Onshore bonds grow in popularity with advisers

According to data provider Defaqto’s newly published annual Investment Bond Service Review for 2023, there is a growing trend for advisers to recommend onshore bonds.

The company said that this year has reinforced two emergent industry trends: firstly, that open architecture products are generally favoured over restricted and that onshore is preferential to international.

It said onshore open architecture bonds are now the product of choice for those advising on bonds. 

More than 85% of advisers are now writing open architecture onshore bonds although pensions, investment ISAs and unit trust/OEICs remain most popular for advisers’ investment clients

The trend has emerged over the the last five years. In 2018, international bonds were most popular but support for these has fallen again, by 5% in this year’s review. The popularity of onshore open architecture bonds this year has increased by 3%, widening the gap between the two.

{loadposition hidden2} 

While 85% of advisers are now writing open architecture onshore bonds and two-thirds (66%) are still writing open architecture international bonds, Defaqto says. 

When asked about other investment products – pensions, investment ISAs and unit trust/OEICs remain most popular for advisers’ investment clients. However, all three products have less support than previous years. 

By contrast, annuities and some of the more sophisticated investment products experienced an up-turn in interest, Defaqto said.

Ben Heffer, Insight Consultant (Wealth and Protection) at Defaqto, said: “The growth we see in annuities is likely in response to improvements in rates, a more cautious attitude to risk post-pandemic and the cost-of-living crisis.

“However, it would be premature to think that advisers were significantly changing their Financial Planning habits. We assume that pensions and ISAs will remain the first choice for clients’ investments for years to come alongside any bond recommendations that advisers might make.”

The firm has also looked at the popularity of individual providers, determined by the number of advisers surveyed that had placed business with them in the 12-month period covered by the review. 

In terms of onshore providers, Prudential dominates the market with 39% of advisers recommending its bonds to clients. This is in line with previous years. 

Aviva, Canada Life, Quilter and LV= appear to have lost some traction and now have support from 20% or less of advisers.

The only providers to have increased their level of support this time are HSBC Life and Foresters Friendly Society.

Healthy Investment and Abrdn (for Wrap) are new to the chart this year and the support for Standard Life Assurance, which was once in excess of 20%, now seems to be split between Standard Life and the rebranded Abrdn Wrap product.

Mr Heffer said: “The withdrawal from the offshore market of Quilter has benefitted other main providers. We have now seen Canada Life International and Prudential International top the table. 

“In 2021, just under one in five (18%) recommended Quilter but since their exit, Canada Life International has seen an increase in support of 12% from advisers whilst Prudential had a significant surge of 21%. Other brands, including Standard Life International also appear to have benefitted.”

In the rankings, Isle of Man Assurance, RL 360 and Lombard International Assurance SA also received significantly increased support.

In total, 19 providers received sufficient adviser nominations as preferred providers to be awarded a Defaqto service rating. Ten of these were onshore and nine offshore. 

The top 10 preferred onshore bond providers, in order, were:

1. Prudential (UK)
2. Quilter 
3. Canada Life (UK)
4. Aviva
5. Transact
6. HSBC Life (UK)
7. abrdn (for Wrap) 
8. LV 
9. Healthy Investment (UK)
10. Foresters Friendly Society (UK)

{loadmoduleid 444}