FRIENDS PROVIDENT - Reserve - Wealth Management Account : Affinity Consulting Group

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FRIENDS PROVIDENT - Reserve - Wealth Management Account
(Personal Portfolio Bond)

Reserve is a single premium international account with a built-in whole of life insurance feature.

It allows for the consolidation of a number of independent and distinct investment vehicles into one single account for easier and more effective management, as well as greater cost efficiencies since the sales charges for most funds are rebated when accessed through Reserve. In later years if the investments are changed, then more rebates would be applied, further enhancing the benefits of using the bond. With only two or three changes of investment, the rebates can more than cover the charges and there are more advantages:

In these days of ever tightening regulations to prevent money laundering, the paperwork involved in offshore investments is increasing. The Reserve has the advantage that once it is set up there is no extra paperwork (other than dealing instructions) required to change investments or add new ones. Investing in individual funds can be very time consuming and paper intensive.
Another advantage of the Reserve is that you will receive a quarterly statement summarising all the constituent investments on one statement. This also reduces time monitoring and managing your investments.
The other more macabre benefit is that if you should die, it makes the administration of your estate much simpler for your heirs if all the main investments are under a single bond.
Reserve provides important advantages in terms of accessibility to money and tax planning benefits that can be adapted to meet various needs.

The life insurance is not intended to provide serious protection, as it only pays 1% of the value of the investments in the Reserve account when you die. It is added for 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 will guarantee 90% of the value of your investment at that time.
it provides tax advantages in many jurisdictions and the UK example is given below.

Tax Advantages:

Their main tax advantage is that in the UK and most of Europe, investments in offshore bonds give a gross rollup. This means that apart from a small amount of withholding tax deducted at source, they are not taxed on a yearly basis but only when a taxable event takes place, like redemption or the death of a bondholder.

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

Another advantage specifically for the UK investor is that they are allowed to withdraw up to 5% per year of the capital put into the bond. This 5% withdrawal is not included in the tax calculations for that individual. This can continue for 20 years or until the full capital deposited is withdrawn. In addition, if the full 5% is not used in any year, it can be carried forward to the following years. So if the investor withdraws nothing for 10 years he can take a one-off 50% (of capital) withdrawal followed by 5% a year for the next 10 years, or his withdrawal allowance could be increased to 10% for 10 years or anything in between. Gains from life wrappers are not subject to capital gains tax but are taxed under special income tax rules in the UK.

A portfolio bond or ‘life wrapper’ combines the fiscal advantages associated with breaking legal and beneficial ownership of assets (as the life company holds the assets), with the control advantages of direct ownership of the life wrapper by the client. Almost any type of asset can be held in an offshore bond, including equities, funds, cash, and bonds, although there may be restrictions in some countries (such as UK & Spain) in order to make it tax qualifying.

A portfolio bond can help: