There has been a move from using insurance companies for investments to using a fund platform. These have been very popular in the UK for years but are still in their infancy in Ireland. So what are are they and how do they differ from the traditional insurance company offering?
What is a fund platform?
A fund platform provides investors to a greater choice of investment funds than are usually available through insurance companies. The investor gets access to a wide range of global fund managers that are usually only available to large investors or institutions and they are priced at institutional rates. At Bluewater Financial Planning, we use Conexim, who currently have 3,496 different funds available under their platform.
How is it different to an insurance company
You get a greater fund choice. Insurance companies usually have between 20 – 30 different funds available. Fund platforms have thousands and with a greater number of different fund managers.
Access to ETF’s. Most insurance companies offer a range of passive investment funds but if you want ETF’s such as Vanguard, you have to go on a fund platform.
Fund platforms are generally cheaper. They don’t pay commissions, so they can offer contracts at a lower price. Insurance company contracts usually pay the advisor a commission which has to be paid for so the charge is incorporated as a higher management fee (if an advisor tells you there is no charge for the advice, they are incorrect).
You can view all of the transactions within your investment online. You see all the purchases, sales, charge deductions. You can see everything.
Is there any difference in tax treatment under a fund platform?
The tax liability for investments is the same for fund platforms as it is with an insurance company, 41% tax on the profit. There
No 1% government tax on entry. Minister Noonan decided during the recession to tax all investments made to insurance companies 1%. He hasn’t removed it. This tax does not apply under the fund platform structure.
Deemed disposal is still applied. The difference is an insurance company will deduct this tax for you and pay it over to the Revenue. You do not have to submit a return to the Revenue. Under the platform, you have to do it yourself through a tax return. The tax due does not have to be deducted from the fund.
Similarly, an insurance company will deduct the exit tax for you on liquidation and pay it to the Revenue for you. With the fund platform, they will pay you the full value of the fund on liquidation and you have to declare it to the Revenue (the Revenue know you have this investment, so it is not an opportunity to dodge paying tax!).
If you switch funds within a fund platform, you trigger a tax liability. You can switch funds as much as you want within an insured product without triggering a tax liability.
A fund platform certainly gives people a greater investment choice than ever before. They are not restricted to investments, you can also use them for your pension and ARF. They are more suited to bigger contributions and for people who are happy to submit tax returns to the Revenue.