When you set up your Summit Bond, and every time you top up your Summit, you begin paying an establishment charge on each premium.
The charge is 0.4% of the premium invested; it’s taken every single quarter for 5 years.
A quick bit of mental arithmetic - and you’ll see that adds up to 1.6% a year, and 8% in total – that’s 8% of every premium you ever make – gone!
Withdrawing funds from your account will have a negative impact on your policy, because establishment charges will remain unchanged, and based on the initial premium.
You also pay an annual administration charge – it is 1.2% of the bid value of each fund every single year. So, for the first 5 years you pay about 14%, when you factor in the product charge as well.
Then there’s an annual management charge, and any other expenses incurred by your underlying funds. The actual amount depends on which funds you choose, with mirror funds usually involving higher fees and charges that those they are mirroring.
In an article about Friends Provident International products, written by financial author Andrew Hallam, he puts these additional fees at about a 2.59% expense ratio, and writes:
“Assuming that [you] have already paid the bulk of [your] annual establishment fees (charging 1.6 percent annually for the first five years) [you] will pay combined investment fees of roughly 3.79 percent annually, when adding up the annual administrative charge with the annual expense ratio for the funds.”
Naturally, your underlying investments will have to grow well to offset the impact of those fees. And don’t forget, your 'adviser' might be charging you trail commission on top…that’s another annual fee to find.
If you choose to cash-in your plan, any outstanding establishment charges are clawed back. So, it’s very important to keep in mind that there is no way out of paying this charge. This is because FPI pays commission to your 'adviser' on the day you establish the bond, and they need to get all of their money back to cover this initial financial outlay to the adviser – they take it from your investment.
FPI is never going to be left out of pocket…the charges will always fall to you to pay.
If you want to understand which fees and charges you’re exposed to, including the fees for the underlying funds, and what these amount to in real financial terms annually, and the impact they’re having on your portfolio’s performance, we strongly recommend you take advantage of a free X-Ray Review™. This will detail everything you need to know – it’s quicker than getting a PhD in maths, which is about the only other way you’ll be able to decipher your fees!