IPTM7725 | Personal portfolio bonds (PPB): ability to select property: broker bonds and investment advisers: circumstances where policy is not a PPB

Broker-managed funds (‘broker bonds’)

Many companies offer policyholders the opportunity to invest in broker-managed funds. An intermediary or adviser chosen by the policyholder selects the assets in this sort of fund. The intermediary or adviser has an arrangement with the insurer to manage one of the insurer’s internal funds and for this fund to be open to any client of the broker.

The broker is regarded as an agent of the policyholder when advising on whether the client should take out the policy or ‘broker bond’ in the first place. However, once the broker bond has been taken out, the broker manages the fund as an agent for the insurer and is remunerated by the insurer for doing so. The broker is not an agent of the policyholder when acting in the capacity of an investment adviser for the insurer.

Policyholders who have a policy under whose terms they are able to select a broker-managed fund to determine the value of benefits under the policy would not therefore normally be regarded as having a PPB.

Exceptionally, arrangements may result in a policy described as a broker bond being a PPB because the policyholder retains the ability to select - see IPTM7730.

Investment advisers

Where the policyholder is unable under the terms of the policy to select the property to determine the policy benefits, there may nonetheless be an option to require the insurer to appoint an investment adviser. The insurer may offer the policyholder a menu of possible advisers it is willing to appoint. There will usually be a separate agreement in these cases between the insurer and the investment adviser.

A policy written in these terms would not in general be a PPB. In such a case, the adviser would be acting as an agent of the insurer under the agreement between them. That agreement is separate from the insurance contract between the insurer and the policyholder, and from any agreement between the policyholder and the investment adviser. The adviser would not therefore be acting on behalf of the policyholder. The position would be the same as with broker-managed funds, as described in the previous section.

However, as with broker bonds, in exceptional circumstances the arrangements may be such that the policyholder does retain an ability to select - see IPTM7730.