UK offshore bond sales at Legal & General International Ireland [LGII] fell just 7% in the first three quarters of 2012, year-on-year, versus an industry decline of about 27%. What were the reasons behind the company’s relative resilience?
There is no single reason. The number of our supporters has been growing strongly since our launch in 2007, and last year saw a number of new supporters using us for the first time. This was one of the factors that helped us buck the trend last year.
We have been committed to a strategy of fully supporting UK IFAs every day since our launch; offering a combination of superior service with a personal touch, so that intermediaries feel they have a genuine relationship with us.
A key part of our service offering is technical support, which is available both over the phone and face-to-face, as well as through literature and tools on our website.
Our product offers a comprehensive and flexible package of the features required by advisers in this market, and being a relative latecomer, we have been able to take advantage of feedback from advisers with many years’ experience and incorporate unique product features ideally suited to this type of product.
One example of this is segmentation: the [Legal & General International Portfolio Bond] can have up to 99,999 segments, which means it can be finely tailored to maximise tax efficiency – one of the main reasons for choosing an offshore bond.
However, all of this would be of little value if we were not part of a group offering the heritage and financial strength of Legal & General, which we note is increasingly relevant to advisers in the light of the unprecedented market turmoil.
The company reported a sharp upturn in offshore bond sales for Q3, compared with the previous two quarters. Did the bounce continue into Q4?
Our Q4 trading data will be disclosed in March.
LGII added its International Portfolio Bond to four UK platforms during 2011 and 2012. How important was platform business to the company in 2012?
While we have carefully expanded, the proportion of offshore bond business written on platform remains relatively low. Nevertheless, we see this growing, as advisers align themselves with one or more particular platforms. It is important that our product is available on the platforms advisers will be working with.
So you expect platform business to become increasingly important over the long term?
Yes. Although a large part of this market is managed by discretionary fund managers, around half is still managed by advisers investing directly. The open architecture nature of the product, which gives access to a large range of funds, seems ideally suited to management on platforms.
However, not all platforms can manage gross income or tax reclaims in respect of income-producing funds – which is obviously crucial to the efficiency of offshore bonds – and this can restrict the investment flexibility. Only a few providers, such as ourselves, can manage the tax reclaims on behalf of platforms where necessary, and until more providers can deal with this, growth of offshore business on platforms will be restricted.
Have you noticed any significant trends in terms of underlying fund selection by investors in recent months?
Investment has continued to err on the side of caution. Cash has still formed a part of many portfolios, but low interest rates have made it less attractive. There was some interest evident in both bond and equity funds, but in many ways the trend has been to go back to first principles: well-diversified portfolios that are easy to construct and manage on an ongoing basis, within offshore bond wrappers.
In what ways did RDR affect LGII and its offering?
We ran an extensive project to ensure that our offering was both compliant and competitive in a post-RDR environment. Having said that, because our business is focused towards the high net worth [HNW] end of the market, we have been offering flexibility in relation to fee-based business for some time. As a result, our transition to RDR compliance and competitiveness was less dramatic than for those involved in other areas.
Do you expect the post-RDR environment to have a positive, negative, or broadly neutral impact on UK offshore bond sales?
Although business levels within some advisory firms have recently been impacted by their own work to become RDR-compliant, we expect this to abate quite quickly now that ‘R-day’ has come and gone. Looking forward, we expect the overall impact to be neutral to slightly positive. We also believe that, as the fundamental strengths of offshore bonds in terms of tax planning opportunities remain in place, the market will prove resilient over the longer term.
Do you expect the UK offshore bond market to be bigger or smaller in five years’ time, in terms of assets under management?
We expect the market and assets under management to be bigger in five years’ time. It continues to be underpinned by a significant amount of investible wealth among UK residents, and the UK is likely to continue to be an attractive residential base for many non-domiciled individuals.
As the Government tightens the net on more dubious tax avoidance schemes, and tax rates remain at a relatively high level as the UK recovers from recession, a focus on legitimate and accepted tax planning vehicles such as offshore bonds will prove increasingly attractive.
Further restrictions on pension fund investment levels are also likely to have a positive impact, as investors seek alternative vehicles that offer appropriate investment flexibility, as well as tax-efficiency.
Will we see a rise or fall in the number of providers?
We have seen some fall-out in the last number of years. However, we see something of a stabilisation in overall numbers. Given the longevity of offshore bond products, it is important that advisers align with providers who are committed to the market for the longer term.
LGII appointed Liz Walkington to the newly-created role of high net worth proposition manager last year. How attractive is the UK HNW market for offshore bond providers?
As already mentioned, we see further opportunities for growth in this market, which is predominantly focused on high net worth advisers and individuals. Liz’s appointment is intended to provide further support in this area.
How does LGII plan to develop its proposition for the UK HNW sector?
We see opportunities to build relationships with specialist high net worth advisers, across a range of wealth planning product and support services, rather than the traditional product/transactional based approach. We have put a team in place to manage relationships with an initial group of high net worth advisers, where we believe we can add value in terms of holistic financial and tax-efficient planning.
In our discussions with advisers, one of the strongest themes coming through is a desire for service across the range, rather than from within product silos. Our new high net worth client proposition, Private Client Solutions [PCS], offers an integrated approach that aims to help advisers to find combinations of products that can work together to meet their clients’ needs, for tax-efficient financial planning.
PCS spans HNW products across multiple business areas, including LGII – International Portfolio Bond, Suffolk Life – self invested personal pensions, and Legal & General Risk – Priority Protection. We are also working with the advisers at a personal level to offer a customised service that is tailored to their specific needs for their HNW clients, as well as providing dedicated technical and admin support.
Does the company plan to target any new markets geographically?
We are beginning to establish some business in the Italian market and we see opportunities in due course within selected European markets, utilising our passport to transact business under the European Life Directive. However, we have no immediate plans in this area, as we believe that it takes time to gain a real understanding of local market requirements in terms of regulation, commerciality and culture.
Will LGII make any enhancements or additions to its product range in 2013?
We do not envisage any standalone new products coming on-stream. However, we are constantly working on improving the flexibility and features within our existing product range. We also intend to continue to enhance the services available to both intermediaries and our end customers.
What are the key priorities for the company this year?
We remain committed to our strategic goals, based on building long-term relationships with independent regulated intermediaries and offering a range of unit-linked single-premium products, backed by top quality service and market commitment.
