Investment - too good to be true?

kimfarren

I have been told of investment with Norwich Union called 'with profits inflation protected guaranteed fund'

Apparently if I leave my money in for 5 years or more I am GUARANTEED to get back my original investment increased to keep inline with inflation or the value of any with profit investment including final bonus (minus any MVR) whichever is the greater.

They charge 0.7% a year for the first 10 years.

So, is this really an investment where I cant lose? Wheres the catch?

Also what does MVR mean?

dunstonh

So, is this really an investment where I cant lose?

Yes. You get the lower of your capital returned plus CPI (was RPI until earlier in the year until NU revised the product for new business) if you hold on for terms in excess of 5 years.

Also what does MVR mean?

If you surrender in the first 5 years and the underlying investments are down in value then you can get back less than you paid in. After 5 years there is no MVR.

They charge 0.7% a year for the first 10 years.

That suggests they are discounting the product as that is cheaper than normal retail charge.

a7man

MVR is Market Value Reduction. This will reduce the surrender value of your policy to reflect poor investment conditions. The purpose of the MVR is to ensure that the surrender value is not unfairly higher than the market value of the policy's assets, and that a fair share is left for the remaining policyholders.

dunstonh

Just an add on to that. The 0.7% over 10 years you are referring to is the cost of the inflation linked guarantee. It is not the only charge. That will depend on the terms you have agreed with your IFA (assuming it is an IFA and not a bank/building society or going direct as they are the more expensive options).

napoleon

kimfarren wrote: »

I have been told of investment with Norwich Union called 'with profits inflation protected guaranteed fund'

Apparently if I leave my money in for 5 years or more I am GUARANTEED to get back my original investment increased to keep inline with inflation or the value of any with profit investment including final bonus (minus any MVR) whichever is the greater.

The guarantee is worthless with the inclusion of an MVR. They'll have this hanging over you for years. From my own bitter experience don't touch anything with an MVR.

dunstonh

napoleon wrote: »

The guarantee is worthless with the inclusion of an MVR. They'll have this hanging over you for years. From my own bitter experience don't touch anything with an MVR.

That assumption is incorrect.

It is charged only in the first 5 years is surrender in that time and the market conditions are down. From the 5th anniversary there is no MVR charged.

As it is an investment designed to be in place in excess of 5 years, then the MVR isnt going to be an issue for most people.

napoleon

Are you sure there is no possibility of an MVR after 5 years? I don't necessarily read it that way. And the MVR I got hit with certainly didn't disappear after 5 years, that's for sure.

Apparently if I leave my money in for 5 years or more I am GUARANTEED to get back my original investment increased to keep inline with inflation or the value of any with profit investment including final bonus (minus any MVR) whichever is the greater.

dunstonh

Are you sure there is no possibility of an MVR after 5 years?

On this product, yes.

And the MVR I got hit with certainly didn't disappear after 5 years, that's for sure.

This product hasnt been around for 5 years so you couldn't have had it.

Apparently if I leave my money in for 5 years or more I am GUARANTEED to get back my original investment increased to keep inline with inflation or the value of any with profit investment including final bonus (minus any MVR) whichever is the greater.

That may apply to your product but not this one. That is why the extra 0.7% charge exists.

Here is a quick guide to the current offering:
http://adviser.norwichunion.com/product-literature/files/in/in13120.pdf

First paragraph covers the guarantee.

NU are not a bad WP provider. I still have some on my books and they are doing very well with growth in recent years having been in double digits at times. I have not got one unhappy person sitting in the modern unitised with profits plans. Its easy to knock the poor quality or legacy versions (and with good reason at times) but this is a pretty good contract. Especially as it allows a move into unit linked at a later date if you want (either partially or fully) with no rise to capital gains or charges. There are hardly any with profits investments left nowadays that are any good. However, this one is of the rare variety that is.

kimfarren

dunstonh wrote: »

Just an add on to that. The 0.7% over 10 years you are referring to is the cost of the inflation linked guarantee. It is not the only charge. That will depend on the terms you have agreed with your IFA (assuming it is an IFA and not a bank/building society or going direct as they are the more expensive options).

It was my bank, Barclays, that have recommended this to me but I was thinking of applying direct. Why is it more expensive to apply direct? Barclays have told me that there is no set up fee and they will not be taking any cut of the fund. They said that NU will pay Barclays for introducing me as a customer and that will be the only money they make from this investment. Are they telling me porkies?

dunstonh

It was my bank, Barclays, that have recommended this to me but I was thinking of applying direct.

Barclays will be full cost. Going direct doesnt get you much of a discount either. You need a discount IFA (or local IFA that does execution only) to get the best deal.

Why is it more expensive to apply direct?

They keep the commission that they would have paid to the IFA or multi-tied provider for themselves. Also, they only quote default commission and not enhanced commission (commission rate has no impact on your charges so an IFA getting enhanced commission and rebating gives you better terms).

Barclays have told me that there is no set up fee and they will not be taking any cut of the fund.

That is not quite correct. There is no initial charge. However, if you use them (or any other full commission adviser) you will have an extra 0.5% p.a. charge for the first 5 years on top of the normal annual management charge. The allocation rate will also be around 102.5% (compared to around 107% on discounted terms).

NU pay Barclays but NU recover the charges from the investment. The higher the commission (upto standard) the greater the annual charge. If some of the commission is rebated then the charges reduce.

Never ever get your advice from a bank or building society. Even if they are multi-tied or whole of market. Its a salesforce. They work on maximum commission and the products they retail have higher charges usually than the IFA version. They also have sales targets and sales managers putting pressure on them. Its not the environment to seek advice (hence why banks have more complaints than any other distribution arm).

jamesd

kimfarren, can I interest you in a product that guarantees to protect 100% of your capital and pays 33% after five years, after all charges and costs? No stock market risk.