Friends Provident International Zenith review

Have you got a Zenith from FPI?

FPI’s Zenith is a single premium, unit-linked international whole of life assurance policy, also referred to as an international investment bond or wrapper. It’s no longer marketed by Friends Provident International, but plenty of expats still hold one in their portfolio.

So, let’s take a closer look at this product, and see whether it’s worth the money many expats often pay for it.

When an expat signed up for a Zenith, it would automatically have been set up as a cluster of 10 policies. Individual investors could choose to have up to a maximum of 100 identical policies at the outset instead, but once the number of policies was decided upon, it couldn’t be altered at a later date.

The idea of segmenting an investment like this is to give flexibility for investors when they want to take money out of their Zenith policy in the future. The idea being you can encash a single policy, leaving all others untouched.

As with the Reserve Investment Bond and Summit Bond from Friends Provident International, the life assurance element of the Zenith only pays 101% of the surrender value of the plan upon the death of the last life assured. I.e., Zenith is not intended for use as a proper protection product, and shouldn’t be considered as such.

The Zenith used to be recommended to expats by international financial salespeople, who pushed its potential tax benefits, as well as its supposed flexibility.

Please note, as we will explain below, the tax benefits the Zenith can offer are not suitable for everyone they have been recommended to. What’s more, any of the features and benefits the Zenith may offer can be eroded by the high fees and charges applicable to have this product, including penalties for accessing funds in the first five years.

Therefore, if you have a Zenith, 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 appraisal with a chartered financial planner.

Your appraisal includes a complete review of the charging structure of your Zenith, whether the tax benefits available apply in your situation, as well as a review of the effectiveness of your entire portfolio.

Who is Friends Provident International?

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 and protection products - mainly to expats in Asia and the UAE. It has offices in Dubai, Hong Kong, Singapore and the Isle of Man, over 500 staff worldwide, and its products are popular with international financial 'advisers' who sell to expatriates.

More about the FPI Zenith

As a single premium product, Zenith was often recommended to expats with a lump sum to invest. It was sold on its potential flexibility and tax benefits.

The minimum investment was US$15,000 / £10,000 (or other currency equivalents). The minimum additional premiums are US$10,000 / £6,667 (or other currency equivalents). All money was, and still is, invested in a range of mirror funds.

Mirror funds are investment funds taken out with one product provider that have the brand of that provider on them, in this case FPI, but the funds are actually managed by other fund managers. Mirror funds’ investments mirror the actions of their own core funds, but under a different (generally higher) charging structure.

Each of the FPI mirror funds are divided into units, and each premium paid by the investor. An investor purchases units in the mirror funds of their choice, on the next dealing day following receipt of cleared payment.

FPI describe their mirror funds like this:

“For each fund that is managed by an external fund manager, we set up our own mirror fund that invests in the underlying fund. These funds are only available through our range of savings and investment plans. As the name implies, mirror funds ‘mirror’ the performance of the underlying fund that they invest in. The unit price of the mirror fund will be different from the underlying fund. This is due to the fact that the mirror fund is launched on a different date from the underlying fund and often at a different starting price. Also, there is a small cash holding to help with fund flows and possible differences in fund charges.”

The main problem with mirror funds is they are expensive…as stated, generally more expensive than the funds they mirror!

Another big problem with the Zenith is that for the first 5 years there is a penalty if you withdraw more than 10% of your initial deposit each year cumulatively. The penalty is 5% in the first year reducing by 1% each year for 5 years.

And then there are the charges…

What are the Zenith fees and charges?

As well as paying a penalty if they access their money in the first five years, investors in the Zenith also have to pay:

An establishment charge for every premium deposited. This is taken every quarter for 5 years at a rate of 0.4% – which adds up to a total loss of 8% of every premium made.

Friends Provident International takes an administration charge too. This 1.2% is taken annually based on the value of each mirror fund. The performance of the mirror funds is therefore 1.2% less per annum than the underlying funds being mirrored.

The funds themselves also have internal charges like annual management charges.

Therefore, investing through a Zenith from FPI is not a cost-effective option. What’s more, because you’re limited to investing in mirror funds, you have no ability to access low cost ETFs or other alternative investment products.

If an investor wants to surrender the whole of their Zenith at any time, they can do so for its current bid value, minus any early cash-in charges due, and minus any outstanding establishment charges.

Features and benefits of a Zenith Bond

Keep in mind these features and benefits can be eclipsed by the charges discussed above.

FPI says you can access 10% (cumulative) of the initial premium, penalty free, during the first 5 years. We say, no one should have to pay a penalty for accessing their money…ever!

After 5 years regular withdrawals are allowed, penalty free on a, monthly, quarterly, every four months, every six months or annual basis.

The minimum withdrawals are:

Currency	Amount
USD	750
GBP	500
EUR	750
HKD	6,000

However, the value of a Zenith must not fall below the following minimums as a result of any withdrawal:

Currency	Amount
USD	7,500
GBP	5,000
EUR	7,500
HKD	60,000

Note: any withdrawals taken do not affect the amount of the establishment charge taken. The establishment charge is based on the initial premium, and any additional premiums, and does not reduce even if you withdraw funds. This money is clawed back by FPI to pay the salespersons’s commission for selling the Zenith, which they pay to the salesperson on the day the policy is established.

On a slightly more positive note, investors can currently switch between funds fee free, but FPI reserves the right to alter this at any time.

Other features include being able to invest in a (limited) choice of currencies, 101% death benefit, and the potential for tax-free investing.

One of the core features of a wrapper, like the Zenith is that once it’s set up, there’s no extra paperwork (other than dealing instructions) required to change investments or add new ones. This is commonly sold as a benefit by advisers.

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.

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:

It brings the investment under the protection of the Isle of Man government. The advantage of this is that if Friends Provident International Ltd were unable to meet their obligations to you, then the government should guarantee 90% of the value of your investment at that time. Whether it really would be able to pay out is another matter.
It can provide tax advantages in some jurisdictions…however, this benefit is massively over-sold, especially to those in low or no tax jurisdictions like the UAE, where being able to defer tax with a bond is not a benefit needed.

Does the Zenith have any tax advantages?

In the UK and some European countries, investments in offshore bonds give a gross roll up. This means that apart from withholding tax deducted at source, they are not taxed on a yearly basis - but only when a taxable event takes place. A taxable event could be redemption or the death of the bondholder.

The switching of assets within a bond is not a tax event and therefore is a totally tax neutral activity.

Gains from life wrappers like Zenith are not subject to capital gains tax - but they are taxed under special income tax rules in the UK.

The Zenith is not tax efficient for everyone, especially if you’re in the UAE, and the full extent and impact of its fees are not always made apparent during the sales process.

In conclusion

Should you keep or encash your FPI Zenith policy?

If your financial adviser worked on a transparent up-front fee only basis, taking no commission from their recommendations, then the FPI Zenith Bond could be worth keeping.

However, because it only allows you to invest in over-priced mirror funds, restricts how much you can withdraw, potentially penalises you for withdrawals and levies hefty charges, it’s fair to say, in the majority of cases, the FPI Zenith ends up being an expensive option.

Furthermore, the potential tax benefits are often not only outweighed by charges, but not even applicable in many cases.

If you have a Zenith, 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 getting against its high charges - which all too often are not explained fully.

The FPI Zenith doesn’t offer you access to anything but expensive mirror funds, and for this reason alone we don’t like it. But, if you want to know more, discuss your options, position or portfolio, contact us for a no obligation consultation with a chartered financial planner, or request for an X-Ray Review™ today, and we’ll do everything we can to help 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 Friends Provident International Zenith Bond request a 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.

Friends Provident International Zenith

A closer look at the popular expat product.