I would like to ask about a meeting my parents had with their financial advisor where it was suggested they should look at putting their money into investment bonds instead of super – they are in the mid 50’s and working full time. Is this a wise strategy?
I don’t know what is right or wrong for your parents but if you are unsure of why he has recommended something, go back and discuss it further.
You, and your parents should understand the strategy and the reasoning before they act
Best of luck
Without knowing more about the situation it’s hard to say.
With reductions in what people can contribute to super and caps around balances people can contribute, investment bonds have become quite popular for the ‘extra’ money that can’t be contributed to super.
The bonds also have the added advantage of being accessible at any time, rather than waiting to possibly age 60 to access the money.
If super caps aren’t at issue, then I would have thought super may have been more appropriate.
However, without knowing the full story we’d be just guessing.
I don't know if this is good advice but what I will say is they need a statement of advice SOA from their planner. Maybe get a copy of that and have a read so you can get up to speed.
In this their planner will go through all things like pros and cons etc their risk appetite, their financials goals etc.
As Andrew mentioned above- If your parents Adviser recommended an Investment bond, they would have put this in a SOA document which should outline the reasoning behind the recommendation including the the benefits, things to consider and restrictions regarding the strategy.
There should also be an alternative strategies section which may outline why they didn't go down the path of a super strategy.
Best thing to do is get a list of questions and go back to the Adviser. If they are confident in their recommendations than explaining it will be no issue.
Hope this helps.
Principal Financial Adviser
RP Wealth Management
Level 2, 351 Oran Park Drive, Oran Park 2570
T: 02 9188 1547 M: 0434 502 079
I agree pretty much with everything that everyone has said so far. I have a general comment about Statements of Advice:
In my opinion, there are many advisors out there who use the SOA as a means to cover their own arse rather than provide any meaningful information to their clients.
For the most part a SOA to most people is 80 pages of meaninless dibble and reading it will most likely leave you more confused about what has been recommended rather than solving any riddles for you.
I can only presume your parents have stumped up between $2 and $8,000 for this document. If the advisor has not got the time or the ability to sit down with ALL THREE OF YOU and explain the whole shooting match in plain English in under an hour, I would suggest that they dont understand what they are recommending themselves. Bear in mind that the advisor will possibly also be receiving ongoing commissions on the recommendations, which is even more incentive to ensure that your parents fully understand and are comfortable with what they are paying for.
If you parents dont understand what they are signing up to, then they need to get in front of their advisor, then take that advice to their accountant to see if the accountant can explain it. I am guessing that they have already paid the advisor, but they will probably have to pay for the accountant, but this will probably be money well spent.
I'm not a big fan of insurance bonds and would really really struggle to see the basis behind this, other than some crazy estate planning situation where the intention is to keep money out of the estate and also to leave it to someone who wouldn't be a superannuation dependent or something along those lines.
One thing that most people don't realise is that you DO pay CGT on capital gains inside an insurance bond and the insurance bond DOESN'T get the 50% CGT discount that people get when owning the assets themselves. Once you take that into account, it's hard to see the attraction. As James talked about, they may have contribution cap issues for contributing more to super, but even then, I'd sooner invest in their own name, being 55, the plan would be to sell down the investment progressively in retirement to minimise/eliminate CGT, whereas that isn't possible on capital gains internally with an insurance bond.