Old Mutual International has disputed a claim by an adviser that the charging structure of its executive bond and collective bond are misleading.
In a charges confirmation sheet drawn up for one client, which FTAdviser has seen, the charge is stated as 0.75 per cent per annum plus £96 per quarter (£384 a year), alongside an early surrender charge.
TMF Group, which the charges sheet was produced for, asked Old Mutual International for an illustration, which further breaks down the charging structure.
Speaking to FTAdviser, Bethell Codrington, global head for international pensions at TMF Group, said for an investment of £201,380. assuming 5 per cent growth a year, this should equal £211,194.90 after year one.
The illustration shows just £209,071.
He added if you deduct the 0.75 per cent, which should be included in the figures, that equals £1,510.35 and the policy fee of £384 included totals £1,894.35 or 0.94 per cent a year.
If you only invested £50,000 these charges jump to 1.52 per cent a year, he calculated.
Mr Codrington said: “The notes say the fund value does not include a surrender charge, not that it does not include policy fees and the regular management fee. Nor more importantly, does it include any allowance for underlying fund management fees typically 1.5 per cent per annum.
“The old style quotations used to show total expense ratio and a monetary value of charges. In the modern day of openness and disclosure why are life assurance companies providing less?”
Colin Rodger, director at Alexander Sloan Financial Planning, also reviewed the charge confirmation and illustration.
He said: “It is certainly not clear but it could be additional fund charges as well as the bond charges. It needs to be spelt out so the client knows exactly what is being deducted and for what purpose.
“I think even leaving aside the issue of the charges, projecting at 9 per cent return year on year for 25 years is ludicrous.”
However a spokesman for Old Mutual International stood by the charges confirmation sheet and stated the illustration does include policy fees and the regular management fee.
Additionally, according to the firm, offshore illustrations have never shown a total expense ratio.
The firm said this product can invest in wider assets so the client will not necessarily be in funds and a total expense ratio is a fund-related charge.
A spokesman for Old Mutual International said the asset manager provides the tools to advisers, through Wealth Interactive, for them to produce illustrations for their individual clients.
“The illustration systems use a compound basis for the calculations to ensure accurate projections, which reflect the timings of charges and withdrawals,” the spokesperson said.
“The illustration is for an offshore open architecture product. The growth rates are for product illustration purposes only, inclusive of policy and regular management fees.
“Given the client can invest in a wide range of assets other than funds the illustrations do not take into account fund management charges, as disclosed in the document. Clients also receive a policy document, which contains a full breakdown of the charges.”
ruth.gillbe@ft.com
