AVIVA's MVR ate my profit

ellenGB · 11 April 2011 at 4:03PM

Prologue added after I became aware of an error. Due to rapidly changing information as the thread evolved, there was some confusion and I felt that a few comments were unfair and perhaps a little too personal. Consequently, I removed most of my posts on a number of days. The story below is what I believe to be accurate. There is one exception where I know I was wrong and I apologise. I managed to read over the words 'market value reduction' four or five times and maintained there was no reference to them in the Key Features booklet. There was. This is a mistake on my part but I've kept it in the summary (see below) so readers understand the comments that followed. After posting the initial question, the Financial Ombudsman's office wrote to AVIVA and AVIVA then called me to note that due to an issue at the helpline, I had been given incorrect information. My MVR was therefore not £900 plus but £20 and might be £0 on May 5th. To clarify, the letter from the Ombudsman helped to resolve this problem at the first stage. I am therefore a very happy client and I apologise to AVIVA for the suggestion that they may have acted unfairly. It was a simple mistake at the helpline end.

The issue as posted earlier, i.e with my mistake: The case was triggered by a letter from AVIVA noting that I had reached the five year limit of the bond and they'd add the guarantee linked to inflation. When I called their helpline to enquire what the total amount might be, I was informed that I had a MVR of over £900, which seemed a lot. I checked the Key Features (no mention of MVR) and T & Cs (mentioned MVR in specific circumstances, e.g. falling stock market, poor fund performance, to be removed when those circumstances improved). Document sent last week noted that the fund was 'excellent' and graph indicated fair performance (above stated aim, i.e., to outperform building society interest). I called the Financial Ombudsman's office for advice as I couldn't see that the criteria justified a large MVR and felt that Norwich Union (as AVIVA was then) had not been clear in everyting I'd been sent. AVIVA were clear about all other charges with lots of illustrations, but not about MVR, especially period covered. The little information suggested withdrawal of MVR when stock market was improving etc. Posters advised me to check T & Cs and Key Features to make sure that I had not missed the details. I hadn't.

dunstonh · 11 April 2011 at 4:38PM

I am being severely punished for a poor fund manager. (The current value is about £1000 more than the original amount I put in).

No you are not. The fund performance of the Aviva WP fund S4 is higher than the UK all companies sector over 5 years.

Given the stock market isn't doing badly

In the last 2 years yes. However, are you forgetting the 2 years before that?

The amount seems unreasonable, out of proportion and quite frankly unfair.

How can it be unfair? You only invested 5 years ago so the information on MVRs was quite well known published. So, you cant say you didnt know about it. The amount is subject to investment returns until the MVR free exit point (they have had 5 year and 10 year versions over the last 8-10 years).

I've complained to the Financial Ombudsman, but there's little she can do except emphasize.

You cant complain about investment returns as they are unknown and there is no wrong doing here.

FTSE today is well over 6000.

If you had invested in the UK all companies sector then that figure would be applicable. However, you didnt and probably a good job as currently over 5 years the WP fund has outperformed it.

Anyone know if there's something I can do except cry?

Wait until the MVR is removed. Or if you don't want to invest in a partially protected asset fund and prefer to move up the risk scale and invest in the FTSE100 linked fund then accept the step back to move into that.

Any reason you want to withdraw the funds out of the bond now?

Rollinghome · 15 April 2011 at 11:27AM

ellenGB wrote: »

Anyone know if there's something I can do except cry? FTSE today is well over 6000.

Probably not unfortunately, other than put it down to experience.

There are huge costs for such products including profits for the company and the whacking lump of commission they pay financial advisers to sell them - all of which has to be taken from your money. Had you invested in a simple index tracker fund, which have minimal costs and pay little or no commission to financial advisers, then you could have exited at any time without any extra charges.

Martin Dickson writing for the FT about with-profit bonds put it well when he said it's not wise to buy a pig in a poke especially if you can't trust the farmer who's selling it. Hope you have better luck next time.

dunstonh · 15 April 2011 at 11:27AM

BTW, the Financial Ombudsman also believes that the MVR on this type of policy is ridiculous.

Evidence?

The FOS has not made any such ruling and you would not find them say any such thing. It would be a daft thing for them to say as well as it would indicate that they havent a clue about something that they should understand. The initial telephone staff may say that but then they only agree with your on what you say. However, they have no knowledge or understanding beyond their scripts. Once you get to ombudsman though you would not hear the same things being said.

If the fund has done well, and the company has done well, exactly why did they need to apply a MVR at all?

The fund has underperformed your valuation. Hence the MVR.

A double dip could eat away at it again. Seems like a good reason to cash in.

There will always be negative periods. Just as there will always be positive periods. You average them out. If the MVR is a concern, then why not wait it out? You still have the inflation guarantee, you benefit from lower charges from year 6 onwards and you may have an MVR free exit point in year 10.

Had you invested in a simple index tracker fund, which have minimal costs and pay little or no commission to financial advisers, then you could have exited at any time without any charges.

And a lower value than the OP currently has. So, no doubt that would have a different complaint. It is also a higher risk investment fund so again, probably another complaint there. There is nothing to say the OP even used an adviser or what terms it was done on. The problem seems to be a more about a lack of understanding than the actual fund.

Rollinghome · 15 April 2011 at 11:41AM

dunstonh wrote: »

There is nothing to say the OP even used an adviser or what terms it was done on.

Indeed. But it's highly unlikely that anyone wakes up in the morning and thinks what a good idea it would be to buy a with-profits bond today. They are sold and I dare say you've been party to selling a good many of them yourself.

dunstonh · 15 April 2011 at 11:48AM

They are sold and I dare say you've been party to selling a good many of them yourself.

What I do is irrelevant (but no, I have not used this fund).

Aviva did market these direct offer to consumer 5-6 years ago and they had a very good take up. The inflation proof guarantee appealed to a lot of people.

Why try and twist it into anti-adviser? Had the op used an FA and put it in the Aviva FTSE Tracker fund then the value would be less. The OP would no doubt be complaining about that based on comments of post #1. It would also be higher risk than this fund.

The issue is not about the fund or the product or whether an adviser was used or not. It is about a lack of understanding of how it works and then trying to blame the fund for being something it is not. The investment she has has outperformed the area she is comparing it to. That is despite it actually having very little investment in that area.

Rollinghome · 15 April 2011 at 12:11PM

dunstonh wrote: »

What I do is irrelevant (but no, I have not used this fund).

I was referring to selling with-profit bonds which I'm surprised confused you.

Dunston, I pointed out that a large chunk of investments in w-p bonds goes as profit to the company and as commission paid to the advisers who sell them. That's simply factual.

You stalk these forums 7 days a week with an average of 20 posts a day giving out the message of how sensible it would be to hire someone like yourself and acting highly aggressively towards disatisfied investors or anyone who tries to balance your propaganda by pointing out the possible pitfalls of using an adviser - most of whom come from a sales rather than financial background.

If you did a little less of the aggressive hard sell you'd probably create a much better impression. Relax.

dunstonh · 15 April 2011 at 12:32PM

You stalk these forums 7 days a week with an average of 20 posts a day giving out the message of how sensible it would be to hire someone like yourself and acting highly aggressively towards disatisfied investors or anyone who tries to balance your propaganda by pointing out the possible pitfalls of using an adviser - most of whom come from a sales rather than financial background.

You stalk these forums just to post the opposite opinion to whatever I post and try and slag off advisers at every chance going even when the thread has nothing to do with it. just like this one.

The OP has not mentioned advisers and not mentioned remuneration. I had not mentioned advisers or remuneration either. Only you have. You just cannot help making false accusations.

Dunston, I pointed out that a large chunk of investments in w-p bonds goes as profit to the company and as commission paid to the advisers who sell them. That's simply factual.

No it is not factual. The Aviva portfolio bond the OP holds has around 250 odd unit linked funds. It has 3 with unitised with profits funds. The remuneration is the same irrespective of fund used.

property.advert · 15 April 2011 at 12:45PM

So is an adjustment ever made to uplift a payout ? If not, why not ?

magpiecottage · 15 April 2011 at 2:28PM

I am not sure why the OP refers to the "Financial Ombudsman" as a she. Whilst the current Chief Ombudsman is a lady, as far as I know she has no financial services qualifications and does not get involved in individual complaints.

From the posts by DunstonH on this thread I think, like me, he believes the OP simply telephoned the Financial Ombudsman Service and spoke to somebody in its call centre (who happened to be female).

However, whilst they may be sympathetic, they would have no actual evidence before them and, as DunstonH has said, FOS cannot get involved in matters solely relating to investment performance. Nor can it get involved in matters that only involve the exercise of a provider's commercial judgement - which an MVR would.

In fact, Aviva is legally obliged to manage conflicts of interest between its customers fairly - under FSA principle 8. It therefore has to ensure that investors cannot simply withdraw the "headline" value of their investment at a whim because they could then reinvest at the "true value" and this would be detrimental to others investing in the fund. If they did not apply an MVR they would have to apply some other mechanism to do this which would have more or less the same effect.

Conversely, if the value of the underlying investment is above the headline value a terminal bonus may be added to reflect this (which answers property.advert's question).

Rollinghome is correct in saying the provider will seek to make a profit out the investment - there is no point in being in business otherwise. However, (s)he is wrong to say it is a "large chunk" of the investment. Shareholders are normally allowed to take 10% of the profits (i.e. the gain in value). However, like any other business, they have to pay for staff, premises, fuel, pensions, National Insurance etc.

In addition, all that protection that is banged on about on the MSE website and elsewhere has to be paid for. Aviva must pay enormous fees to the FSA to be allowed to operate. It has to pay millions of pounds to the Financial Services Compensation Scheme to bail out customers of other firms that go belly up. It has to pay a levy to the Financial Ombudsman Service and for staff to deal with the many spurious complaints as well as the legitimate ones. It has to pay a fee of £500 to the Financial Ombudsman Service every time a complaint goes there - no matter how spurious it is.

All those costs are passed on to the consumer.

Rollinghome infers that DunstonH gets commission on any with profits bond he sells. I don't know because he is not a client of mine but I think he only gets paid by fee. However, that, as he says, is irrelevant because the question is one of suitability. The OP would need to show they had been misled and I do not think they were.

I also see that the OP claims that the surrender value will be what they put in after accounting for inflation. However, even if they persuaded FOS of a missale, they would probably only be awarded the original investment plus interest at Base Rate compounded annually under current FOS practice. That would actually be less than inflation.

property.advert · 15 April 2011 at 2:42PM

magpiecottage wrote: »

...In fact, Aviva is legally obliged to manage conflicts of interest between its customers fairly - under FSA principle 8. It therefore has to ensure that investors cannot simply withdraw the "headline" value of their investment at a whim because they could then reinvest at the "true value" and this would be detrimental to others investing in the fund. If they did not apply an MVR they would have to apply some other mechanism to do this which would have more or less the same effect....

Then this raises the transparency and legitimacy of any valuation where it cannot be liquidated for the quoted amount.

If one has 100 shares in a fund which is quoted as being worth £10 a share then, then the investor should have reasonable confidence that it will in fact be worth £1000 and not merely £900. Otherwise the £10 a share valuation is misleading at best.

Remember, we are never talking about liquidating a £XXX million fund all at once and as people withdraw, then others invest, meaning that for many holdings, there is no bid offer spread to cross.

AVIVA's MVR ate my profit

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