Advisers and customers now have greater choice over who holds the assets within the bond, known as the ‘custodian’. Rather than just allowing one external custodian, advisers and customers can now:
- select multiple external custodians
- use a mix of external and in-house custodians
This change is key as a number of DFMs will only advise on assets held under their custodianship. Being able to hold multiple custodians means advisers can select a number of DFMs within the one bond wrapper to manage different aspects of the overall portfolio. For example, the adviser might select one DFM to manage the domestic element of the portfolio, and a different DFM to manage the international element of the portfolio. Alternatively, the adviser could select one DFM for active and a different one for passive portfolio management.
This enables the adviser to match the best DFM for each portfolio objective, and switch between DFMs depending on how they perform and on prevailing market conditions in order to get optimum results for their customers. As the portfolios are all held within the one bond wrapper, there are no income tax, capital gains tax or self-assessment implications for the customer if they switch between DFMs.
The second new option of mixing in-house and external custodians is useful for advisers wanting to manage some of the money themselves, e.g. the bank accounts, but would like to use outsourced expertise, e.g. a DFM to manage the investment portfolio.
This new flexibility is also great news for customers who already have assets with multiple custodians, as it means they can consolidate their assets within one bond wrapper without moving the assets and disrupting any existing relationships. Being able to wrap the assets inside an offshore bond enables the customer to gain wider benefits such as tax efficiency and consolidated reporting. (Please note: although the assets don’t need to be sold and moved, the beneficial ownership of the assets will change which could still result in a taxable event for the customer).
Multi-custodian business can now be applied for online, and a separate investment adviser (e.g. DFM) can be appointed to each custodian; with fees able to be paid separately to each adviser.
Phil Oxenham, head of proposition marketing, comments:
Offering multi-custodian business can help customers more effectively manage their wealth by providing greater choice and flexibility. The ability to leave assets with an existing custodian and select multiple DFMs is an attractive option, and we are experiencing growing demand for this type of business. We are listening to what advisers want, and the continual improvements we are making to our offshore bonds will ensure our online proposition, supported by Wealth Interactive, become powerful tools for advisers going forward.