The True Cost of Your Portfolio Bond

International investors might be familiar with the term "portfolio bond", or "investment bond". A portfolio bond is a wrapper type structure; it combines a life assurance contract to create a tax efficient holding vehicle for your assets.

They are distributed by life assurance companies such as RL360 (PIMS), Friends Provident International (Reserve), Utmost International (Professional Portfolio Plan), amongst others, through a sea of financial advisers around the world. In the right hands, they can be a highly effective tool for wealth planning.

When not in the right hands, portfolio bond fees can be extortionate. Read on to see what fees you could be charged, or may not know you are being charged.

• Establishment Charges:

Depending on the structure, this is taken upfront. So on a 10 year 1% per annum establishment structure, 10% is taken in initial fees to cover the term.

• Administration Charges

Sometimes referred to as the wrapper charge, this can be anywhere between $400-$800 (or currency equivalent) per year.

• Dealing Fees

Applied to every single sale or purchase of a fund or asset. The cost varies between providers and some provide a number of free switches per year so do your homework if you plan to make a lot of transactions.

• Early Withdrawal Charges

If you wanted access to your money early, depending on the charging structure taken, early withdrawal, or surrender charges will apply. For example, on an 8 year establishment structure, the charge could be 8% in the first year, reducing by 1% to 0% after 8 years.

• Fund Management Charges

Every fund has its own ongoing management charge. Mutual funds are more expensive than ETFs, so expect to pay anywhere up to to 2% per annum, depending on what funds you invest in. This can be higher depending on the specific share class. Passive ETFs (which is what you should be buying more of), can cost anywhere from peanuts to 1% per annum.

• Fund Trail Commissions

These cheeky fees are paid from the more expensive share classes of certain mutual funds. Advisers that use trail-paying share classes get paid regular commissions at the expense of your performance, so always check the total ongoing cost of the funds you are in and switch to the cheapest share class possible.

• Adviser Service Management Charges

This is the fee your adviser will charge you to manage the portfolio and provide ongoing service. It is typically around 1% per year of the total value of the portfolio. If you have been charged the establishment fee and are being charged adviser fees as well, then frankly, you've been had. Unless you're happy with that, of course.

If you hold an investment bond within a UK pension structure (QROPS or SIPP), your charges could be higher. On top of the charges mentioned above, there will also be trustee fees which can cost up to GBP 400 per year.

There you have it. Some of these fees may not be explained to you, indeed you may not see them (such as the fund charges), but you best believe they are there, and they are a drag. It is not uncommon to dissect an investment bond and have to explain to someone that they have been paying in excess of 3% or 4% per year in CHARGES.

Have a nice day.