STM Portfolio Bond Review
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Fund Access 3.5 / 5
Charges 1.5 / 5
Accessibility 1.0 / 5
- Mainly available and sold through offshore advisers
- Open Architecture fund selection (but minimum cash holdings high)
- Offers some tax protection in certain jurisdictions
- It offers time apportionment for those returning to UK
- High cash retainer requirement, and Gibraltar based and small company increases risk, whilst offering little different from other jurisdictions and larger more established providers
- No flexibility of full withdrawal or full access in the early years without penalty
- Many countries do not recognise any tax concessions
- With commission this is an extremely expensive option, and even part withdrawals can increase real costs
- WARNING: Costs are largely dictated by the charging structure chosen by an adviser. Some advisers recommend a 1% regime but this product has other external costs that need to be considered
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STM Life Assurance PCC Plc (“STM Life”) is a company incorporated in Gibraltar under the provisions of the Gibraltar Companies Act and whose registered office is situated at Montagu Pavilion, 8-10 Queensway, Gibraltar, with incorporation number 100244 and is licensed by the Commissioner of Insurance under the Insurance Companies Act (which incorporates the provisions of the EU’s Third Life Insurance Directive) to carry out assurance business in Gibraltar. STM Life meets the capital and solvency rules laid down by the directive.
STM Life Assurance PCC Plc (“STM Life”) is structured as a Protected Cell Company (a “PCC”) subject to the provisions of Gibraltar’s Protected Cell Companies Act 2001. This means that STM Life may create legally recognised “cells” within the company in order to segregate and protect each policyholder’s assets. Each cell has its own designation (the policy number) and it is the duty of the Directors to keep the assets and liabilities of each cell separate and therefore accounted for separately. The legislation prohibits the assets of a cell to be used to satisfy any liability not attributable to that cell.
STM are not a large company by international standards and based out of Gibraltar with its lack of regulatory enforcement and protection could cause problems if the company suffers any financial set-backs.
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|Policy Currency: The STM Portfolio Bond may be denominated in most major currencies.|
|Why choose the STM Portfolio Bond: This is an open architecture bond allowing assets that are typically traded on major exchanges and can include structured notes, private company shares, works of art and other non-standard investments. The STM Portfolio Bond is based in Gibraltar and has a life assured option or a capital redemption option.
STM say that they do not run internal funds, nor a list of approved external funds, as their offshore portfolio bonds are open architecture to allow the investor to make their own choices. However restrictions might apply to asset choice according to the country of residence/local tax considerations (e.g. UK personalised portfolio bond rules)
|STM Portfolio Bond promotion: What does STM write about their own bond? The STM Portfolio Bond provides advisers and their clients with a wide range of tax-efficient investment options with the potential for growth, over the medium to long term. The International Portfolio Bond is the “traditional life insurance bond” which allows the policyholder to invest in a limited choice of assets. For example, units in an authorised unit trust, or shares in an investment trust and cash. The policyholder can have direct involvement in the selection of assets that the IPB invests into or the policyholder may choose to appoint a discretionary manager to manage the assets within the bond.|
|Eligibility: Anyone between the ages of 18 and 75 can invest. Investments can be made by individuals, companies or trustees. Individuals may apply for a single life policy on their own or joint life policy with someone else.|
|Minimums: Your lump-sum payment can be made in any freely convertible currency and has a minimum of £40,000 or currency equivalent – the greater of £10,000 or 10% must be held in cash or equivalent. You can make additional lump-sum payments into your policy at any time. However your will pay any initial fund charges.|
Establishment Charge Structure:
There is a 10 year establishment fee of 1.1% for funds up to £100,000. 1% from £100,001 to £500,000 and 0.9% for funds over £500,001. There are no dealing charges for the first 10 years.
Are charges explicit: By explicit, it means that it is clear to see not only the charges for taking out the plan but also the cost of funds annually, any upfront fund costs, penalties on access, etc. Yes, in the main the STM Portfolio Bond charges are clearly shown and any professional should be able to interpret them.
|Surrender of the STM Portfolio Bond: If you cash-in your policy during an initial charge period,an early cash-in charge will apply. The amount of this charge will be equal to the outstanding initial charges. For example, there will be surrender costs of 10% of the Premium Amount in the first year reducing by 1% pa for 10 years.|
Quick Summary from TailorMade
The STM Portfolio Bond is flexible in terms of ability to invest in esoteric assets but this is not something that the average investor should be considering. In the UK only extremely wealthy clients or true professionals are able to invest in such funds as the risks are so high. STM write about the STM Portfolio Bond, “The International Self Directed Bond allows for a far wider range of allowable assets, for example, private company shares, vintage cars, equities and property can all be accommodated within the bond and the policyholder has direct involvement in the selection of assets that the ISDB invests into. For UK residents, this bond will be treated as a personalised bond as the policyholder can have the power to select the assets that will be held within it.” We would respectfully suggest, no-one in the UK should be investing in these assets in a personalised bond and we wonder if many of these bonds are “sold” in the UK by UK registered IFA’s.
Our other major concern is this is a Gibraltar cell company that requires the greater of 10% or at least £10,000 of your initial premium must be in cash. On a minimum initial premium of £40,000, the greater figure is £10,000 which means 25%. Why have STM had to impose this level in 2016?
Being Gibraltar, but in general with where you live, ensure you fully understand the local taxation position and weigh any benefits against its lack of flexibility, access and charges. The STM Portfolio Bond is an expensive option compared with a pure platform custodian plan and supposed tax benefits can be outweighed by charges. The surrender fees are high and continue for 10 years with the commission option we were provided from STM Portfolio Bond illustrations.
This type of plan may have been a common option in the UK back in the 1990’s but in 2016 it lacks the transparency of the latest plans available from territories such as the UK, the USA and parts of Europe; ultimately, the STM Portfolio Bond is an expensive option when compared with a pure platform plan and appears higher risk.
NOTE: The STM Portfolio Bond has a successful network of distributing agents throughout the world. Not all distributing agents have regulation or financial qualifications and may not be aware of the other saving plan options available.
Pensions (QROPS and SIPP) – If the STM Portfolio Bond is used within a QROPS or SIPP then there will be additional set up and ongoing fees for the life of the policy. EME does not recommend this product for QROPS or SIPP investing.
WARNING: Costs and information is correct as of July 2016. Please refer to a brochure from the company for current up to date information and any changes on costs or information. You should not buy based purely on information contained within this article and EME do not accept liability for purchases. If you have any doubts then please speak with your financial adviser or a representative of the company for further advice.
If the provider improves or amends its terms then EME would like to hear from them to amend the review page accordingly, and providers are encouraged to comment on errors or omissions to ensure that readers have the latest and correct information.
You can view the details of the STM Portfolio Bond and other plans here at an independent website.
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