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AVIVA's MVR ate my profit
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# 1
ellenGB
Old 11-04-2011, 4:03 PM
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Default AVIVA's MVR ate my profit

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.

Last edited by ellenGB; 24-04-2011 at 6:24 PM. Reason: To clarify removal of posts and alert to error in original post.
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# 2
dunstonh
Old 11-04-2011, 4:38 PM
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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.

Quote:
Given the stock market isn't doing badly
In the last 2 years yes. However, are you forgetting the 2 years before that?

Quote:
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).

Quote:
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.

Quote:
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.

Quote:
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?
I am a Financial Adviser. Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
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# 3
Rollinghome
Old 15-04-2011, 11:27 AM
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Originally Posted by ellenGB View Post
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.
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# 4
dunstonh
Old 15-04-2011, 11:27 AM
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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.

Quote:
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.

Quote:
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.

Quote:
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.
I am a Financial Adviser. Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.

Last edited by dunstonh; 15-04-2011 at 11:39 AM.
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# 5
Rollinghome
Old 15-04-2011, 11:41 AM
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Originally Posted by dunstonh View Post
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.
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# 6
dunstonh
Old 15-04-2011, 11:48 AM
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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.
I am a Financial Adviser. Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
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# 7
Rollinghome
Old 15-04-2011, 12:11 PM
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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.
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# 8
dunstonh
Old 15-04-2011, 12:32 PM
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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.

Quote:
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.
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# 9
property.advert
Old 15-04-2011, 12:45 PM
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So is an adjustment ever made to uplift a payout ? If not, why not ?
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# 10
magpiecottage
Old 15-04-2011, 2:28 PM
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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.
I run a consultancy to help Independent Financial Advisers to comply with their rules and resolve complaints. Although I am qualified to, I don't advise consumers for reward.
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# 11
property.advert
Old 15-04-2011, 2:42 PM
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Quote:
Originally Posted by magpiecottage View Post
...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.
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# 12
Rollinghome
Old 15-04-2011, 3:42 PM
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Originally Posted by dunstonh View Post
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.
Strange though it may seem to you Dunston, it is permissable to post views that differ from yours about the products you may have sold. It was you who initially quoted and questioned my post, not the other way around.

There are certainly decent advisers around who don't mislead or defend the indefensible. Such as Peter McGahan on the ThisIsMoney forums and Justin Modray at www.candidmoney.com. Unfortunately there is also a high proportion of ex-salesmen of various kinds now working as advisers and more than a few rogues too. As I remember you prefer not to discuss what you did before becoming an IFA.

This is what Peter McGahan said of with-profit bonds last week:
"With profit bonds. Now there is the world’s greatest enigma. Not only were they never a good idea, but it is now over ten years since they were really shown to never be a good idea. Yet, today there is over 330bn sitting in such arrangements, fermenting at the expense of the unaware investor." Full post at http://boards.thisismoney.co.uk/tim/...message=607894

Another post by Peter about investment bonds yesterday, "7 things you don’t know about investment bonds but should": http://boards.thisismoney.co.uk/tim/...message=610587

The FSA have frequently expressed concerns about w-p bonds http://www.ft.com/cms/s/2/63515b96-8...#axzz1JbMgReKb

It's a pity these forums and users don't have the benefit of an IFA as objective as Peter McGahan and Justin Modray. I wish they did.

Last edited by Rollinghome; 15-04-2011 at 4:02 PM.
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# 13
jhxmt
Old 15-04-2011, 4:04 PM
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Personally I've always found dunstonh's posts to be very informative and useful. As with any personal opinion (as all posts on these forums are), they necessarily reflect his viewpoint, but (a) that doesn't invalidate them at all and (b) I think it's the height of bad grace to effectively open up an unprovoked, ad hominem attack against someone who is trying to help people on these forums, in their free time. Disagreement is all well and good, but as soon as you start insinuating that the author has an ulterior motive and attack on that basis rather than on the content, the rest of your post loses credibility.

On the original topic: OP, there's probably little you can do at this stage, but this is presumably the right time to step back and take stock of whether or not this and similar products are right for you in future - particularly now you've got a heightened awareness of some of the potential downsides.
Anything I post here is purely my own personal opinion. As such it may be wrong, poorly worded or written very tongue-in-cheek. Please therefore treat it the same way you should treat anything you read on the internet from an unknown person - with a healthy pinch of salt and scepticism!
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# 14
dunstonh
Old 15-04-2011, 4:41 PM
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Strange though it may seem to you Dunston, it is permissable to post views that differ from yours about the products you may have sold. It was you who initially quoted and questioned my post, not the other way around.
It is not about different views. Its about you totally ignoring the thread subject and turning it into an anti adviser rant and taking the thread off subject.

You cant seem to make your mind up what you are talking about on this thread. Most of it has absolutely nothing to do with the subject. That is not fair on ellenGB who posted about a particular fund.

Quote:
As I remember you prefer not to discuss what you did before becoming an IFA.
I have no problems at all with my career history. I just don't see what point my career history has to do with anyone on an internet board. Only you seem to have this perverse infatuation with it.

When you leave school and start your career I am sure you will then realise that you dont start at the top and that you work your way up.
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Last edited by dunstonh; 15-04-2011 at 5:03 PM.
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# 15
magpiecottage
Old 15-04-2011, 10:26 PM
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Originally Posted by property.advert View Post
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.
But shares do not carry the guarantee of inflation proofing which the OP says (s)he had.

If you want insurance then somewhere along the line an actuary is going to factor in a price for that and, unless you are an extraordinary mathematician, you are going to have to take their word for it. That is not actually such an unusual concept - I have been in aeroplanes but have only a vague idea how to drive the things!

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Originally Posted by property.advert View Post
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.
I think this indicates that you do not understand how these products work. If an investor was able to sell his investment for 10 and immediately buy it back for 9 then his gain of 1 represents a loss of 1 spread between all the other investors.

That is why the guarantee only operates in specified circumstances and/or on specified occasions.

You can have certain guarantees or total transparency - but it is unrealistic to expect both.
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Last edited by magpiecottage; 16-04-2011 at 10:19 PM.
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# 16
jem16
Old 16-04-2011, 10:49 AM
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Originally Posted by ellenGB View Post
It's not so clear why it is being applied in the with-profits bond after five years, where the leaflet on the fund claims that it has done well, and when the company is doing well.
With-profits investments are designed to grow steadily in value rather than being subject to the normal ups and downs. As you say 5 years I'm assuming you took your bond out in early 2006. In 2006 and 2007 the stock market did increase but in 2008 and early 2009 there were large drops. Halfway through 2009 and 2010 saw good growth. If the MVR is still being applied it's because that growth hasn't been quite enough yet to see its removal as the valuation on your statement is higher than its true valuation.

It's quite well explained here on the graph on Page 7;

http://www.aviva.co.uk/adviser/produ...f=in50005c.pdf

Quote:
We're not in the double-dip (yet), so in my view, it's reasonable to have invested in and paid for the guarantee of inflation-proofing and a reasonable MVR. Reasonable in my books does not mean all the gains (profits) after five years.
These investments are really designed to be for a period of 5 to 10 years. You are at the lowest point on that. If the drop had happened in years 1 and 2 rather than 3 and 4 it might have been a different story.

Perhaps you could give the figures in percentages rather than amounts? To talk about a gain of 1000 is relative to how much you actually invested.

Quote:
I don't mind investment funds except that in this case, I'm bothered by the ethics of the company. I've had an issue with them before and the Ombudsman agreed with me. The customer is king. If you don't like something, don't buy it and if you did, complain and see what an independent person says. Thank you for the constructive advice and empathy. The moral of the story is that in practice, these funds have definite downsides. MVRs are fine if not excessive. Everything in moderation.
You are basically paying for the guarantee though - that is the upside. The downside is the MVR.

Why did you choose that particular fund as opposed to non with-profits funds? Why did you choose Aviva itself?

To be fair to Aviva they do have a lot of literature freely available on the website which does contain a lot of info on this bond. I have the same portfolio bond but not in with-profits funds. After 5 years it has made a gain of around 31%.

Quote:
I don't even recall the MVR being pointed out to me but it's in the book. It doesn't note how long, or even how much.
Some have a no MVR guarantee after 10 years. Perhaps you should ask Aviva?

Quote:
I took 600 out as a withdrawal in the first year, and the book suggests that had I continued to take money out, MVR would not be applied.
It says an MVR wuld not be applied for withdrawals of up to 5%.

Last edited by jem16; 16-04-2011 at 10:54 AM.
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# 17
dunstonh
Old 16-04-2011, 12:18 PM
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Reasonable in my books does not mean all the gains (profits) after five years.
The problem is that you think there are gains but there are not. The underlying fund has not performed at the same level as your running value. Hence the MVR. When its above trend, they add a final bonus, when its below, the have the MVR.

Most of these Aviva plans had MVR free exit points at 5 or 10 years. If you have a 10 year MVR free exit point and with the inflation proof guarantee, then keeping it until that point may make sense.

Quote:
The moral of the story is that in practice, these funds have definite downsides.
It is very much a niche fund. Its not a bad option for someone who is looking for capital security and investing very long term or even until death (basically points when an MVR wont exist). However, for people looking for more conventional investment options, most wouldn't go near a fund like this nowadays. The cost of the guarantee and the smoothing effect prevents it working like a conventional unit linked investment.
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# 18
jem16
Old 16-04-2011, 3:27 PM
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Originally Posted by ellenGB View Post
I invested 15000 on the advice of my financial advisor.
A tied adviser from a bank or an IFA?

Presumably though you asked for your capital to be protected. Why aren't you having these discussions with your FA who would have all of the information on why this was recommended in the first place?
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# 19
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Old 16-04-2011, 3:44 PM
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Originally Posted by ellenGB View Post
IFA and still have him as advisor, who is surprised and has no answers either.
I think that would concern me more that your adviser doesn't have any answers.
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# 20
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Old 16-04-2011, 3:52 PM
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Originally Posted by ellenGB View Post
IFA and still have him as advisor, who is surprised and has no answers either. Please don't assume that I've come here without having done some homework first.
It was a fairly important question.

Ask him to explain how he justified the sale if he's "surprised" at the MVR.
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