Independent review - Quilter International's Executive Redemption Bond

Have you got an Quilter International Executive Redemption Bond?

Quilter International’s (formerly known as Old Mutual International) range of executive bonds are marketed to non-UK tax resident investors who have no immediate plans to move to the UK, and to international or corporate investors.

The bonds are often sold on the basis of their open-architecture, which means investors have wide investment choice. Another often talked about benefit is the fact these types of bond are a portfolio wrapper, into which you can transfer or consolidate existing investments.

However, it is also easily mis-used and is normally available at a much lower cost than you may have been made aware at the point of sale.

It’s important to note there are two different types of executive bonds from Quilter International for non-UK residents, namely the Executive Investment Bond and the Executive Redemption Bond.

This article looks in depth at the Executive Redemption Bond (ERB), which is a unit-linked capital redemption contract with a fixed 99-year term. The investment continues to the end of this 99-year term unless it is fully cashed in beforehand.

Jargon busting

A capital redemption contract is an investment contract between the insurance company, in this case Quilter International, and you, the customer. It’s distinguishable from other products offered by insurance companies like QI by the fact that nobody is insured through the contract.

A capital redemption contract is always fixed-term, because there is no insurance event (such as death) that would otherwise terminate the contract.

The Executive Redemption Bond is also known as a portfolio bond, wrapper, offshore investment bond or packaged retail and insurance-based investment product (PRIIP).

It’s an investment solution designed for those planning to invest for at least the medium-term, and ideally the long-term. It can be held individually, as a joint account, trust account, or corporate account, and is also freely assignable.

Let’s take a closer look at Quilter International, and its Executive Redemption Bond.

Who is Quilter International?

In 2020 Old Mutual International confirmed the rebrand of their cross-border wealth management solutions' business to Quilter International. The rebrand from Old Mutual International follows the renaming of other companies within the Quilter Group.

With offices in the Isle of Man, Ireland and South Africa, Quilter International is a cross-border provider of wealth management and investment solutions.

Its reach extends to delivering financial planning products to expatriates, international executive professionals, and local investors around the world - including Africa, Asia, Europe, Latin America, Middle East and the United Kingdom.

Quilter International (formerly known as OMI) is a preferred solutions provider for many international financial salespeople, because QI generally pays commission for the sale of its products to them (as we discuss in depth below). Furthermore, it allows these salespeople a fairly free rein to tailor-make their own charging structures. To quote Quilter International's introduction brochure, "Every Quilter International product has a slightly different charging structure depending on its design. You and your client have the flexibility to agree the type of payment structure".

A summary of the Quilter International Executive Redemption Bond

The minimum initial investment in an Executive Redemption Bond from Quilter International (formerly known as Old Mutual International) is £50,000, and the minimum additional payment is £2,500. Note: you can choose to invest in different currencies including EUR, GBP and US dollars.

Quilter International says the ERB is ideal for those looking to invest a lump sum for at least the medium term, and ideally the long-term, with a suggestion of investing for at least 10 years, because otherwise early access penalties will undermine the value of your investment.

As mentioned above, the ERB is open architecture, which means the range of investments you can access via your bond is fairly extensive and includes:

All kinds of offshore or mutual funds;
Stocks and shares;
Fixed-interest securities;
Multi-currency deposits;
Hedge funds;
Structured notes;
Exchange-traded funds; and
Other alternative investments.

You can also transfer in and consolidate other existing investment assets, and buy and sell assets or funds when it suits you.

The bond is sold as a flexible wrapper, with advantages such as the fact that once it is set up, there is no extra paperwork (other than dealing instructions) required to change investments or add new ones to your ERB.

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.

As stated, the term of the Executive Redemption Bond is 99 years from the contract start date, unless you encash it earlier. After 99 years, on the maturity date, assuming the bond hasn’t been encashed, the maturity benefit becomes payable. This is either twice the initial premium, (adjusted for any previous withdrawals), or the encashment value on the maturity date, whichever is higher.

The bond can be terminated at any time by you, the investor, or automatically on the maturity date, or Quilter International can automatically surrender your policy if at any time your fund’s value falls below QI’s minimum for maintaining the particular portfolio fund.

Quilter International bases its risk projections for this project on an investor keeping it for at least 10 years, but the actual risk can vary significantly if you cash in at an early stage, and you may get back less than you invested because you may have to pay massive extra costs to cash in early.

What’s more, you may have chosen to invest in assets that cannot be sold easily, or you may have to sell at a price that negatively impacts on how much you get back.

So, whilst Quilter International is quick to promote the fact you can access your capital at any time, don’t forget there could be charges levied against a withdrawal, depending on the asset from which you’re withdrawing, and when you withdraw your money post-start date.

Fees and charges for an Executive Redemption Bond

Quilter International offers financial salespeople the flexibility to create their own charging structure. This means the fees and charges you pay for an Executive Redemption Bond will depend entirely on how much money your 'adviser' wants to earn from your investment.

What you pay for your ERB, compared to what someone else pays for exactly the same product, can vary massively. Helpfully, in their Key Information Document for financial advisers, Quilter International details the full range of costs that can be levied depending on the fee structure your salesperson signs you up to.

Here’s what they write: -

Assuming an investment of €10,000	If you cash in after 1 year	If you cash in after 5 years	If you cash in after 10 years
Total costs	Between €208 and €2,882	Between €1,053 and €6,024	From €2,346 to €9,995

And here is breakdown of the range of costs you can encounter annually, over a 10-year holding period – it does not include any ongoing charges your salesperson levies, or investment dealing and custody charges which can apply to the purchase and sale of any underlying investment options:

One off costs	Entry	Up to 0.8%	The impact of the costs you pay when starting your investment
	Exit	Up to 0.5%	The impact of the costs of exiting your investment
Ongoing costs	Transaction costs	Up to 3%	The impact of the costs of buying and selling assets
	Other	Up to 12.6%	The impact of the costs each year for managing your product
Incidental costs	Performance fees	Up to 4.3%	The impact of the performance fee. This is taken from your investment if the underlying investment option(s) outperform its benchmark(s)
	Carried interests	Up to 1%	The impact of carried interest taken when your investment has performed better than the stated performance criteria

The actual costs you pay for your Executive Redemption Bond may differ from this generic outline, depending on the specific product charges applied, any ongoing charges your salesperson levies, and the underlying investment options selected.

Suffice to say, the ERB is potentially ruinously expensive, without you even realising it when you sign up for one.

Try searching for transparent charging information from Quilter International about what exactly you’ll pay, and you’ll come up short. But, the good news is, to add to the above, we’ve managed to acquire a range of charging sheets, and review them for you.

Remember however, you may be paying more or less than the following examples illustrate, and the only way to know exactly what you’re paying and what the impact of those fees is on your underlying investments, is to request an X-Ray Review™ of your portfolio.

The X-Ray Review™ process will determine the fee structure you’re committed to, and explain to you how exactly your charges are calculated…and more importantly, what that means in terms of the money you lose each quarter, each year and for the duration of your bond.

Here are real examples of fees and charges executive professionals are paying for the ERB from Quilter International (formerly known as Old Mutual International):

	5-year charging structure	8-year charging structure	10-year charging structure
Establishment charge	One off charge taken in year one only, quarterly in arrears For Example, an 8 year 1% per annum establishment fee is 8% initial fees taken up front	One off charge taken in year one only, quarterly in arrears For Example, an 8 year 1% per annum establishment fee is 8% initial fees taken up front	One off charge taken in year one only, quarterly in arrears For Example, an 8 year 1% per annum establishment fee is 8% initial fees taken up front
Regular management charge	1.80% per annum for 5 years reducing to 0.2% thereafter, based on premium (which equates to 9% of your money taken over 5 years, and then 0.2% thereafter for the lifetime of the bond) Note, this charge is also levied against every top-up you make	1.175% per annum for 8 years reducing to 0.2% thereafter, based on premium (which equates to 9.4% of your money taken over 8 years, and then 0.2% thereafter for the lifetime of the bond) Note, this charge is also levied against every top-up you make	0.950% per annum for 10 years reducing to 0.2% thereafter, based on premium (which equates to 9.5% of your money taken in 10 years, and then 0.2% thereafter for the lifetime of the bond) Note, this charge is also levied against every top-up you make
Administration charge (subject to annual review)	£110.50 per quarter every quarter - for the lifetime of the bond	£110.50 per quarter every quarter - for the lifetime of the bond	£110.50 per quarter every quarter - for the lifetime of the bond
Dealing charge (applied to every single sale or purchase of a fund or asset and placement and renewal of fixed deposits)	£18 a time (subject to annual review)	£18 a time (subject to annual review)	£18 a time (subject to annual review)
Currency dealing charge	Quilter International reserves the right to charge this and review it annually	Quilter International reserves the right to charge this and review it annually	Quilter International reserves the right to charge this and review it annually
Early withdrawal charge	9.00% in the first quarter, reducing by 0.45% per quarter to 0% after 5 years	9.40% in the first quarter, reducing by 0.29375% per quarter to 0% after 8 years	9.50% in the first quarter, reducing by 0.2375% per quarter to 0% after 10 years
Ongoing service charge (also known as trail commission)	Decided by your 'adviser'. This percentage charge is taken proportionately each calendar quarter in arrears. Where it is levied it is typically between 0.5% and 1% per annum	Decided by your 'adviser'. This percentage charge is taken proportionately each calendar quarter in arrears. Where it is levied it is typically between 0.5% and 1% per annum	Decided by your 'adviser'. This percentage charge is taken proportionately each calendar quarter in arrears. Where it is levied it is typically between 0.5% and 1% per annum
Other charges	Investors are asked to sign to confirm agreement with this statement: I understand and accept that other charges may apply to my account. These charges may be made by third parties, for example an annual management charge on a selected fund or by Quilter International for additional services I request	Investors are asked to sign to confirm agreement with this statement: I understand and accept that other charges may apply to my account. These charges may be made by third parties, for example an annual management charge on a selected fund or by Quilter International for additional services I request	Investors are asked to sign to confirm agreement with this statement: I understand and accept that other charges may apply to my account. These charges may be made by third parties, for example an annual management charge on a selected fund or by Quilter International for additional services I request

To sum up, if you purchase your Executive Redemption Bond from a financial salesperson who takes commission, you will be paying a very high price to invest your lump sum. It’s entirely possible the fees you pay will outstrip any gains you make. If you top up, change your underlying investments, or access your capital within the early years, the real cost of your bond will increase.

The features and benefits of an Executive Redemption Bond from Quilter International

Key features of the ERB from Quilter International that are often sold:

Access to world leading fund managers and major stock exchanges.
Can be set up as a single policy or cluster of policies.
Option to transfer existing assets – allowing all your assets to be easily accessible under one umbrella.
You can pay premiums in multiple currencies.
Withdraw money when you want.
Regular withdrawals available.
Guaranteed value of twice the premium you have paid (after 99 years).
Bond held as an offshore asset so may grow tax efficiently.
Ability to defer tax.
Option to place it in trust.
As a Quilter International (formerly known as Old Mutual International) customer, you're protected under the Isle of Man Life Assurance (Compensation of Policyholders) Regulations 1991. The scheme offers protection for plans issued by Isle of Man authorised companies, wherever in the world you reside; and compensation for clients of up to 90% of their investment value less any applicable charges if QI becomes insolvent and unable to pay out.

What these key features fail to highlight are the high fees, the hidden charges and the fact you may have to pay tax, either on the growth of the investment or when money is paid out, depending on the tax rules in the country where you reside. What’s more, the ability to defer tax may not even be a benefit to you, if you live in a low or no tax jurisdiction like Dubai for example.

In other words, don’t be over-sold on the benefits, without weighing them against the main disadvantages of high cost and lack of flexibility in terms of accessing your capital in the early years without significant financial penalty.

Quilter International’s Executive Redemption Bonds and QROPS or SIPPs

In some cases, international executives are encouraged to use the ERB within a QROPS or SIPP.

It’s critical to note that there will be additional set-up charges and ongoing fees levied for the life of the policy - in addition to all of those discussed and detailed above.

This would make the Executive Redemption Bond even more expensive in real terms, thus highly likely to undermine the QROPS or SIPP. For that reason, if you have an ERB wrapped within your pension, get an X-Ray Review™ to uncover exactly how much you’re paying, and where you can make significant savings for the long-term benefit of your wealth.

In conclusion, should you start, keep or encash an Quilter International Executive Redemption Bond?

Quilter International’s sales brochure markets the Executive Redemption Bond to “The Discerning Investor”…

However, as the dictionary definition of discerning is “having or showing good judgement” how can anyone exercise good judgment when they are neither explicitly told the fees and charges they will pay, nor the fact that other investors may be paying far less (or more!) for exactly the same product?

FCA recently commented on the topic saying, "We have received enquiries from expatriate consumers who were advised by overseas advisory firms to transfer or switch their UK pension into an ‘international SIPP’. These consumers may pay significant fees for these arrangements - particularly where a SIPP operator allowed investment through an offshore investment bond. Our view is that the tax benefits accessed by investing this way are largely redundant to someone investing in a UK personal pension scheme."

As you are a discerning investor, given the uncovering of the foregoing otherwise hidden and complex fee information, we understand that if you already have an ERB you will want to know exactly how much you’ve paid and are paying on an ongoing basis. We would recommend getting an X-Ray Review™, so that you have all the information you need to make an informed decision about the best way forward.

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. Please do not make any decisions based solely on the contents of this guide.

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 Quilter International Executive Redemption Bond, get an X-Ray Review™.

Quilter International Executive Redemption Bond

A closer look.

Have you got an Quilter International Executive Redemption Bond?

Jargon busting

Who is Quilter International?

A summary of the Quilter International Executive Redemption Bond

Fees and charges for an Executive Redemption Bond

The features and benefits of an Executive Redemption Bond from Quilter International

Quilter International’s Executive Redemption Bonds and QROPS or SIPPs

An essential disclaimer - and your next steps...

IMPORTANT NOTE

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