A Customer Guide to Unit-Linked Funds

Transcription

1 A Customer Guide to Unit-Linked Funds

2 A Customer Guide to Unit-Linked Funds Who this guide is for Canada Life Limited (Canada Life) has been providing financial solutions for customers in the UK since 1903 delivering peace of mind through quality products. We have written this guide to provide our customers with an overview of our unit-linked funds, how they are managed and how we occasionally have to use discretion in line with our principles including treating our customers fairly. The guide will be useful to you if you are thinking about investing, or already have invested, in unit-linked funds from Canada Life. It is also relevant to some customers whose original investment was with Albany Life, Crown Life and Manulife. Please remember that this is only a general guide and it does not constitute advice. For investment advice you should contact a professional adviser. If there is any inconsistency between this guide and your policy documents, then it is the contents of the policy documents that will apply. Investing with Canada Life your choices Whether you are saving for retirement, looking to provide for your dependants in case you die or simply investing to meet medium and long term savings goals, Canada Life can offer you a range of investment solutions that are carefully designed to meet specific needs. When investing with Canada Life, first you choose a product. You then make your investment choices from a wide selection of unit-linked funds. What is a unit-linked fund? A unit-linked fund is a pooled investment that allows you to combine your money with that of other customers. Any money (also known as premiums) you pay into your life policy, investment bond or pension is used to buy units in funds. Fund managers will then invest this money in underlying assets in line with the objectives of the fund. A pooled investment enables you to invest in a wider range of investments than might be possible if you were investing as an individual. You will share any gains or losses of the fund with the other investors. Your policy documentation will show which funds you have bought into and how many units you have been issued in each fund. When you choose which funds to invest in, you may notice that they have a reference to a series. Within the chosen fund, you are allocated units in a series according to which investment product you have chosen and the charging structure that applies. Customers choose a product and own a policy with Canada Life. The value of their policy is linked to the value of the funds they choose to invest in. Canada Life own the underlying assets. Products: Select Account Flexible Investment Bond Pension Investment Plan Flexible Drawdown Plan Trustee Investment Plan Unit Series: Life series5 Life series4 Life series3 Pension series5 Pension series5 Pension series4 Unit-Linked Funds: Life Fund Pension Fund Assets: Cash, Equities, Fixed Interest, Property 2

3 About our funds At Canada Life we provide you with a broad range of funds to choose from depending on your product. In addition to internal funds managed by our investment experts, we also offer you access to external funds managed by some of the other major investment groups in the UK. Our comprehensive range offers a choice of fund types covering all the main asset classes and fund classifications. This allows you to spread your assets in a way that meets your investment needs and attitude to risk. Assets The four main asset classes are: Cash Equities also known as shares, stocks or securities Fixed Interest also known as bonds, they include gilts, other government bonds and corporate bonds Property The ABI fund classification system The system classifies funds under seven main headings: Mixed investment sector funds which invest in a mixture of shares and bonds Distribution fund sector funds which invest to achieve a yield of at least 110% compared to FTSE All Share yield (net of tax) UK equity sector funds which invest at least 80% in UK shares Overseas equity sector funds which invest at least 80% in mostly non-sterling shares Fixed interest sector funds which invest mainly in bonds. Some funds invest as much as 95% in bonds, others no less than 80% Property sector funds which invest at least 80% in property Other sector funds which invest in money markets, commodities, energy and investments not covered by the other classifications. Further information can be found at Managing our unit-linked funds We manage all our unit-linked funds based on the fund objectives, the policy provisions, current regulation and industry guidelines. Canlife British Blue Chip MAKING INVESTMENT CHOICES Examples of how funds are structured INTERNAL FUNDS Canlife Asia Pacific EXTERNAL FUNDS Canlife Fidelity American All our funds follow the Association of British Insurers (ABI) fund classification which is a system for classifying funds that are held in pension and life policies. Its purpose is to group similar funds from different providers to make it easier for a customer to compare. Invested in British assets, mainly FTSE 100 shares Invests in units in an underlying internal CIS* CF Canlife Asia Pacific Invested in Asia Pacific assets, mainly shares Invests in units in an underlying external CIS* Fidelity American Invested in American assets, mainly shares * Collective investment scheme (CIS) 3

4 Policy Provisions This document is our contract with you as the customer. It clearly sets out what we must do, what you must do and the features of your product including how benefits are calculated, what the product charges are and how these are applied. Internal Funds We have a wide range of funds that are managed internally by Canada Life Investments. This is our brand name for investment management activities undertaken by Canada Life Asset Management Limited, Canada Life Limited and Canada Life European Real Estate Limited. Investment Management includes responsibility for the investment decisions including which assets to buy and sell while ensuring that our unitlinked funds are invested in accordance with investment mandates and fund objectives. Canada Life Investments A UK-based asset manager responsible for over 33 billion* of equities, fixed income and property. Canada Life has a long history of managing assets in the UK, having launched its first unit trust in Based in the City of London, Canada Life Investments offers a broad range of investment solutions managed by a team with extensive industry experience. * as at 31/01/16 External Funds We want our customers to have access to a comprehensive selection of funds with a wide choice of investment options. To support this, we also offer funds from carefully chosen fund management companies. It is important that you understand that when you choose to invest in an external fund it is the external investment manager who makes the investment decisions including which assets to buy and sell. We make these external funds available to you through a Canada Life version of the fund in which you buy units in the normal way. This Canada Life version of the fund then invests in the underlying CIS that is provided by the external investment manager. The investment performance of the Canada Life version of the fund will aim to reflect the performance of the underlying fund. Collective Investment Scheme A Collective Investment Scheme (CIS) is an arrangement managed by a professional investment manager, where customers can pool their money to allow them access to investments in a much wider selection of assets than if they invested on their own. Most Collective Investment Schemes invest in shares, government bonds and corporate bonds, but they can also invest in commercial property and other CIS. The name of the scheme often includes an indication of which assets a CIS invests in for example, UK equities, corporate bonds, property. You can find out which assets a CIS is invested in by reading the fund factsheet, key information document and prospectus provided by the fund manager. We want to make sure that you, as a Canada Life customer, receive the same level of service and information whichever fund you choose. As part of our governance framework, we keep in regular contact with the external fund manager to ensure that the relationship set out in service level agreements between us and the external fund manager are maintained. 4

5 Investing in funds The mix of assets held in a unit-linked fund will vary and will be aligned to the specific objective of the fund. Details of all our funds and their objectives can be found on our website or you can contact us to get the information. Fund Objectives The fund objective summarises what the fund is aiming to achieve and the type of assets it will invest in. You can usually invest in up to ten different funds at any one time, depending on which product you invest in. The fund factsheet will give you information about the individual funds. Fund Factsheet It will include: the fund objective what kind of fund it is: a life fund or a pension fund when the fund was first launched the fund size who the fund manager is the fund s historical performance the charge for the cost of running the fund (does not include any product charges which would be included in your Policy Provisions) The fund charge does not include any fee for the administration of the product in which the investments are held. Whichever funds you choose, internal or external, your product is still managed by Canada Life who will continue to be responsible for administration and customer care. We value our relationship with our customers and are committed to dealing with all our customers honestly and fairly. This is part of our culture and Canada Life s policy on treating customers fairly is available on our website. We have an expert team who are responsible for the day to day running of the operational management of the funds. In addition to the Board, we have investment, compliance and risk committees who are responsible for oversight of the quality of operational management and ensuring that any potential conflicts of interest between shareholder and different groups of customer are appropriately managed in line with our policies. An award winning customer servicing team is always ready to help with any queries. Fund launches, closures and mergers When we launch a new fund, Canada Life may need to provide money to get the fund up and running. This initial money is known as seed capital which is withdrawn once the fund has grown to a sufficient size to operate effectively. There are a number of reasons why we might merge or close funds. One example could be to achieve more effective fund management. We will aim to provide you with at least one month s notice to tell you what your options are for switching into different funds. How we value the fund We calculate the Net Asset Value (NAV) of a fund on a daily basis, at noon. We call this the valuation point. Our aim is to ensure customers receive a fair price whenever they buy and sell units in a fund. The NAV is the value of all the assets in the fund including any income due less any liabilities. The liabilities can include allowances for future tax as well as the costs of running the fund and any product management charge. We value assets in internal funds such as shares and bonds daily (not on weekends or Bank Holidays) using current publicly quoted market prices; for external funds, we receive daily valuations provided by the fund managers. Assets that do not have a day to day market, such as commercial property, are valued at regular intervals by qualified independent professionals. If we are unable to source accurate prices for the assets in the fund we may change the valuation point used to calculate prices or estimate a fair price for certain assets. The exact value of the assets used each day to calculate the NAV will depend on the investment flows in or out of the fund. If more money is being invested into the fund than is coming out then the fund manager will have cash to spend. In this case, the most appropriate valuation of the assets is the price for which we can buy assets plus an estimate of the costs of buying them. This is known as Offer Basis. If there is more money coming out of the fund than being invested into it then the fund manager will have to sell assets to pay customers leaving the fund. In that 5

6 case, the most appropriate valuation of the assets is the price at which we can sell them less an estimate of the costs of selling them. This is known as Bid Basis. The fund can be valued on an Offer Basis or an adjustment can be made to reduce the fund value to a Bid Basis or a value in between these two. This is known as the pricing basis of the fund and it is reviewed daily to ensure that customers buying or selling units pay a fair share of the costs we incur in buying or selling the underlying investments of the fund. We may also have to adjust fund valuations to reflect the revision of estimated values such as allowances for any tax. Pricing the units The unit price is calculated by dividing the NAV by the number of units in the fund and the daily unit prices are published in the fund information section on our website. All our unit-linked funds have two prices, a Bid price and an Offer price. The Offer price is generally the price at which units are bought by the customer and the Bid price is the price at which the customer can sell units. Switching between funds is always done using Bid prices. Any difference between the Bid and Offer price is called the spread. This is an initial charge for buying units. Our newer funds have 0% spread (that is, no initial charge and the Offer and Bid price are the same). Other funds have a spread of either 2% or 5% in line with policy conditions. Bid Offer spread When first investing in a fund, the investor pays an initial charge to cover the costs of setting up the policy. The initial charge is expressed as a percentage and is the difference between the price at which units in a fund are bought and sold. In our example, the Offer (purchase) price is 100p each unit. The fund has an initial charge of 5% which is included within the Offer price. Therefore the Bid (sale) price is 95% of the Offer price = 95p each unit. Investor pays a premium of 5,000 into a fund and is allocated 5000 units at the Offer price. The money invested in the fund is valued at Bid price, so in this example the value of the investment is 4,750. This is lower than the premium because the initial charge has been deducted. When we receive an instruction to buy or sell units, we use the following day s unit price. This is known as forward pricing and we use this method to be fair to all customers. There may be occasions where we need to take special actions such as delay transactions in order to protect the interests of customers. This could be because a fund s assets cannot be readily traded at fair market prices or market values for a fund s assets are unavailable due to issues beyond our control. Such occasions are rare, but when they do occur our aim is always to return to normal as soon as we can while treating our customers fairly. What type of charges can apply to a unit-linked fund? Fund charges Every day when the fund is being priced, charges related to the fund are deducted from its value as part of the pricing process. The main deductions are: Investment management charges (IMC) which pay for the investment manager to research and manage the assets in the fund; Dealing fees for buying and selling the assets in the fund this includes broker fees and transaction costs; Custody fees for the financial institution that is responsible for the safekeeping of the assets in the fund; Allowance for future tax liability please see the separate section on tax treatment for more detail. 6

7 Product charges In addition, we also charge a fee for the cost of managing the product within which the units are held. The charge covers the costs of the day to day administrative tasks such as valuation, pricing, keeping accounts, product payments and keeping customers informed about how their investment is doing. The charge may be deducted from the fund directly or paid in another way according to the terms and conditions of your product. Changes to charges Sometimes we may have to adjust charges to reflect changes. We aim to give three months notice of any change and, if this is not possible, we will provide as much notice as we can. Tax treatment of unit-linked funds In respect of pension funds, the company does not make a deduction for tax. However, sometimes tax which has been incurred before the money has been received by the fund cannot be recovered. Life funds are treated differently for tax. To be fair to all investors the price of the fund makes an allowance for tax on taxable income and gains at the policyholder rate of tax which is currently 20%. Investment losses can be used to reduce taxable gains and, in some cases, the allowance for tax may be reduced to zero. We allow for timing differences between the deductions being taken from the fund and when we expect the tax to be paid by reducing the rate of tax. In addition, all funds are responsible for any transaction tax payable when buying and selling assets. The allowance for tax in each fund is an estimate of what would be due if each fund were a standalone taxable entity. Discretion is applied so customers pay their fair share of any tax that may be due. It may be necessary to adjust the unit price from time to time to allow for any difference between the estimated and the actual amount once the tax has been paid. Our assumptions used to estimate allowances for tax and any discretion are reviewed at least annually. Please note that the information regarding taxation is based on our understanding of current legislation, as at January 2016, which may be subject to change. What happens if we calculate a price incorrectly? At Canada Life our customers are key to our business success and we are committed to having them at the forefront of our strategy and service. We will review our controls regularly to help ensure we calculate prices accurately. However, mistakes can occasionally happen. We aim to correct them as soon as possible and our approach is in line with industry best practice guidelines developed by the ABI. Throughout the process we do our utmost to treat customers fairly. As part of the investigation we will look at whether there has been a significant impact on unit prices and the value of your investment in the fund. We do this to determine if redress is required. When we need to make redress, our aim is to put each customer, as far as is possible, in the position they would have been in if the error had not occurred. This can involve adjusting the unit price, adjusting the number of units on a policy or making cash payments if the policy is no longer in force. We aim to pay compensation within a reasonable time but it can take some time for us to find customers who have left us. Irrespective of the impact, all errors are investigated and we take appropriate actions to avoid recurrence. We report our errors and what we have done to resolve them to Senior Management and to our regulator the Financial Conduct Authority as appropriate. Material issues are also reported to the Canada Life Board of Directors who are ultimately responsible for the governance of our unit-linked funds. 7

8 How to contact us You should contact your professional adviser in the first instance. If you have any questions you can contact us in the following ways: Phone: (lines are open Monday to Friday 9am 5pm) canadalife.co.uk Head office address: Customer Services Department Canada Life Limited Canada Life Place Potters Bar Herts EN6 5BA Website: Queries and complaints For further information or if you wish to complain about any aspect of the service you have received, please contact Canada Life. Complaints which we cannot settle may be referred to the Financial Ombudsman Service: The Financial Ombudsman Service Exchange Tower London E14 9SR Telephone: or Website: org.uk Making a complaint will not prejudice your right to take legal proceedings. If you make a valid claim against Canada Life in respect of the investment or protection provisions that we arrange for you and we are unable to meet our liabilities in full, you may be entitled to redress from the Financial Services Compensation Scheme; details of the cover provided by the Scheme are given in a leaflet which is obtainable from: The Financial Services Compensation Scheme 7th Floor Lloyds Chambers Portsoken Street London E1 8BN Telephone: or enquiries@fscs.org.uk Website: Information on compensation arrangements is available from Canada Life on request. Past performance is not a guide for the future. The value of units can fall as well as rise. Currency fluctuations can also affect performance. For further information about Canada Life Limited, please visit or call us on Canada Life Limited, registered in England no Registered office: Canada Life Place, Potters Bar, Hertfordshire EN6 5BA. Telephone: Fax: Member of the Association of British Insurers. Canada Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. ID R 8