PPB SURVIVAL GUIDE [89790]

“ An investment in knowledge pays the best interest”
(Benjamin Franklin)
Personal Portfolio Bonds
SURVIVAL GUIDE
Partners in Finance

2 www.ichorpartners.com
Friend or Foe?
Ask any expatriate Financial Adviser about
savings and investment and the chances
are they will recommend the use of a
"Portfolio Bond". Structured correctly they
can be the most effective and powerful
tool, reducing administration, allowing
access to global markets and significantly
reducing costs.
Whilst Financial Advisers are quick to point
out the various benefits of Portfolio Bonds,
they are not quite so forthcoming when it
comes to the costs and fees associated
with these vehicles and the level of
commissions they receive, not just on the
establishment of the bond but on all of the
underlying investments held within the
bonds.
In fact, in the vast majority of cases,
advisers have used these vehicles to
disguise, hide and even maximise their
personal earnings at the expense of the
client, resulting in reduced performance,
and in some cases, significant capital loss.
The following information is essential
reading for anyone that already has a
Portfolio Bond in place or is currently
looking at investing offshore.
Portfolio Bonds
.."There is no doubt that
structured correctly these
products offer real value to
investors and allow them to
reduce the costs associated
with direct investment and
enhance their investment
returns"...

Introduction
Portfolio Bonds were originally
designed to allow investors to
consolidate all of their investments
into one easily managed institutional
account.
Offered by some of the largest and
most respected European and
International insurance companies
including:
• Old Mutual International (OMI)
• Royal Skandia
• RL360
• Friends Provident (FPI)
• AXA
• Generali
• Clerical Medical (CMI)
• Hansard
The concept is simple: By combining
the ﬁnancial strength and
administrative capability of these
insurance companies, investors
could buy and sell investments
within the Portfolio Bond at
institutional (discounted) rates.
Furthermore, being structured as life
assurance policies, these vehicles
offer advantageous tax treatment,
and a high degree of conﬁdentiality.
There is no doubt that structured
correctly, these products offer real
value to investors, allowing them to
reduce the costs associated with
direct investment and enhance their
investment return.
However, if your adviser is
commission driven, the reverse is
true, and the fees and charges may
well make real, net investment
growth all but impossible.
Sadly, all of the clients that contact
us for help are unaware of the levels
of commissions being paid to their
adviser or that the “institutional
discounts” that should be applied to
their investments are being retained
by their adviser to increase their
commissions.
As you are about to see, the ICHOR
proposition is built on transparency
and the unwavering belief that full
disclosure is necessary at every
level of the advisory process.
Portfolio Bonds

The Elephant In The Room?
Have you ever wondered just how much
your Financial Adviser earns from the
products they recommend? Or why they
become evasive when asked about fees and
charges?
It is important to note that the providers of
Portfolio Bonds are for the most part, highly
regulated, reputable financial institutions. As
regulated entities their fees are transparent
and they go to great lengths to explain how
their fees are levied and the penalties
associated with terminating the portfolio
early.
However, what is not clear is that all of these
companies offer a choice of charging
structures and the less upfront commission
the insurance company has to pay the
salesman, the lower the cost to you, and this
is where it all starts to get a little murky.
The majority of offshore Financial Advisers
work on a commission only basis and as
such their income is derived solely from the
selling of financial products. This, in
turn,creates a conflict of interest as the most
competitive charging structures pay the least
amount of commission.
Sadly, most Financial Advisers seldom
disclose the alternative charging structures
and base their recommendations solely on
the one that pays them personally the
highest commission.
Commissions

So What Does The Typical Adviser Earn?
There are typically three main areas
that generate commissions and fees
for the adviser.
1. Establishment of Portfolio Bond
2. Ongoing Portfolio Management
Fee
3. Third party or soft commissions
paid on underlying assets held
within the Portfolio.
The amount taken and the manner
in which they are paid will have a
signiﬁcant impact on how the
Portfolio performs and as such a
holistic approach to charges must be
taken if the integrity of the product is
to be maintained.
1. Initial Commission
When you establish a Portfolio Bond
the insurance company will pay the
salesman an initial upfront
commission.
Where maximum commissions are
taken, the adviser will receive 7.5%
of the initial investment value and
will include any assets transferred
into the account including Equities,
Funds, and in recent years, QROPs.
Should the client "top-up" his
portfolio at a later date by increasing
his investment, then a further 7.5%
will be paid.
If we assume that a client invests
USD 100,000, then upon receipt of
monies the insurance company will
pay the adviser USD 7,500.
This upfront commission will be
reclaimed by the insurance company
by amortising it over the ﬁrst 8 years
which in turn results in an increased
administration charge. This
increased charge will have a
negative impact on the portfolio's
overall performance.
Furthermore, should the client's
circumstance change and they need
to liquidate their investments during
this period, an early surrender
charge (exit penalty) will be levied by
the insurance company (see page
9).
Commissions
Does not take any initial
upfront commission
from the Portfolio Bond

2. Portfolio Management Fees
There is considerable confusion
surrounding this fee as many clients
believe that this is charged by the
insurance company, when in reality
they simply collect this on behalf of
the adviser.
This fee was designed to encourage
professional advisers to forego initial
commissions and to work on a fee
basis as is the norm in Europe and
other developed ﬁnancial markets.
In so doing, the client's charges are
kept to a minimum and is, in our
opinion, the only way for you to
structure a Portfolio Bond as;
• The Fee is totally transparent
and collected quarterly in
arrears.
• The Adviser's earnings are
directly linked to the
performance of your Portfolio
and you are free to replace
them at anytime should they
not perform.
• You are free to redeem your
Portfolio Bond at anytime
without penalty.
Unfortunately, more often than not,
Financial Advisers see this as a way
of increasing their income, rather
than as an effective way of reducing
client,s costs and have opted to take
a Portfolio Management Fee on top
of the initial commission, thereby
effectively increasing their earnings
in year 1 to 9%.
By taking both initial commission
and an annual portfolio management
fee, the drag on investment
performance is signiﬁcant and can
result in capital loss for the more
cautious investor.
So far we have looked at the
charges that are clearly visible to
clients as they are either charged by
or collected by the insurance
company. The next section covers
"Soft Commissions". These are
much harder to identify as they are
not paid by the insurance company
but by the underlying asset provider.
Commissions

Want To Know A Secret?
Perhaps the best kept secret in the sale of
Portfolio Bonds is that in many cases, the
underlying investments recommended by
the salesman will also pay them a
commission.
Where the Portfolio Bond is managed by a
professional adviser, these soft commissions
will be rebated to either enhance the client's
investment or to provide an institutional
discount.
Although mature markets such as the UK
have introduced legislation to prevent or limit
the payment of Soft Commissions, they are
still prevalent in the offshore market.
There is, in fact, an increasing number of
advisers that will only recommend funds or
asset classes that pay them a soft
commission.
Soft commissions are difﬁcult to identify as
they are not paid by the Portfolio Bond but
are a separate transaction between the
Fund or structured note provider and the
adviser.
Although the fund provider or structured note
issuer will detail the charges in the fund
prospectus or term sheet, these are seldom
made available to clients.
Soft Commissions

When a client purchases a fund or
structured product, the fund
manager or note issuer will pay the
Adviser a commission on the
amount invested. This will either be
deducted as a front end charge
(subscription fee) or as a back end
charge.
In the case of a subscription fee, a
charge will be deducted initially
upfront from the investment to cover
the adviser's commission. Typically,
it will be 5% and is transparent as
the client will see that only 95% of
his investment has been invested on
day one.
If the fund has a back end charge
then the fund will pay the
commission, then spread the cost
over the ﬁrst 5 years, this effectively
hides the commission as the client
sees 100% of his money invested.
However, should the client decide to
sell the investment in the ﬁrst 5
years they will incur an exit penalty
of:
5% in Year 1
4% in Year 2
3% in Year 3
2% in Year 4
1% in Year 5
With many advisers today selling
auto call notes or rebalancing
portfolios on a quarterly basis,it is
possible for these soft commissions
to spiral out of control.
Soft Commissions
Rebates Soft
Commissions to
client's Portfolio Bond

Where an adviser has taken an initial upfront commission, the insurance company will charge
a penalty should the client decide to cancel the policy. The following table is typical of the
surrender penalties applied in the early years, assuming a 7.5% commission was paid to the
ﬁnancial adviser initially.
Portfolio Bonds established by ICHOR do not carry any surrender penalties.
Surrender Penalties

Peeling the Onion
Few, if any, of our clients have time
to manage their ﬁnancial affairs,
therefore appointing a Professional
Financial Adviser is essential.
Get it right and they will add value,
manage risk, mitigate tax and
enhance returns. However, get it
wrong and the results can be
catastrophic.
In simple terms, investors need to
assume that every Portfolio Bond
has a minimum of two levels from
which a Financial Adviser can
generate commission and fees.
Personal Portfolio Level
Perhaps the most visible, as these
are the charges and fees levied or
collected by the insurance company
or issuer of the portfolio bond and
will appear on the client's statement.
Underlying Investment Level
These commissions are completely
hidden to all but the most
determined investor as they are paid
directly to the adviser.
Comparison

Establishment Charges - Peeling the Onion
The ability for the unscrupulous
adviser to earn fees on every fund
trade has led to client's portfolios
being adjusted on a regular basis,
“churned” not to preserve assets or
grow the portfolio, but simply to
generate additional fees for the
adviser.
There are also advisers that insist
that structured products such as
auto call notes have to be purchased
via their own in house platform,
which is unnecessary and typically
adds yet another fee to each
transaction.
Perhaps the easiest way to
appreciate the effect of commission
on a portfolio performance is to look
at a worked example. Bear in mind
that the higher the level of
commission taken, the higher the
charges will be, not only on the
Portfolio Bond but also on the
underlying Funds.
Typical Adviser
As we can see, the hidden cost in
establishing a portfolio bond is in the
region of 14%, of which 12.5% is
paid upfront.
ICHOR
Assumptions
Initial Investment USD 100,000
Initial Commission 7.5%
Portfolio Management
Fee
1.5%
Soft Commissions 5%
Total 14%
Assumptions
Initial Investment USD 100,000
Initial Commission 0%
Fee
1.5%
Soft Commissions 0-1%
Total 1.5 - 2.5%
Comparison
Takes no upfront
commission from the
establishment of the
portfolio bond.

Ongoing Charges - Peeling the Onion
Once the portfolio bond is
established, the costs associated
with managing the portfolio
continues and it is here that things
can go horribly wrong.
Most financial advisers work on a
"commission-only" basis and as
such they need to continually
generate upfront commissions. The
only way they can do that is to sell
existing investments and purchase
new ones in order to create soft
commissions.
This clearly creates a conflict as the
client no longer knows whether the
advice he is being given is to create
Portfolio growth or simply to
generate commission. The team at
ICHOR has seen a number of
instances where clients have been
invested in funds and structured
notes purely on the basis of which
provider will pay their adviser the
highest commission. This has
resulted in a number of high profile
Fund failures resulting in significant,
and in some cases, total capital loss
to the client.
ICHOR removes this conflict by
employing only salaried staff and by
rebating soft commissions.
Again, in order to highlight this, let
us assume that the client's portfolio
is switched just twice a year. For
those investing in Structured
Products "Auto-calls", this could be
far more frequently.
Typical Adviser
It is important to note that 5% is the
average soft commission that is
potentially payable every time your
adviser makes a recommendation to
buy a Fund or invest in a structured
note. Therefore, the more often you
switch, the greater the adviser's
earnings will be in percentage terms.
We have seen instances where
advisers have earned in excess of
10% per annum from soft
commissions.
Assumptions
Fee
1.5%
Soft Commissions 5%
Comparison

Assumptions
Perhaps the easiest way to appreciate the effect of commissions on a
portfolio's performance is to look at a worked example.
The following charts compare the net returns and earnings on your Portfolio
after charges and commissions.
For the purpose of illustration, a notional 12%pa rate of return has been used.
and we have assumed that just 30% of your portfolio was adjusted twice a
year, although this may in fact be much higher where structured notes or an
aggressively managed portfolio is concerned.
Performance

Comparative Performance
Where your adviser takes initial and soft commissions, we can see that the
performance of your portfolio is signiﬁcantly less than that of the identical
ICHOR portfolio, where no initial commissions has been taken and soft
commissions have been rebated.
Performance
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
0 1 2 3 4 5 6 7 8 9 10
Ichor PPB 8 Year PPB
Typical Adviser
$143,451
ICHOR
$256,496

Earnings
So who earns what? The chart below illustrates that the typical adviser will
earn more from your investment than you will every year, and that over 10
years will, in fact, earn more than twice as much. This, clearly, is wrong.
Had your the portfolio been structured and managed by ICHOR, your
earnings would have trebled and your costs reduced by more than 70%.
Performance
With ICHOR You Earn
$156,496
Your Adviser Earns
$89,768
You Earn $43,451
ICHOR Earns
$25,757

Existing Portfolio Bond Holder
If you already have a Portfolio Bond or
Insurance Wrapper, and wish to reduce your
costs, you should speak to one of our
professional advisers.
In most cases, we will recommend that you
remain with your existing Portfolio Bond
provider, thereby avoiding any potential
surrender penalties.
We will agree on an investment strategy
together and work with you to achieve your
financial objectives.
Once you decide to proceed, all you will
need to do is advise your Portfolio Provider
that you have appointed ICHOR as your
portfolio manager.
New Portfolio Bond Holder
For those of you looking to establish a
Portfolio Bond for the first time, we will
conduct a full financial review to determine
whether or not it is an appropriate vehicle,
and if so, which of the Portfolio Bond
Providers is the most suitable.
We will agree on an investment strategy
together and work with you to achieve your
financial objectives.
The Next Step
25/F Citibank Tower
8741 Paseo De Roxas
Makati City
Philippines
1226

"Since 1995 the founding partners have built a reputation for providing the very highest
levels of independent financial advice in the industry. Today we are helping clients around
the world meet their financial goals and secure the future they want for not only
themselves, but also their families and future generations to come.
As a long term expatriate myself (I joined Jardines in Hong Kong in 1989) I fully
understand that for most people,managing their financial affairs can be a daunting task,
especially when trying to balance this with today's hectic expatriate lifestyle. The
cornerstone of our success is that unlike most Advisers we operate on a full disclosure
basis and do not recommend products or services that pay upfront commissions.
The establishment of ICHOR represents a major investment on our part and is yet another
indication of our commitment to our clients enabling us to combine old fashioned face to
face interaction with cutting edge on line solutions and investment tools.
I encourage you to look at our achievements and the financial strength of our group by
visiting www.ichorpartners.com and to meet with one of our professional salaried advisers
to experience first hand the ICHOR advantage."
Carl Huckstep
CEO
About Us
ICHOR is an independently owned Forensic Wealth Management firm and as such much of our
work is focused on reducing, and in most cases removing, the imbedded fees and commissions
that are hidden within your existing structures, thereby releasing the full potential of your underlying
assets. The founding partners are drawn from the legal, banking and insurance sectors. Their
professional training combined with their “real life” experiences enables them to have first hand
insight to the challenges and opportunities facing today’s international investor.
CEO's MESSAGE

PPB SURVIVAL GUIDE [89790]

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