OLD MUTUAL INTERNATIONAL EXECUTIVE REDEMPTION BOND (ERB) REVIEW
Who are Old Mutual International?
Old Mutual International (OMI) is a huge South African and London listed insurance company that has specialised in offering a wide variety of investments within its products. Prior to 22 December 2014 the company was known as Royal Skandia before changing its name to OMI. OMI operates globally and for many years was a trendsetter offering the option of building portfolios and utilising funds from multiple fund managers and providers.
Old Mutual International is the international arm of Old Mutual Wealth, one of the leading retail investment business. Old Mutual Wealth oversees £123.5 billion in customer investments (as at 31 December 2016) and is part of Old Mutual plc, a FTSE 100 group that provides life assurance, asset management, banking and general insurance.
Old Mutual is trusted by more than 19.4 million customers across the world and has a total of £394.9 billion assets under management (as at 31 December 2016).
What is the Old Mutual International Executive Redemption Bond (ERB)?
OMI offers different products in different regions and some of the products available in the UK are very good. However, this review is based on the Dublin / IOM based Offshore Old Mutual International (OMI) Executive Bond products exclusively. OMI provides investment solutions for expatriate and local customers around the world, including Africa, Asia, mainland Europe, Latin America, the Middle East and the United Kingdom.
The Old Mutual International Executive Redemption Bond is an offshore, whole of life assurance policy providing benefits on death of the relevant life assured (or ‘bond’) that accepts single premiums. The Executive Redemption Bond is a capital redemption contract with a 99-year fixed term. It continues until the end of the term unless cashed in earlier. At the end of the term the bond has a guaranteed value of at least twice the premium amount you have paid (less any withdrawals or surrenders).
The ERB bond is issued in the form of a single policy or several separate polices known as a “cluster of polices”. The initial charging term is fixed (based upon the charging structure agreed) at the time of the policy activation and this cannot be varied or waived; therefore, early encashment of the policy results in a “surrender charge” or “early withdrawal charge”.
If you are considering a Old Mutual International (OMI) Executive 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. The type of funds available are also down to the adviser as to whether they are “cheap” or “expensive” versions which relates to what the adviser is seeking to earn.
What investment options do I have?
Many international investors find managing a portfolio of funds an administrative burden. With the International Executive Redemption Bond, Old Mutual International takes care of this by establishing a portfolio of Old Mutual International funds within the account and managing any paperwork on your behalf.
Normally if a particular investment is underperforming, then changing strategy or fund manager may mean you suffer not only exit penalties and new initial charges on a new investment, but also a possible tax liability as well. By choosing an Executive Redemption Bond, you potentially avoid this problem.
The Executive Redemption Bond provides flexibility and freedom of choice, through access to a wide range of investment asset types.
This wide investment choice is known as open architecture. It enables you to invest in mutual funds, stocks and shares, fixed-interest securities, multi- currency deposits, hedge funds, structured notes, exchange-traded funds and other alternative investment, which means you can customise your portfolio precisely to your individual needs and preferences, without having to compromise in order to fit in with pre-set rules and parameters.
The structure of a bond means that you need a custodian to hold, on Old Mutual international’s behalf, the assets that you decide to link to your bond. You can choose your own custodian, which is likely to be the financial institution you currently have a relationship and who are advising you. If you don’t have your own custodian, then Old Mutual international will use its own appointed custodian to play this important role for you.
What is the minimum investment required to open an account?
Lump sum minimum of £50,000. You can make additional lump-sum payments into your policy at any time with a minimum of £2,500. However, you will pay any initial fund charges on all contributions.
What currency can invest in?
The Old Mutual International Executive Redemption Bond can be set up a policy in 1 of 3 currencies including Pound sterling (GBP), Euro (EUR), United States dollar (USD).
What is the cost of investment into this plan?
Charges will depend on the type of plan you take out from Old Mutual International as they offer different charging structures. They should provide you with a charges schedule, which will detail:
- The costs Old Mutual international levy for setting up and managing your bond
- The administrative costs of the fund managers
- Fees charged by your financial adviser.
There is an annual policy charge taken which is a fixed fee and this can be updated at any time. There may also be a percentage of the value of your fund to cover management costs in the early years which typically is between 1%-1.5% per annum and will last for 7 years sometimes through lifetime.
Fund management charges are typically between 1–2.5% pa each year- depending on the funds chosen, but these are not typically listed at point of purchase.
Alternatively, if you are not used collective funds then there may be stockbrokers fees when you buy and sell certain assets, but you will not see them listed on the valuation as stockbroker’s fees are included in the total value shown for each sale or purchase and will be reflected in the trade contract note.
Additionally there may be an adviser charge to manage the portfolio, this is also typically between 1–1.5% per annum depending on the chosen advisers service provided.
In the main the OMI Executive Bond charges are clearly shown and any professional should be able to interpret them.
What if I need to cancel the policy or make a withdrawal?
A full encashment will result in exit penalties being applied in the early years through surrender charges linked to the term of the policy. The amount of this charge reflects the cost of Old Mutual Internationals set up fee, including any payments (such as commission) made by Old Mutual International to your financial adviser.
Old Mutual International has a great reputation but, in the pursuit of offering flexibility of charging structure to all types of advisers they have created a product that has the same name but completely different costs.
One-off or regular withdrawals, which will be free of charge as long as you leave in a surrender value of £10,000/US$15,000/€15,000 (or another currency equivalent), or at least 25% of your total investment, whichever is higher.
What happens on the death of a policyholder?
The treatment of your policy when a death occurs depends on whether there are surviving policyholders. If a policyholder has died and at least one policyholder is still alive, the bond will continue and will automatically transfer to the surviving policyholder(s).
If the last policyholder has died, the bond will continue until the end of the 99-year term. Ownership of the bond will pass to one of the following parties:
- If there is a nominated beneficiary, ownership will be transferred to them.
- If the bond is subject to a trust, then the bond is still owned by the trust and a trustee must be appointed as a policyholder.
In all other cases, ownership will be transferred to the legal personal representatives of the deceased policyholder’s estate. They can then choose whether to keep the bond and appoint a beneficiary to become the policyholder by executing a deed of assignment or encash the bond to pay the proceeds to your estate’s beneficiaries.
If you want to learn more abut the Old Mutual International Executive Redemption Bond click here, or you can download our free guide on how to get your investments working.
For more insights, further advice or guidance, you can get in touch HERE
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