Once again the festive season is upon us and we at the Charter Partnership would like to wish you a very Merry Christmas and a happy, peaceful and prosperous 2007.

For us, 2006 has been a very special year – our 25th Anniversary. We have been too busy to celebrate as yet, but hope to get the opportunity in 2007. We would like to take this opportunity to thank you for your support over the years.

As in previous years, rather than sending Christmas cards we have made a donation to Derian House Children’s Hospice, a local charity whose incredible efforts we have supported for a number of years.

Finally, we would like to confirm our opening hours over the Christmas period. As we are restructuring the office internally, we will be closing on Wednesday 20th December at 5:00 p.m. and will re-open at 9:00 a.m. on Tuesday 2nd January 2007. There is an emergency contact number for Charter Insurance Brokers and this is 07979 805488.

Warmest regards.
Charter Partnership

As you know we monitor our choice of funds regularly. We are making the following recommendation for our clients’ portfolios. The replacement funds are as follows:

The reason for the alteration is that earlier this month the BGI American Growth Fund merged into the Legal & General (Barclays) MM US Alpha Fund.  This fund is still sector specific, but is a brand new Multimanager Fund.   Due to this alteration, Forsyth OBSR derated the fund on 6th October, stating -

"This is as a result of BGI's announcement that with effect from 9th November 2006 the company will be moving the funds to a multi-manager approach. Further changes include the rebranding of these funds to Legal & General and changes to their risk/reward targets.

Forsyth-OBSR does not consider multi-manager funds within the Ratings Service and therefore we are removing the ratings with immediate effect."

As the fund can no longer be bought, we have replaced it on our Buy List with Schroder US Smaller Companies, one of the most highly rated and top performing funds in the US Equity Sector.

Do you remember how the stock market suffered a very long downturn from the end of 1999 to early 2003? Most stock market investments felt the effect immediately, but it took longer for the downturn to be felt in terms of lower payouts for With Profit clients, particularly for maturity values. The reason for that is because most With Profit providers continued to ‘smooth’ the short-term effects of the market downturn for maturing plans.

Unlike other kinds of investment, many types of With Profit Bonds pay bonuses. Another result of the stock market downturn was that providers needed to reduce bonuses to bring payouts closer to the underlying value of the plans. As the downturn continued, bonuses suffered. The market has seen some recovery, but in general bonuses haven't increased. Given that the returns from many With Profit Bonds have been disappointing and this, combined with press reports predicting the end of With Profits as a viable investment, has led many investors to consider encashing, or to actually encash their With Profit Bonds.

If your returns have dropped to an unacceptable level, then it’s easy to consider encashment. However, these bonds can be complex investments and it’s vital to consider a number of different factors when deciding whether to encash or retain your investment.

Here are some of the factors you will need to consider when deciding the future of your investment:

MVR (Market Value Reduction):
This is an adjustment mechanism used by insurers to prevent those people who encash their bonds from taking more than a fair share of the With Profit Fund. An MVR is not a penalty, but should be viewed as a reflection of the true performance of the underlying investment in the With Profit Fund. Obviously the size of the MVR must be borne in mind when considering encashment. For example, even if an MVR is in place the potential returns from an alternative investment may outweigh it.

Early Exit Penalties:
Many With Profit Bonds have early withdrawal penalties which apply on encashment commonly within the first 5 years of an investment. If an exit penalty is in place, this must be taken into account prior to encashment being made.

Financial Strength:
The financial strength of a With Profit Bond provider is extremely important, as a stronger company is more able to support their With Profit Fund and allow investment in a more diverse range of long-term investments. Whilst all With Profit Bond providers have been adversely affected by stock market performance to some degree, some have been left in a better position than others. The future performance of all With Profit Bonds is inextricably linked to the financial strength of the product provider and this factor must always be borne in mind when considering the prospects for future growth of With Profit Bonds.

Guaranteed MVR-Free Points:
Some With Profit Bonds have a guarantee that at some point in the future, such as the 10th anniversary for example, an MVR will not apply. If the MVR is large and the MVR-free guarantee date is imminent, this could be a very important feature. Bonds which currently have an MVR in place and a future MVR-free date are effectively provided with a valuable minimum guaranteed growth rate if the bond is encashed at the future MVR-free point. This guaranteed growth rate should be taken into account when the decision is being made as to whether to retain these bonds.

No MVR Guarantee On Death:
As an MVR is not applied to most With Profit Bonds on death, it may be better to retain the Bond if you have a relatively short life expectancy due to age or health.

Bonus Rate:
Traditionally many With Profit Bonds have paid two types of bonuses which are as follows:

Reversionary Bonus: Usually paid annually

Terminal Bonus: A potential extra bonus paid on encashment or death

As a result of market conditions, both reversionary and terminal bonus payments have been under pressure in recent years and have dropped in some extreme cases to ‘Nil’. This has been particularly difficult for those investors who require this bonus for income. An investor should therefore take into account short and long-term requirements, whether it is income or growth, prior to any action being taken. Some With Profit Bonds pay a guaranteed minimum bonus rate which is obviously an attractive feature, however the payment of this guaranteed bonus may have an effect on other features, such as the rate of any MVR applicable.

MVR Free Amount:
Many With Profit Bond providers allow withdrawals of a certain percentage of the original investment MVR-free every year and this is typically 7.5%. If an MVR is being applied, consideration should be given to exploiting this MVR-free access.

This is only a brief list of some of the factors which need to be taken into account when the future of a With Profit Bond is in question and does not constitute individual advice. Changes in markets, the press and possibly in investor needs have made many people consider their options with regard to this form of investment and the situation is often unclear.

This is evidently not a simple matter and advice and assistance can be vital in making the right decision. Charter Financial Planning continues to monitor all With Profit Bond providers and is therefore in a position to assist our clients in any decision about the future of their With Profit investments.

Charter Financial Planning