Personal finance: The benefits of good advice

ANYONE CONSIDERING buying a with-profits bond could be forgiven for thinking that investing in one is easy. All you need to do is go to a company that provides them, fill out the right paperwork and hand over the money.

It may seem that simple, but in reality it is also the expensive way of doing things. There are upwards of 20 companies selling various with- profits bonds. How does one choose between them?

Don't expect too much help from company salespeople. For a start, they are only authorised to sell the products of the company they work for. It is also a mistake to assume that by going directly to a company you will pay less commission. The company may not pay out as much to an intermediary for selling the product, but it just keeps the money instead.

Independent financial advisers (IFAs) can also help select the right product. They are there to find the right bond for your specific needs. Bear in mind, though, that not all advisers are completely competent. Moreover, some are likely to be adversely affected by the commission they earn from selling you a particular product. You could opt for a fee-based adviser, but that can cost pounds 150 an hour.

In recent years, there has been a spectacular growth in the number of "discount" intermediaries, brokers who sell without giving advice when you buy a product. Instead, they give "guidance", in return for which they offer to forgo most, if not all, of the fee they might otherwise receive from the sale.

Unlike an IFA, who might only sell a couple of dozen with-profits bonds a year, after an extensive fact-finding exercise and research into a customer's background, a discount broker sells hundreds, even thousands of policies a year, with far fewer overheads.

Remember, by virtue of being execution-only (they do what you tell them), many brokers may not even offer guidance. On the other hand, a "category C" adviser will provide enough generic and product-specific information for you to make up your own mind.

Most discount brokers will rebate all their initial commission, keeping only a 0.5 per cent renewal income paid on the value of the with-profits bond after the first year.

The key points to look out for when choosing a broker are:

The scale of the commission they rebate back to the client.

An easy-to-understand explanation of with-profits bonds and how they work, free of jargon.

The explanation should include factual details on each company, enabling a person to make easy comparisons between them. Even better are flow charts, taking people through the options. Some people find a rating system for various bonds helpful.

An explanation of how much rebate you will receive back and in what form it will be, plus what the effect of the rebate will have on the final value of your investment.

Following these simple guidelines should enable investors to find the right broker to buy a bond from. After that, it's up to you.

`The Independent' has produced a free 24-page `Guide to With-Profits Bonds'. Written by Nic Cicutti, this paper's personal finance editor, the guide examines the arguments for and against investing in bonds. It explains the tax implications and where to buy a bond. For your copy of the guide, sponsored by The With-Profits Bond Shop, call 0845 2711007.