Summit is a unit-linked international investment bond. It pays a loyalty bonus on the 3rd anniversary of your
Summit also pays out 101% of the cash-in value of the plan on the death of the final life assured.
Summit is a popular product with some financial salespeople, who often recommend it to expats who have a lump sum they want to invest.
According to Friends Provident International’s description of their Summit Bond:
“We recognise the importance of flexibility, so have developed a range of tax-efficient funds, that you have the freedom to switch in and out of as often as you wish. As long as your plan meets at least the minimum total plan value, you can take regular withdrawals or cash in a certain amount of your units, at any time.”
However, we say the Summit Bond is often far from an affordable solution, and for this reason, many expats who have one are dissatisfied with their returns. Similarly to the Reserve from FPI, Summit is also often misrepresented by some financial salespeople for their own gain.
If you have a Summit Bond, sometimes referred to as an offshore investment bond, personal portfolio bond or wrapper, and would like to make sure it really is the most appropriate solution for you, we offer a free, no obligation appraisal with a chartered financial planner.
Your appraisal includes a complete review of the charging structure of your Summit, whether any tax benefits available apply in your situation, as well as a review of the effectiveness of your entire portfolio including the underlying investments within your bond.
Friends Provident International, or FPI, is part of the Aviva group. In July 2017 Aviva agreed to sell Friends Provident International to RL360° parent International Financial Group Ltd (although, FPI’s website has yet to reflect that change, still stating it is owned by Aviva).
FPI is based in the Isle of Man, a jurisdiction with a good reputation for political and economic stability, known for its potential tax advantages and its investor protection scheme.
FPI provides savings, investment
Summit is a single premium life assurance and investment plan. In some ways, it’s a mini-version of FPI’s Reserve Investment Bond - but it also has distinctive features of its own, including restricting you in terms of the underlying investment funds you can access.
You’re basically restricted to a limited range of expensive mirror funds. You categorically cannot access
On the plus side, on the third anniversary of your Summit plan, you get a loyalty
You need to invest a minimum of US$37,500 / £25,000 (or alternative currency equivalents), and FPI advises you that you should see this as a medium to long-term investment, and not expect to need access to your money for at least the first 5 years.
These charges can be broken down into their constituent parts:
Establishment charges
Administration charges
Mirror fund fees
Early surrender fees
Optional advisory fee
Let’s take a closer look.
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
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
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
Keep in mind these features and benefits can be eclipsed by the charges discussed above.
FPI says you can access up to 90% of your premiums from the outset. We say, actually, you may not be able to, as you have to keep an account minimum. And, always keep in mind that the establishment charges will be based on the premium you deposit. So, if you withdraw funds, your charges will not reduce. They will remain based on the original premium.
FPI says there is no initial charge, 100% of your premium is invested – but of course, thereafter it is exposed to the charges as described above.
You can currently switch between funds
Other features include being able to invest in a choice of currencies, 101% death benefit,
With regards to the bonus, if you’ve withdrawn funds, this will reduce the value of your plan, and as your bonus is calculated based on the value of your plan, your bonus will be less.
|
Number of complete years since the commencement date of your Summit Bond |
Loyalty bonus as % of value |
|
3 – 5 |
0.5 |
|
6 – 10 |
0.75 |
|
11+ |
1 |
One of the core features of a wrapper, like the Summit Bond, is that once it is set up, there is no extra paperwork (other than dealing instructions) required to change investments or add new ones. This is commonly sold as a benefit by financial salespeople.
Another perceived benefit is that it can be easier for your personal representatives to manage your estate when you die if all your main investments are under a single bond.
The integral life insurance element is not designed to provide real protection. All FPI promises is that they will pay out 1% more than what you deposited - or the market value of the investments upon death - whichever is highest.
So, if the life insurance element is virtually worthless, why is it added? It’s added for these 2 reasons:
In the UK and some other European countries, investments in offshore bonds give a gross
The switching of assets within a bond is not a tax event and therefore is a tax neutral activity.
Gains from life wrappers like the Summit are not subject to capital gains tax - but they are taxed under special income tax rules in the UK.
The Summit Bond
If your financial adviser works on a transparent up-front
However, because it only allows you to invest in mirror funds which are expensive compared with many other funds, it’s fair to say, in the majority of cases, the FPI Summit Bond ends up being an expensive option when you compare it with a pure platform custodian plan, or even its sister product, the Reserve Bond from FPI.
Furthermore, the potential tax benefits are often not only outweighed by
If you have or are considering purchasing a Friends Provident International Summit Bond, make sure you understand your personal tax position today and what it could be in the future, and weigh up any benefits you believe you’re
The FPI Summit doesn’t offer you access to anything but mirror funds, and for this reason alone we wouldn’t recommend you consider it. But. if you want to know more, discuss your options, position or portfolio, contact us for a
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 Friends Provident International Summit 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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