Bank of New Zealand Financial Services has decided to take a proactive step and help investors switch out of insurance bonds now the Government has removed the superannuation surcharge.
Bank of New Zealand Financial Services has decided to take a proactive step and help investors switch out of insurance bonds now the Government has removed the superannuation surcharge.
Chief manager Terry Millett says the bulk of money which went into its Set Up Super Bonds, Roll Over Super Bonds and Mortgage Backed Insurance Bonds was because they were surcharge effective vehicles.
Millett believes insurance bonds are dead and their value proposition has disappeared now that the Government has removed the superannuation surcharge.
"We are going to get completely out of insurance bonds," he says. "We don't understand what their value proposition is now."
In the three months to June 30 BNZ saw $88.6 million flow out of its surcharge effective funds, however it had strong inflows into funds such as its Mortgage Income Fund (one of the recommended alternative products), Future Lifestyle Plan Balanced Fund and its International Bond Trust.
Millett says it is important that fund managers help investors understand how the tax changes impact on their investments.
BNZ, he says, is wearing its 'customer' hat rather than its 'product' hat in its decision to encourage investors to switch funds. That is it is looking after its customers' interests rather than just trying to keep money in a range of funds.
He says the bank is well positioned to do this as it has a wide range of funds. In some instances it is recommending investors switch to a unit trust, in others, where the risk profile is different, term deposits may be a more suitable product.
Millett warns that fund managers who don't proactively address this issue with customers are likely to experience outflows over an extended period of time.
"Needless to say, effectively extending their customers' investment in now obsolete products will not be in their customers' interests," he says.
Bank of New Zealand Financial Services has decided to take a proactive step and help investors switch out of insurance bonds now the Government has removed the superannuation surcharge.