BONDS VS COLLECTIVES - THE DEBATE

"Independent advice – crucial when choosing wrappers ..."

Photo left: Martin Bamford (joint MD of IFA Informed Choice)

MAIN POINTS IN SUMMARY:

(a) higher rate taxpayers – collectives often the best option;
(b) basic rate taxpayers – collectives have the edge;
(c) non taxpayers – bonds have their merits;
(d) DGT-bond structures – not flexible; and
(e) WAY-collective structures – flexible and achieve investor objectives.

For the vast majority of IFAs, treating customers fairly and giving best advice are second nature – and the industry should be proud of that. In essence this means providing advice, products and service that meet their needs in their particular circumstances. But sometimes environmental changes make it necessary to reconsider what constitutes best advice.

As all investment IFAs in the UK will know, one such change occurred in the March 2008 budget where the CGT rules were restructured. The two areas that affected investors were the introduction of a flat rate of 18% and the removal of taper relief. This resulted in a shift in comparative performance between investment bonds (both on and offshore) and collective investments (unit trusts and OEICs).

So what's best now?
"The answer is both are best!" said Martin Bamford, best-selling author and joint Managing Director of Surrey-based IFA Informed Choice. "Ultimately the answer depends entirely upon the individual circumstances of the investor. This is no different from the advice we give on, say, the most appropriate life cover for a client. For some, term assurance is the right product, others need whole of life," he said.

"We look at the individual's income tax position now and in the future, in which country they reside, their objectives for capital growth and income and whether they are trustees. For higher rate taxpayers, trustees and those seeking capital growth, then collectives are often the best option. For non-taxpayers, people residing abroad and those seeking income, then bonds have their merits. For basic-rate taxpayers, collectives have the slight edge as they are far more transparent," Bamford said.

Ignore IHT at your peril
While the debate so far has revolved mainly around one tax – CGT – lurking in the wings is another one with a far bigger price tag for your clients – IHT.

When IHT is brought into the equation, other very important factors need to be seriously considered. In particular investors will want to:

"All of these important requirements are catered for very comprehensively within WAY's collective-based trust structures. Indeed points 1, 2, 3 and 5 just cannot be handled under a DGT-bond structure," said Paul Wilcox, Chairman and Technical Director of the WAY Group.

"At WAY we have created a suite of market-leading investment and trust structures that can help investors achieve their objectives. We have found – and many IFAs agree with us – that simple Discounted Gift Trusts do not provide enough flexibility for investors today. They were fine in the past but now investors expect far more and the WAY suite delivers all the elements they seek."

"I have called our suite "market leading" but in fact it is unique as WAY is the only investment house that provides IFAs with a comprehensive range of IHT solutions using either bonds or collectives. IFAs frequently tell us that many investors think they don't need to worry about IHT until the facts of life – or more correctly, death – are explained to them. And then if you ask them which "darling" they want their hard-earned wealth to go to, you can guess the answer," Wilcox said.

How to contact us
If you wish to talk to someone about this newsletter or about any of WAY's products, please feel free to call either your local Regional Sales Manager or Tony Lyons, IFA Support Manager, head office telephone number: 01202 890895. Or you can use the website: Contact Form to get in touch. We look forward to hearing from you.

- Ends -

Additional link - the WAY suite of trust structures:

 Click here to access the: WAY suite of trust structures

Newsletter: August 2008.

Note: This newsletter commentary has been prepared for Financial Intermediary Clients and Professional Associates of WAY Investment Services Ltd and is not intended for and must not be distributed to Private Investors. This information is supplied to you in confidence and you may not pass it on to any other party without prior written consent. Past performance is not necessarily a guide to future returns and changes in rates of exchange between currencies may cause the value of investments to rise or fall. No representation or warranty is given (express or implied) as to the accuracy, completeness or correctness of the information nor the opinions, interpretations and conclusions contained in this commentary. The commentary does not constitute investment advice or a recommendation to purchase or sell any security. Neither the author nor WAY Investment Services Ltd accept any liability whatsoever for any loss or damage arising in any way from any use of or reliance placed on the commentary. WAY Investment Services Ltd is an Appointed Representative of WAY Fund Managers Ltd which is authorised and regulated by the Financial Services Authority.