Life companies will have to change their business models as sales of insurance bonds fall in favor of mutual funds say advisers, in new research findings from Fidelity FundsNetwork.
The survey, conducted with over 230 advisers across the UK has revealed that vast majority of advisers believe that sales of investment bonds are set to decline, with nearly a quarter predicting this decline will be significant. By contrast, an almost equal number of advisers foresee a rise in the sale of mutual funds, with just over a fifth stating that sales will increase dramatically.
Against the backdrop of 2007 where unit-linked insurance bonds sales reached GBP15.9 billion, such a considerable swing in the favor of mutual funds would present something of a cross roads for life companies who have built a large part of their business around investment bonds. In fact, nearly half of all advisers now believe that life companies will have to change their business models.
Based on the findings, the popularity of insurance bonds versus collectives looks set to become more balanced from perhaps where it has been in recent years – a market which was dominated by insurance bonds. It seems that advisers do appreciate that collectives are strongly back into the equation for tax wrapper selection.
Paul Kennedy, head of trusts and tax planning solutions at Fidelity FundsNetwork, said: The findings from our research demonstrate clearly that advisers understand the importance that tax wrapper allocation can have on the investor’s return and that both insurance bonds and collectives must be considered.
It cannot be said that the recent changes to capital gains tax have made vast differences to the way that insurance bonds and collectives are taxed but what is indisputable is that the recent changes appear to have acted as a catalyst.