Under the Spotlight: Scottish Amicable Bonus Bond: A tracker that's not worth the high management fees

The product: Scottish Amicable's Bonus Bond.

The deal: Scottish Amicable is being taken over by Prudential. Its policyholders will receive payments worth hundreds of millions of pounds. ScotAm wants to hang on to the cash, so it is offering its investors a "tracker bond" which mimics the performance of the FTSE 100 share index.

Drawbacks and risks: ScotAm is charging annual fund management fees of 1.5 per cent. But tracking the Footsie 100, a volatile investment, simply involves copying other investors. For the same service, other providers charge as little as 0.5 per cent. Few go over 1 per cent. ScotAm says that, unlike similar products, there is no initial charge of 5 per cent. However, instead of taking a bite up front, ScotAm bleeds it through an extra annual "establishment charge" of 1.25 per cent for five years. If investors cash the bond in within five years, there's an additional surrender penalty of up to 7.5 per cent, reducing on a sliding scale each year.

This insurance company bond pays tax on capital gains. Andrew Jones, of independent adviser the David Aaron Partnership, says investors will pay less tax within a unit trust unless they already make more than pounds 6,500 a year in capital gains.

Plus points: Only those who were members of ScotAm before it was taken over by the Pru can buy it, which is good news for all non-members.

The verdict: If any ScotAm policyholder fails to look for a better deal, they deserve what they get: a crummy product.

Marks out of five: None

- Andrew Verity