge structure or the annual policy charge structure.
Let’s look into the charging structures in more detail:
In the event that you decide to go with the establishment charge structure, there will be a fee of 1% each year for a period of ten years. Should you decide to terminate the policy earlier than the conclusion of the 10 years, there will be surrender fees totaling 10%. These costs will go down by 1% annually.
If you choose the annual policy charge structure, you have two options. The first option entails making an initial payment of 7% of the total due, while the second one involves spreading the initial fee out over a period of five years at an annual rate of 1.506%.
Both options also have a 0.25% per year charge, which is a fixed administration charge taken quarterly from your General Transaction Account over the lifetime of your contract. The real cost of the 0.25% fee is determined by either the total value of the insurance or the original investment; whichever is higher will be applied. If there’s no increase in a span of 10 years, the cost may be 47,550 pounds to 50,150 pounds.
Other Policy Costs
In addition to the establishment and annual policy charges, there are other fees associated with the FPI Reserve Bond. These include a 98-pound annual administration fee and a 29-pound fund dealing fee. Deposits in other currencies cost a hundred pounds per deal. Any policy modifications after establishment will cost 144 pounds.
There will be a higher administration fee under the setup charge option or a higher yearly contract price if you’ve decided to give your adviser a trail commission. Over the course of the contract’s duration, quarterly withdrawals from your General Transaction Account will be deducted to cover such commission, which is based on a percentage of your investments’ worth.
If you don’t hire an outside manager, you’ll have to pay fixed dealing costs in the deal currency on the final day of the calendar quarter in which you purchase or sell an asset. Each asset you put into your contract through an exchange incurs a separate fee of 100 pounds.
FPI charges 2% over three-month LIBOR for overdrawn accounts. When purchasing and selling specific assets, stockbroker fees are included in the total amount and disclosed in the trade contract note. External fund fees vary each fund and may reach 2% annually. The adviser may charge 1–1.5% each year to manage the portfolio, depending on their fee structure and service.
It is not advisable to use the FPI Reserve Bond in a Qualifying Recognised Overseas Pension Scheme and Self-Invested Personal Pension (QROPS and SIPP). That’s because the charges may not be adjusted as the capital decreases, which means that the proportion of charges will increase as the capital reduces.
Investment Fees
If you invest in funds, the company managing the fund will take their own fees for managing and administering the fund. There might also be additional fees related to the fund that you should inquire about from the fund manager for more details.
Stock market assets are purchased and sold at the offer and bid prices, respectively. The bid/offer spread is the difference between the two prices. The bid/offer spread depends on asset liquidity, transaction size, and other considerations.
Stockbrokers, settlement, and safe custody costs apply when buying or selling a stock exchange-listed fund. If you engage an investment adviser to help you choose and close transactions, you may pay them by regular withdrawals, a quarterly fee, or a percentage of the assets’ value.
You can also choose to appoint an external manager to manage the investments within your contract, and to be the custodian of your investments. The external manager will charge a fixed fee or a percentage of the value of your investments for this service.
What becomes of my Friends Provident International Reserve Bond when I pass away?
Your choice between a whole of life plan and capital redemption plan will determine what happens if you die and what benefits are paid out.
A whole of life plan pays out a lump sum of 101% of the cash-in value if you die. You can set up the plan on up to 10 lives, so that it continues after the first death. The lump sum payment is made either on the death of the last survivor, or if earlier, the cash-in value. However, the death benefit is not set in stone and is instead calculated using the cash-in value at the time of the insured’s passing.
A capital redemption plan, on the other hand, will remain in effect until it is entirely redeemed or until the end of its 99-year period, regardless of whether or not it has lives guaranteed. Depending on whether the plan was established in trust or not, after your death, it may be transferred to your beneficiaries or paid in by your personal representatives or trustees. The plan’s cash-in value will be distributed if the plan is terminated for any reason.
What are the benefits and drawbacks of the Reserve Investment Bond?
It’s advantageous in certain countries since it shields its owners from paying taxes. Because of a potential commission refund, it is feasible to invest for a period of at least five years without taking any money out. Time allocation is another benefit of this investment that may appeal to UK residents who have been living overseas for a long time.
However, there is no flexibility of complete withdrawal or access in the early years that won’t incur a fine, meaning you may be locked into the investment for a significant period of time. Furthermore, tax breaks are not recognized in many countries, which could limit possible tax benefits.
Meanwhile, if commission is involved, the investment can become overpriced, and even partial withdrawals can significantly raise costs. It is essential to carefully consider the charging structure picked by an adviser as costs can vary significantly, and some advisers may recommend a lower-cost option initially but then modify the charging structure to a costlier alternative after the client has been reeled in, potentially to generate higher commission.
The plan’s future payment is contingent on the growth and performance of the investments. It is possible that your return could be less than your original investment. With the capital redemption scheme, Friends Provident International only guarantees the value of the policy if it is paid in at the conclusion of the 99-year period.
Besides, the actual payout upon cashing in the plan may be lower than what was initially estimated in the illustration due to lower than expected investment returns, higher FPI charges, or if you withdraw more money than originally planned. Inflation may lower future profits as well.
Friends Provident International Reserve Bond Review: The Bottom Line
The FPI Reserve Bond product is criticized for having high charges and large commissions that are paid over a long period of time. The product’s hefty price tag is my biggest turnoff. For an initial charge at 7%, that’s excessive.
Also, concerns remain that the company may continue to market the more costly and less easily accessible version of the product, although there is an option to trim the commission and the initial charge.
Overall, the product’s high charges and commission structure may not make it a favorable choice unless the commission is reduced. Even then, the overall charges don’t make it seem like a good investment overall, as better alternative investments can be found in the market.
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