FPI Reserve Bond Review

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FPI Reserve BondFPI Reserve Bond Review:-
Friends Provident International – FPI – has over 35 years of international experience and is part of the Aviva group which has a heritage that dates back over 300 years.

FPI provide savings, investment and protection products to customers in Asia and the UAE. With offices in Dubai, Hong Kong, Singapore and the Isle of Man, FPI have more than 500 staff worldwide .

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    FPI Reserve Bond Summary

    The FPI Reserve Bond Review

    This could have so much going for it but it unfortunately falls short due to the large commissions paid and hence charges taken over long periods – as much as 10 years!

    There are two charging structures. The better one being an upfront initial charge period with NO lock in – NO surrender penalty; however, it fails to get extra stars as the up front charge of 7% is extremely large (on top of other fees). There is an ability to refund commission thus reducing this optional initial charge, and if we were to only examine this reduced commission option then we may be inclined to consider giving it more stars. Our concern is that whilst the better version may be illustrated or disclosed by companies, that the alternative, and in our opinion, far poorer charged and inaccessible version will be sold by salesman.

    If the adviser assisting you is prepared to work on a fee basis, thus ensuring commission is not a factor, then one version of the FPI Reserve Bond could be considered an investment proposition for those requiring a bond wrapper (not a pension wrapper).

    For

    • Widely available and sold
    • Offers some tax protection in certain jurisdictions
    • With commission rebated it could be considered for a minimum of 5 years investment and no withdrawals required
    • It offers time apportionment for those returning to UK

    Against

    • No flexibility of full withdrawal or full access in the early years without penalty
    • Many countries do not recognise any tax concessions
    • With commission this is an extremely expensive option, and even part withdrawals can increase real costs
    • WARNING: Costs are largely dictated by the charging structure chosen by an adviser. Some advisers recommend a 1% regime and then, after the client has signed, change the charging structure to a more expensive regime to earn more commission

    Plan factsVerdictFeedbackPurchase
    Policy Currency: The FPI Reserve Bond may be denominated in US dollar, GB pound, Hong Kong dollar, Japanese yen, Swedish krona (SEK) or Euro. Benefits will be paid in the plan currency.
    Why choose the FPI Reserve Bond: Leading Fund Houses offer a wide choice of investment funds and external funds may be selected although they may be expensive. You choose from risk-rated funds covering all the major world markets and investment classes. The funds section contains performance statistics which are updated monthly, fund prices which are updated daily and Fund Fact Sheets on each fund.

    Expat Money Expert Verdict on Funds 

    FPI Reserve Bond promotion: What does FPI write about their own FPI Reserve Bond? FPI Reserve Bond is an international lump-sum investment product that offers potential for capital growth over the medium to long term (five years +).It gives you access to the world’s investment markets through unit trusts, investment trusts and open-ended investment companies. The personalised assets version could also include international equities, fixed interest securities, structured notes and deposits. There is also an option to use FPI’s own funds however, these are “Mirror funds” which are a copy of the underlying fund and therefore may give different returns than the underlying fund it is mirrored from.
    Eligibility: FPI Reserve Bond is a whole of life assurance contract issued by Friends Provident International. It is available to most international investors outside of main regulated territories such as the UK, the U.S.A. and Australia.
    Minimums: Your lump-sum payment can be made in any freely convertible currency and has a minimum of £50,000 You can make additional lump-sum payments into your policy at any time. The minimum additional payment is GBP 5,000 or GBP 10,000 for the annual policy charge option. You can pay additional amounts via a number of different methods including credit card. There is no additional cost if you do choose to pay by card. You will be able to select from more than 150 funds from some of the world’s leading fund managers, and you won’t pay any initial fund charges.
    Charges: There is a choice between an “establishment charge structure” and an “annual policy charge structure”.

    Establishment Charge Structure:
    If the establishment charge structure is chosen, the establishment charge will apply. This can be 1% per annum for 10 years which means that on a £500,000 investment the charge will be £50,000 even if the fund decreases. There will be surrender costs of 10% reducing by 1% per year if the policy is encashed before the end of the 10 year establishment period.

    Annual Policy Charge Structure:
    If the annual policy charge structure is chosen, then the initial charge or an annual policy charge will apply. The options are detailed below:
    Option 1: You can opt to pay an upfront 7% initial charge (£35,000 on a £500,000 investment)
    Option 2: You can opt to spread the initial charge over 5 years at 1.506% per year which equates to 7.53% (£500,000 x 1.506% x 5 years = 7.53% = £37,650.00). Both options also have 0.25% per annum, which means £1,250.00 for the life of the policy, although the actual amount is dependent on the initial investment or the value of the policy, which ever is the greater. Therefore over a 10 year period assuming no growth, the cost may be between £47,550 to £50,150.

    Other Charges:
    There is also an administration charge of £98.00 per year for the life of the policy and a dealing charge of £29.00 for each purchase and sale of a fund. If you pay an additional amount into your FPI Reserve bond in a different currency, then there is a charge of £100.00 per transaction. Each change made within the policy once it has been established will incur a charge of £144.00.

    If the account is overdrawn, then FPI will make an interest charge of 2% above the three-month London Interbank Rate (LIBOR). There can be stockbrokers fees when you buy and sell certain assets, you will not see them listed on the valuation however. The stockbroker’s fees are included in the total value shown for each sale or purchase and will be reflected in the trade contract note.

    There will be external fund fees, these depend on the actual fund chosen and can be as high as 2% per annum. Additionally there may be an adviser charge to manage the portfolio, this typically can be between 1 to 1.5% per annum depending on the chosen advisers charging structure and service provided. If the FPI Reserve Bond is used within a QROPS or SIPP then there will be additional set up and ongoing fees for the life of the policy.

    Pensions (QROPS and SIPP) – The FPI Reserve Bond should not be used within a QROPS, as when you start to drawdown your pension then the charges on the FPI Reserve Bond may remain based on the original investment, which means that charges will rise pro rata as the capital decreases and therefore will erode the remaining capital at an exponential rate. EME does not recommend this product for QROPS or SIPP investing.

    Full details of charges can be found FPI Charging Structures.

    Documents

    FPI Reserve Bond Product Guide
    FPI Reserve Bond Brochure
    FPI Reserve Bond Charging Structure
     

    Are charges explicit: By explicit, it means that it is clear to see not only the charges for taking out the plan but also the cost of funds annually, any upfront fund costs, penalties on access, etc. Yes, in the main the FPI Reserve Bond charges are clearly shown and any professional should be able to interpret them. We have had feedback from clients though that they find it extremely difficult to interpret charges such as how any early access penalties would be calculated.

    Expat Money Expert Verdict on Charges – Establishment Charge Structure 

    Expat Money Expert Verdict on Charges – Annual Policy Charge Structure 

    Surrender of the FPI Reserve Bond: If you cash-in your policy during an initial charge period,an early cash-in charge will apply. The amount of this charge will be equal to the outstanding initial charges. This charge does not apply if the upfront initial charge period is chosen. Details on how it is treated is available in the relevant brochure. As an example, if the policy was encashed after two years, then there would be an 8% charge which equals to a £40,000 penalty plus any outstanding administration and dealing charges.It is important to be aware that the FPI Reserve Bond is a long term savings plan.

    NOTE: However, if you select the upfront initial charge period then there is No lock in – no surrender penalty and in this instance the bond would be given an extra star and the ratings below would be higher.

    Expat Money Expert Verdict on Accessibility – Establishment Charge Structure 

    Expat Money Expert Verdict on Accessibility – Annual Policy Charge Structure 

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    Expat Money Expert Assessment of the FPI Reserve Bond

    Two versions – one a predominantly commission-based adviser’s product with limited use or appeal. The other could be used with no salesman commission.

    We tend to write this about a lot of the plans, but it is true! The FPI Reserve Bond is an expensive option compared with a pure platform custodian plan and supposed tax benefits can be outweighed by charges. When considering a FPI Reserve Bond then ensure you fully understand the local taxation position and weigh any benefits against its lack of flexibility, access and charges which are often not explained, and can last as long as 10 years. It is vital that a commission rebate is taken to offset high ongoing charges. It does not offer a full range of discounted funds, direct equities or trackers to invest in unless you seek outside funds or a stockbroker.

    However, if you select the upfront initial charge period then there is No lock in – no surrender penalty and in this instance the bond would be given an extra star and the ratings below would be higher. So, if we were to only examine the best version of this product then we may be inclined to consider giving it more stars. Our concern is that whilst the better version may be marketed or disclosed by companies, that the alternative, and in our opinion, poorer charged and accessible version will be sold by salesman. We think there are other better options reviewed within this website, but we absolutely accept that this might be the right plan for some people.

    Commission (that charge which is paid by a bond provider to a salesman and is often not fully disclosed) plays a big part in the charges that a client will suffer.

    If the adviser assisting you is prepared to work on a fee basis, thus ensuring commission is not a factor, then one version of the FPI Reserve Bond could be considered as a cost effective investment proposition for those requiring a bond wrapper (not a pension wrapper).

    The standard FPI Reserve Bond funds have high ongoing fees when directly compared to platform or direct offerings from fund houses via the UK or the USA. Some versions of the FPI Reserve Bond can have high charges on early access. An attempt to take proceeds early in the plans life, will result in access penalties or higher charges on the remaining invested funds, or both.

    NOTE: The FPI Reserve Bond provides the option of lump sum commission to its distributors (in the industry this is called indemnified or up-front commission) and it has a successful network of distributing agents throughout the world excluding the main regulated territories. Not all distributing agents have regulation or financial qualifications and may not be aware of the other options available.

    Pensions (QROPS and SIPP) – The FPI Reserve Bond should not be used within a QROPS, as when you start to drawdown your pension then the charges on the FPI Reserve Bond may remain based on the original investment, which means that charges will rise pro rata as the capital decreases and therefore will erode the remaining capital at an exponential rate. EME does not recommend this product for QROPS or SIPP investing.

    WARNING: Costs and information is correct as of July 2016. Please refer to a brochure from the company for current up to date information and any changes on costs or information. You should not buy based purely on information contained within this article and EME do not accept liability for purchases. If you have any doubts then please speak with your financial adviser or a representative of the company for further advice.

    If the provider improves or amends its terms then EME would like to hear from them to amend the review page accordingly, and providers are encouraged to comment on errors or omissions to ensure that readers have the latest and correct information.

    Plan factsVerdictFeedbackPurchase

    Comments 9

    1. This is a horrible product. A fast selling salesman, hiding as an “investment contultant” in Dubai sold me on this terrible product, and FORGOT to tell me that I’ll be paying the 1% yearly fee on the TOTAL of my policy original value. Even when I withdrew half the money, they still charged me based on the original value. It’s a terrible product. STAY AWAY FROM THIS PRODUCT.
      I cannot imagine a scenario where this makes any sense to anyone to invest in. Theare a million other and all of them better choices out there.
      Furthermore, when you’re trying to make any transaction, they drag their feet for weeks. It’s the worst dealing with them.

    2. In response to @Amar
      March 21, 2019 at 7:33 am

      EME does not fully agree with either of your comments, and we have reposted our original replies (below) that were no longer showing. You are welcome to further expand on your reasoning.

    3. First posted in 2016 – updated for @AMAR
      @Mr Robinson

      The underlying performance of a product are dictated by 3 basic factors – the service and review of the portfolio, the underlying fund performance of the portfolio and the charges.
      To focus on one to the exclusion of others leads to a fundamental problem.

      1. No service or review means you have no idea where you are linked to objectives, or indeed if risk remains appropriate to returns.

      2. Underlying fund performance dictates the current position.

      3. Charges impact on (2) hugely and are equally as important. A portfolio targeted at returning 8% in the last year, may be reduced by charges to 5% thus meaning it is not meeting objectives, and may be too risky for a 5% return fund.

    4. First posted in 2016 – re-posted in response to @AMAR
      @John Reynolds

      The advisers can justify getting being paid higher commission by spreading the cost of that commission over a longer period. They can get paid 10% commission for locking you in for 10 years. They will get paid less for locking you in 5 years.
      Commission is not “Free” – it is a charge that applies for years applied each year, and if you try to take your product early then you have to pay the commission through a surrender penalty.

      Mr Reynolds was asking, if he was retiring, why was he not recommended by the adviser the more suitable product. He was not asking how he could access the money without “redemption” – we would call it a surrender charge linked to commission.

    5. John Reynolds – Don’t take more than 90% of your pension in the next five years and there’s no redemption penalty.
      Mr Robinson – Your “portfolio has fallen in value”, nothing to do with the FPI Reserve. It’s the funds you’re invested in.

    6. @Gary_Mainhood

      Really sorry to hear this, but not sure anyone can help with a Ponzi scheme. Although clearly a tragic story, maybe a bit harsh to blame FPI?!? Surely the bond is not the fault here, but the adviser. Whether FPI should have allowed that is a mute point, but the problem is that the world is full of unlicensed advisers. Best to use a regulated one from a proper territory, or indeed use a site like this to make your deal and only use regulated funds. Not sure this was FPI fault as they are not responsible for regulation.

    7. Hi, I was put into this bond in 2011 FPI as lost all my life’s savings £310K they allowed an IFA with no license no work permit and no indemnity insurance invest my money into Ponzi schemes they sold on their platform and now they are telling me it’s my own fault for investing in the scam funds they were selling. Is there anybody out there that can help me try and get my money back from these thiefs?

    8. I purchased one of these bonds after receiving a call from a local adviser when I was based in Dubai, I met the adviser for a coffee and he gave me a brochure and said that it was a flexible bond that is tax deficient. After two years of the investment I have noticed that my portfolio has fallen in value, after reading the above review, I now realise there are more charges to the plan than the adviser told me, I am now seeking another adviser to help me recover the shortfall.

    9. I was sold the FPI Reserve Bond with a 10 year establishment charge, but now need to access my pension at the age of 60 which means I am 5 years in and now am faced with surrender charges. Only now I find out there was a five year charging option whereby I would not have suffered the extra charges, why is that advisers do not sell policies that fit in with a customers needs?

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