Edition 1450
18 November 2017
Edition: 1450

Read this week's issue online exactly as it appears in print.

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R. C. Brown - the right choice for the smart investor

by Advertiser, in Profiles · 07-09-2017 12:51:00 · 0 Comments

Many advisers in Portugal only recommend investing through insurance bonds. There are tax advantages of doing this in Portugal as after five years, only four fifths of any gain you make on your investments is taxable and after 8 years, only two fifths of any gain is taxable. This reduces the effective tax rate to 22.4% after five years and 11.2% after eight years.

R. C. Brown - the right choice for the smart investor

This all looks very attractive given the standard tax rate is 28% but there are two downsides to this approach.
Firstly, it ties your money up for a long time and secondly, the extra charges that you incur for the bond typically 1%p.a and an up-front charge of anywhere between 1% and 5%, offset most if not all the tax benefits unless you achieve high annual returns on your investment.
Depending on the size of the initial charge, we estimate you would need to achieve annual returns of somewhere between 7-10%. In our view, the lower figure depending on the investment strategy adopted is just about achievable but the higher figure is not in the current environment of very low inflation.
Why then are these products so prevalent? In simple terms because most, but not all, advisers cannot sell anything else. If you look at the small print in their literature, they are only authorised to carry on business in Portugal under the EU’s current Insurance Mediation Directive (IMD), which limits them to only selling insurance linked products.
We at RC Brown are regulated in Portugal under the EU’s Markets in Financial Instruments and Derivatives Directive (MIFID) which not only means we are not as restricted on the services we can provide, but more importantly the investor protections are considerably greater as we have an obligation to ‘treat customers fairly’ which firms operating under the current IMD do not have.
This is about to change as the IMD is about to be superseded by the Insurance Distribution Directive (IDD) in February 2018, which will provide greater protection to investors but will still restrict those firms to only sell insurance linked products.

For further information, Tel: (+351) 707502535, email: enquiries@rcbim.pt or visit: www.rcbim.pt 

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Edition 1450
18 November 2017
Edition: 1450

Read this week's issue online exactly as it appears in print.

Twitter

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