But life company executives said the figures, compiled by the Association of British Insurers, could have been worse, given such other data as the UK Investment Management Association’s year-end figures. These showed that total net retail sales by UK asset managers fell by more than 23% in the year to the end of December (see this and other data by clicking here.)
Adding to the headwinds for offshore bond sales, particularly towards the second half of the year, was the preoccupation among UK advisers with the need to get ready for the Retail Distribution Review, which was due to come into force on the first of January 2013.
“Some adviser businesses effectively took their sales people off the road in the second half of the year, while they prepared for the changes,” said Simon Willoughby, head of proposition at Axa Wealth International.
Others, who didn’t get ready at the end of 2012, he added, “are now attempting to make the adjustment post-event”, resulting in a knock-on impact for the sector in the first quarter of 2013.
The ‘C word’
Few in the industry are keen to mention the “C” word – commission – but this, or rather the ending of it, was mentioned by some as certain to be starting to have an effect on sales into the UK market that is not likely to go away, even after talk of the Retail Distribution Review, which put an end to commission on sales of offshore bonds, has long since died away.
“The whole landscape has changed for any adviser covered by RDR,” said one advisory industry executive with clients both in the UK and offshore, explaining the impact of the loss of commission on UK advisers’ thinking. He requested anonymity.
Now that they are no longer permitted to pay commission to advisers who recommend their products, bond providers may still “facilitate customer-agreed remuneration to the adviser, but this is now treated as a withdrawal from the bond, which eats into the 5% tax-deferred premium allowance,” this executive added.
"This is ever so messy and disadvantageous to the client; and, with the growing popularity of platforms, the relative appeal of bonds has been drastically reduced."
Others, however, stressed that this is not true for all clients. Offshore bonds continue to be workhorse products for tax-planning purposes, particularly in the case of UK expatriates who are planning to return to the UK, some point out.
Nick Anderson, of Singapore-based AAM Advisory, is among the offshore bond’s greatest proponents, citing, in addition to the product’s tax-planning use, its “multi-currency facility that enables the bond holder to move all over the world and still hold and add to the bond", and, “perhaps most importantly, the open architecture nature of the investment products that you don’t find replicated anywhere else”.
This is particularly attractive in a place like Singapore, Anderson said, where you find accredited investors who actually take advantage of some of the more obscure of the 20,000 funds such bond providers as Skandia offer, and who appreciate the fact that they “can choose from 35 different stock markets”.
Asia growth potential seen
Natalie Hall, marketing director of Royal London 360°, shares Anderson’s assessment that the appeal of offshore bonds offered by UK life companies may be greatest among those who are themselves offshore, especially in Asia.
“Internationally, we have not seen the declines we’ve seen in the UK, and we’re seeing the biggest growth and growth opportunities in the Far East, both in the single and regular premium categories,” she said.
In the UK, the bonds have also continued to sell well on platforms, where commission is not part of the equation anyway, Hall noted.
End-of-year gains
Meanwhile, in spite of the “RDR effect”, both single-premium offshore bond sales and retail sales of IMA products actually appeared to improve quarter-on-quarter towards the end of the year rather than falling off, as the 1 Jan 2013 start date for RDR approached.
Offshore bond experts said this was thought to reflect a return in investor confidence in the equities markets, coupled, they said, with a growing interest in obtaining decent returns on the part of increasingly yield-hungry investors.
New business sales of single-premium offshore bonds into the UK market grew by 10% in the fourth quarter of 2012 compared with the previous three-month period, while the IMA saw net retail sales of investment products during that quarter leap 66%.
“As the market stabilised in the latter part of 2012 and again in Q1 [of 2013], Canada Life International witnessed an increase in business,” said Canada Life International managing director Sean Christian.
He added that the “frozen nil rate band”, and consequent dragging of more clients into the IHT net, was clearly making estate planning using offshore bonds more popular.
“In addition, post the RDR, many advisers see estate planning as an excellent way of demonstrating value in the advice process, as the IHT savings can heavily outweigh the amount charged for the advice.”
Mark Hayhoe, head of wealth management at Aegon, agreed. “RDR will have a positive effect on the market because it has resulted in more qualified advisers, who, as a result, will understand better the advantages of using an offshore wrapper for certain clients – for example, with their IHT planning, but also where they have clients who are intending to move abroad.”
Advisers with UK clients who are moving to France and Spain in particular, he noted – where the governments are seeking to raise taxes substantially, particularly on wealthy individuals – “will realise that a tax-compliant bond is an excellent way for those clients to defer paying tax on their assets”.
One fewer player
As regular readers of the ABI’s offshore bond statistics know, the 2012 figures are the first not to include full-year data from Scottish Widows, which, as CMI International, formally withdrew from the offshore bond market as of 30 March 2012.
The ABI figures also do not include new business sales data from Generali PanEurope or La Mondiale Europartner, both of which have high-end offshore bond products that are technically available in the UK, although for now, sources say, their share of the market is not thought to be significant.
While La Mondiale Europartner’s 2012 offshore bond figures were not included by the ABI, they were revealed to International Adviser. Click here to read about the company’s success
Some offshore bond veterans say that one of the problems that the industry has, as it looks back at its new business sales of UK distributed offshore bonds in the previous year, is its tendency to view such sales – pretty much no matter how good they are – as a half-empty glass, compared with 2008. That was the year that annual sales touched £7.8bn, helped by high interest rates.
This “built unrealistic expectations” into the market, Aegon’s Hayhoe noted.
“We’re probably at a more realistic level now.”
