Friends Provident International Zenith

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.

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.

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:

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

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.

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.