With-profits bonds have not had the best reputation. With mis-selling scandals and poor returns, advisers often encounter clients disappointed by their performance. Here are five top tips on how to decide whether to keep or surrender a with-profits bond.
1. Look at the asset allocation. A strong bias towards fixed interest is a concern as it may indicate a ‘hands-off’ approach to investment. But take care on those with a specific income mandate as a preference for fixed interest may be deliberate.
2. Assess how bonuses are managed. A history of a company paying bonuses is no guarantee of a good terminal bonus, but looking at bonus history can give an idea of its approach in relation to its financial strength.
3. Find out if there any guarantees or MVR-free dates. These can prove very valuable in certain circumstances and should be taken into account before surrendering.
4. Decide whether the client would be better elsewhere. The deferral of tax on small withdrawals is very useful for some, but for others an income with better growth potential could be found elsewhere.
5. Compare the with-profits bond to others in the market. Look at it in relation to its peers. The Skandia With-Profits Analyser, available through Skandia Investment Solutions, compares a bond to others in the market and other investment solutions, helping you decide upon the best course of action.
More top tips from Money Management
Take 5: Preparing for the gender directive
Take 5: Investing in Aim
Take 5: Setting up income drawdown
