Old Mutual International
Executive Investment Bond

A closer look

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    Have you got an Old Mutual International Executive Investment Bond?

    Every year, Old Mutual International’s (OMI) range of executive bonds are sold to expatriate investors, based on their flexibility and potential tax advantages. 

    According to OMI’s sales brochures, their executive bonds allow investors to access a wide range of assets, transfer in or consolidate existing investments, switch assets or funds, and make ad hoc payments or withdrawals.

    In the words of OMI: The Executive Bond offers you a high-powered portfolio that puts you in the driving seat.

    However, as we will explain, their potential advantages are too often eclipsed by high and deliberately opaque charges.

    There are two types of executive bonds from OMI for non-UK residents; namely the Executive Investment Bond and the Executive Redemption Bond.  This article looks in depth at the Executive Investment Bond (EIB), which is a whole of life offshore bond, also known as a portfolio bond, wrapper or offshore investment bond, provided by Old Mutual International Isle of Man Limited.

    It’s important to note that this bond is an investment solution, rather than purely a life assurance product, and that it is designed for those planning to invest for at least the medium-term, and ideally the long-term.

    It’s also important to keep in mind that withdrawals are subject to certain terms and conditions and potential financial penalties…

    Let’s take a closer look at Old Mutual International, and its Executive Investment Bond.

    Who is Friends Provident International?

    Who is Old Mutual International?

    Skandia International, including Royal Skandia, rebranded to Old Mutual International in 2014.

    With offices in the Isle of Man, Ireland, Guernsey and South Africa, Old Mutual International is a cross-border provider of wealth management and investment solutions. 

    Its reach extends to delivering financial planning products to expatriates, international executive professionals, and local investors around the world - including Africa, Asia, Europe, Latin America and the Middle East.

    OMI is a preferred solutions provider for many international financial salespeople, because OMI generally pays commission for the sale of its products to them, as we discuss in depth below.  Furthermore, it allows these salespeople a fairly free rein to tailor-make their own charging structures.

    A summary of the Old Mutual International Executive Investment Bond

    The minimum initial investment in an Executive Investment Bond from OMI is £50,000, and the minimum additional payment is £2,500.  Note: you can choose to invest in different currencies. 

    The bond has no fixed term, but Old Mutual International says it is ideal for those looking to invest a lump sum for at least 5 – 10 years…it part, that’s because if you wish to access your money any earlier, you’re likely to pay early access penalties.

    You, as the investor, own the bond, and its value is linked to the selection of investment assets you choose,
which in turn are owned by Old Mutual International.

    Which investments can be accessed via an EIB?

    The bond is open architecture, which means the range of investments you can access via an EIB is fairly extensive and includes:

    • All kinds of offshore or mutual funds,
    • Stocks and shares,
    • Fixed-interest securities,
    • Multi-currency deposits,
    • Hedge funds,
    • Structured notes,
    • Exchange-traded funds, and
    • Other alternative investments.

    You can also transfer in and consolidate other existing investment assets.  And you can buy or sell assets or funds when appropriate for you.

    What are the benefits of an EIB?

    The bond is sold as a flexible wrapper, with advantages such as the fact that once it is set up, there is no extra paperwork (other than dealing instructions) required to change investments or add new funds to your EIB.  

    Another perceived benefit is that it can be easier for your heirs and beneficiaries to manage your estate when you die if all your main investments are under a single bond. 

    In terms of the life assurance element of the Executive Investment Bond, in the event of the death of the final life assured, the death benefit is only 101% of the surrender value (which is the value of the portfolio fund, minus any outstanding charges such as an early withdrawal charge).  Therefore, it is not sufficient to provide real protection, rather it is added for 2 main reasons:

    • It brings the Executive Investment Bond and its underlying investments under the protection of the Isle of Man government. The advantage of this is that if Old Mutual International were unable to meet their financial obligations to you, the government should guarantee 90% of the value of your investment at that time.
    • It can provide tax advantages for some people in certain jurisdictions…however, this benefit is over-sold, especially to those in low or no tax jurisdictions like the UAE, where being able to defer tax with a bond like this is simply unnecessary.

    If you wish to access your capital, you can do so.  The minimum withdrawal amount is £500 or currency equivalent, and OMI claims all withdrawals are free of charge as long as you leave a surrender value in your bond of at least £10,000 (or currency equivalent), or at least 25% of
your total investment, whichever is higher.

    However, there could be charges levied against a withdrawal, depending on the asset from which you’re withdrawing.  For example, if you were to withdraw from a fixed-term deposit.  And, an early withdrawal charge may be levied if you withdraw money or fully cash in your bond in the early years after making your initial premium payment.

    A typical Executive Investment Bond applies 9% early exit charges in the first year of each investment, reducing by 1.8% each year to 1.8% in year five and 0% thereafter, (this charging period can last up to 10 years), therefore if you cash in early you could lose a considerable proportion of the money you’ve invested.

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    The EIB may be a flexible wrapper, but watch out for its high (and hidden) charges

    Old Mutual International offers financial salespeople the flexibility to create their own charging structure. 

    This means the fees and charges you pay for an Executive Investment Bond will depend entirely on how much money your 'adviser' wants to earn from your investment. 

    What you pay for your EIB, compared to what someone else pays for exactly the same product, can vary massively.

    Try searching for transparent charging information from OMI about what exactly you’ll pay, and you’ll come up short.  All you’ll find is wording in brochures such as:

    “the charges for setting up and maintaining your executive Bond will depend on the kind of assets you choose, your agreement with your financial adviser, and other variables.” 

    And:

    “your financial adviser will provide details and explanations, and the charges will also be listed for you in a charges’ schedule.”

    The good news is, we’ve managed to acquire a range of charging sheets, and we’ve reviewed them for you.  The bad news is, the total fees the average investor pays, and the way the fees are structured, means the EIB is an expensive and inflexible product.

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    Fees and charges for an Executive Investment Bond

    We’ve taken the following fees and charges data from charging structures issued by OMI to commission-based financial salespeople.  And as OMI states in all of its brochures, what you pay if you have one of these bonds will depend entirely on what your salesperson signs you up to. 

    You may be paying more or less than the following examples illustrate, and the only way to know exactly what you’re paying and what the impact of those fees is on your underlying investments, is to request a free, no obligation X-Ray Review™ of your portfolio. 

    The X-Ray Review™ process will determine the fee structure you’re committed to, and explain to you how exactly your charges are calculated…and more importantly, what that means in terms of the money you lose each quarter, each year and for the duration of your bond. 

    It’s quicker and easier than getting a degree in economics, which is about the only other way you’ll be able to fathom what you’re paying!

    Here are real examples of fees and charges executive professionals are paying for the EIB from Old Mutual International:

     

    5-year charging structure

    8-year charging structure

    10-year charging structure

    Establishment charge

    One off charge taken in year one only, quarterly in arrears

    One off charge taken in year one only, quarterly in arrears

    One off charge taken in year one only, quarterly in arrears

    Regular management charge

    1.80% per annum for 5 years reducing to 0.2% thereafter, based on premium

     

    (which equates to 9% of your money taken over 5 years, and then 0.2% thereafter for the lifetime of the bond) 

     

    Note, this charge is also levied against every top-up you make

    1.175% per annum for 8 years reducing to 0.2% thereafter, based on premium

    (which equates to 9.4% of your money taken over 8 years, and then 0.2% thereafter for the lifetime of the bond)

     

    Note, this charge is also levied against every top-up you make

    0.950% per annum for 10 years reducing to 0.2% thereafter, based on premium

    (which equates to 9.5% of your money taken in 10 years, and then 0.2% thereafter for the lifetime of the bond)

     

    Note, this charge is also levied against every top-up you make

    Administration charge (subject to annual review)

    £100 per quarter every quarter - for the lifetime of the bond

    £100 per quarter every quarter - for the lifetime of the bond

    £100 per quarter every quarter - for the lifetime of the bond

    Dealing charge (applied to every single sale or purchase of a fund or asset and placement and renewal of fixed deposits)

    £15 a time (subject to annual review)

    £15 a time (subject to annual review)

    £15 a time (subject to annual review)

    Currency dealing charge

    OMI reserves the right to charge this and review it annually

    OMI reserves the right to charge this and review it annually

    OMI reserves the right to charge this and review it annually

    Early withdrawal charge

    9.00% in the first quarter, reducing by 0.45% per quarter to 0% after 5 years

    9.40% in the first quarter, reducing by 0.29375% per quarter to 0% after 8 years.

    9.50% in the first quarter, reducing by 0.2375% per quarter to 0% after 10 years.

    Ongoing service charge (also known as trail commission)

    Decided by your adviser. This percentage charge is taken proportionately each calendar quarter in arrears.  Where it is levied it is typically between 0.5% and 1% per annum

    Decided by your adviser. This percentage charge is taken proportionately each calendar quarter in arrears.  Where it is levied it is typically between 0.5% and 1% per annum

    Decided by your adviser. This percentage charge is taken proportionately each calendar quarter in arrears.  Where it is levied it is typically between 0.5% and 1% per annum

    Other charges

    Investors are asked to sign to confirm agreement with this statement:

    I understand and accept that other charges may apply to my account. These charges may be made by third parties, for example an annual management charge on a selected fund or by Old Mutual International for additional services I request.

     

    Investors are asked to sign to confirm agreement with this statement:

    I understand and accept that other charges may apply to my account. These charges may be made by third parties, for example an annual management charge on a selected fund or by Old Mutual International for additional services I request.

     

    Investors are asked to sign to confirm agreement with this statement:

    I understand and accept that other charges may apply to my account. These charges may be made by third parties, for example an annual management charge on a selected fund or by Old Mutual International for additional services I request.

     

     If you purchase your Executive Investment Bond from a financial adviser who takes commission, you will be paying a very high price to invest your lump sum.  It’s entirely possible the fees you pay will outstrip any gains you make.  If you top up, change your underlying investments, or access your capital within the early years, the real cost of your bond will increase.

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    Free X-Ray Review™

    Discover the fees and charges you are exposed to

    To understand 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™.

    It details 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!

    Benefits of an Executive Investment Bond from Old Mutual International that you might have heard

    The key features of the EIB from OMI that financial salespeople typically sell include:

    "Access to world leading fund managers and major stock exchanges"
    "Value-linked asset trading"
    "Option to transfer existing assets – allowing all your assets to be easily accessible under one umbrella"
    "You can pay premiums in multiple currencies"
    "Withdraw money when you want"
    "Regular withdrawals available"
    "Bond held as an offshore asset so can grow virtually free of income, capital gains and corporation tax"
    "Ability to defer tax"
    "Option to place it in trust"

    What these key features fail to highlight are the high fees, the hidden charges and the fact you may have to pay tax, either on the growth of the investment or when money is paid out, depending on the tax rules in the country where you reside.  What’s more, the ability to defer tax may not even be a benefit to you, if you live in a low or no tax jurisdiction like Dubai for example.

    In other words, don’t be over-sold on the benefits, without weighing them against the main disadvantages of high cost and lack of flexibility in terms of accessing your capital in the early years.

    OMI's Executive Investment Bonds and QROPS or SIPPs

    In some cases, international executives are encouraged to use the EID within a QROPS or SIPP.

    It’s critical to note that there will be additional set-up charges and ongoing fees levied for the life of the policy - in addition to all of those discussed and detailed above.

    This would make the Executive Investment Bond even more expensive in real terms, thus highly likely to undermine the QROPS or SIPP.  For that reason, if you have an EIB wrapped within your pension, take advantage of our free X-Ray Review™ to uncover exactly how much you’re paying, and where you can make significant savings for the long-term benefit of your wealth.

    In conclusion, should you start, keep or encash an Old Mutual International Executive Investment Bond?

    Old Mutual International’s sales brochure markets the Executive Investment Bond to “The Discerning Investor”…

    However, as the dictionary definition of discerning is “having or showing good judgement” how can anyone exercise good judgment when they are neither explicitly told the fees and charges they will pay, nor the fact that other investors may be paying far less (or more!) for exactly the same product?

    As you are a discerning investor, given the uncovering of the foregoing otherwise hidden fee information, we understand that if you already have an EIB you will now want to know exactly how much you’ve paid and are paying on an ongoing basis.  Therefore, please take advantage of our free, no obligation X-Ray Review™ service today, so that you have all the transparent information you need to make a decision about the best way forwards for your money.

    If you’ve been recommended to invest a lump sum with OMI, and you’re now having second thoughts based on the above, we’d like to offer you the opportunity to have a free, no obligation conversation with one of our chartered financial planners, who will be able to give you the benefit of their expert opinion about the best way forwards for you.

    An essential disclaimer - and your next steps...

    IMPORTANT NOTE:

    This guide aims to provide general information on the financial product set out above.  It is not intended as personal advice but as a short and simplified summary of a complex subject, and so please do not make any decisions based solely on the contents of this guide in isolation.  

    Whether or not a particular investment is appropriate for you will depend on many factors, including your individual needs, circumstances, approach to risk, and capacity for loss.

    For a personalised analysis of your OMI Executive Investment Bond request a free portfolio X-Ray Review™ - it will highlight if you can cut costs, improve your returns and how to make the very most of your savings and investments.  It's free and no obligation.

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