Investment Bonds

EdInvestor

Let's see if we can get a better idea about these charges by looking at the OP's original question:

Mus wrote:

Have been advised by an IFA to invest £25K in a Select Investment Bond from Canada Life - 50% UK Property (no management fee) 50% Defensive Managed (.163% fee) as I've been identified as a cautious guy I guess. .8% bonus added every 5 years. His commission is £1250
M

Now if you check out the Canada Life Select Investment Bond on the FSA site you discover that the effect of charges on a 25k investment will be a reduction of 5,760 pounds, of which 2,260 will be in the early years.

This illustration relates to the Balanced Managed fund option.The FSA says that they following fund options are also available and indicates the chargind effect:

Fund options

There are 64 optional funds within this product, in addition to the illustrated fund.

Other funds/ Annual charges in relation to the illustrated fund
Canada Life UK Smaller Companies Higher
Canada Life UK Equity Higher
Canada Life Threadneedle Strategic Bond Higher
Canada Life Threadneedle European Select Higher
Canada Life Threadneedle American Select Higher
Canada Life SVM UK Opportunities Higher
Canada Life SVM Continental Europe Higher
Canada Life Schroders UK Smaller Companies Higher
Canada Life Schroders UK Mid 250 Higher
Canada Life Schroders Gilt and Fixed Interest Higher
Canada Life Pacific Basin Higher
Canada Life North American Higher
Canada Life New Star Tactical Portfolio Higher
Canada Life New Star Managed Distribution Higher
Canada Life New Star Higher Income Higher
Canada Life New Star Balanced Portfolio Higher
Canada Life New Star Active Portfolio Higher
Canada Life Multiple Investment Higher
Canada Life Merrill Lynch Investment Managers UK Special Situations Higher
Canada Life Merrill Lynch Investment Managers International Fixed Interest Higher
Canada Life Merrill Lynch Investment Managers Emerging Markets Higher
Canada Life Merrill Lynch Investment Managers American Opportunities Higher
Canada Life Managed Distribution Higher
Canada Life JPM UK Bond Higher
Canada Life JPM Europe Higher
Canada Life JPM Asia Higher
Canada Life Japanese Higher
Canada Life Investec Managed Distribution Higher
Canada Life Investec Cautious Managed Higher
Canada Life Invesco Perpetual World Income Higher
Canada Life Invesco Perpetual UK Growth Higher
*Canada Life Invesco Perpetual Income Higher
Canada Life Invesco Perpetual Corporate Bond Higher
Canada Life International Managed Higher
Canada Life Insinger de Beaufort International Managed Portfolio Higher
Canada Life Insinger de Beaufort Cautious Managed Portfolio Higher
Canada Life Insinger de Beaufort Balanced Managed Portfolio Higher
Canada Life Income Higher
Canada Life Framlington UK Select Opportunities Higher
Canada Life Framlington Managed Income Fund Higher
Canada Life Fidelity Wealthbuilder Higher
*Canada Life Fidelity Special Situations Higher
Canada Life Fidelity Multi Manager Income Portfolio Higher
Canada Life Fidelity Multi Manager Growth Portfolio Higher
Canada Life Fidelity Managed International Higher
*Canada Life Fidelity European Higher
Canada Life Fidelity American Higher
*Canada Life F&C Stewardship Income Higher
Canada Life F&C Multi Manager Growth Higher
Canada Life F&C Multi Manager Distribution Higher
Canada Life F&C Multi Manager Cautious Higher
Canada Life F&C Multi Manager Balanced Higher
Canada Life European Higher
Canada Life CF Midas Capital Balanced Income Higher
Canada Life CF Midas Capital Balanced Growth Higher
Canada Life Cautious Managed Higher
Canada Life British Blue Chip Higher
Canada Life Defensive Managed Lower
Canada Life Property Lower
Canada Life Money Lower
Canada Life Index Linked Lower
Canada Life Gartmore UK Index Lower
Canada Life Fixed Interest Lower
Canada Life Corporate Bond Lower

So the first thing to ask the IFA will be what will be the effect of the lower ones on the two funds he has suggested.

And the second thing will be to ask him to justify the choice of these two funds compared with a number of other funds with a much better performance record which are available within this particular bond wrapper. (I have asterisked a few, and no doubt there are others, which those interested in funds will no more about than me.....)

I can't seem to find the defensive fund, but the CanLife balanced manged fund is rated No 80 out of 106 - poor - and the property fund is no 14 - moderate - out of 38 as rated by Citywire.

It looks a bit lacklustre.Yet the bond wrapper offers several high quality choices.Why would the advisor not choose them?

Expensive wrappers may sometimes be justified if they contain high quality investments, but this looks like the worst of both worlds - high charges and low performance.:(

defender_of_the_weak

No I dont want to just slag off advisers, I want to highlight the continuing rubbish advice that is given by some of the advising community supported by their sales managers and network trainers/consultants.

I am currently working with a number of IFAs to help them against the worst excessives of the claims companies.

Supernova

Thanks EdInvestor

Mus wrote:

The charges on the bond amount to £2190 after 10 years (effect £3470 at 6%) Equates to a reduction of .9% at 6% growth.

This is from the personal example I was given by the IFA and are somewhat lower than the figures on the FSA site. Are these reasonable charges? The CL document says it is £1250 taken out of the establishment charge of .099% pm over 5 years.

The funds are deliberately Low Risk but as I am an investment newbie (apart from pensions) I'm not sure what my attitude to risk as regards stock markets are.

dunstonh

The funds are deliberately Low Risk but as I am an investment newbie (apart from pensions) I'm not sure what my attitude to risk as regards stock markets are.

The whole thing is combined. The IFA should ascertain your risk profile and make recommendations to suit that, your goals and tax position.

An investment novice advisor may only recommend one or two funds (excluding fund of funds which can appear as one fund but really be a portfolio of many). A more experienced investment advisor would normally recommend many funds. Say 5 to 15.

The funds would normally include some stockmarket (UK and global), property, fixed interest etc but the amounts in each sector would vary depending on your risk profile.

Conrad

Ive been in financial services 15 years. I came away from investment advice as I was dismayed by the industry.

The industy focuses far far too much on Tax. My whole training and that issued by the Chartered Insurance Institute focused on Tax, whilst fogetting the most important factor - OUTCOMES.

Time and time again I see binds, pensions and other expensive, inflexible products recommended with little thought going into OUTCOMES.

For example, instead of the whole industry being focused on With Profits and Pensions in the 1990s, they should have been recommending property based investments and Buy To Let.
I have a freind who is a very honest IFA yet he totally misses the point of financial advice. People want investments that perform well, not that which has some obscure soon to be forgotton Tax advantage.


In a nut shell, for my own investments I seek out low charging funds. I go straight to the actual investment houses - these are the people who actual do the investing. Many many Bank, Insurance and even Funds simply take your money then farm it out to these specialised investment houses.

I then seek to spread my money accross a few of these investment houses funds. For example some In european property, some in E European shares, some in the FTSE 250, some in health care and so on.

Many many millions of us have been recommended products by advisers and those products simply havent performed so do your own homework.

BTW I also invest in property abroad, this gives me vastly higher returns than poxy insurance company bond. Have you seen all the staff these providers employ - you pay for all this and often this is obscured, for example many funds only pass a % of the gross gains back to investors.

If you think about it, a large insurer investing in its own property portfolio will have massive costs, for example property surveyors, letting managers, lawyers, etc etc that all are paid out of gross returns. These returns are then paid into the fund AND IT IS AT THIS POINT THE INSURERS SO CALLED MANAGEMENT FEES ARE DEDUCTED - misleading I would say.
FAR BETTER TO INVEST DIRECTLY IN A SELECTION OF SHARES IN ACTUAL PROPERTY COMPANIES for example Speymill Group who invest in E Europe. You will find Banks and Insurers and so called Investment Funds will simply by shares in companies like these anyway and charge you a fortune for so doing.

Lastly - pensions, I avoid these, I want to be in control of my money when I retire and not be forced to hand it over to an insurer in return for an income. And I want my money to pass to my next of kin, NOT TO BE LEFT TO THE INSURER WHEN I DIE!!!!

Tax is a consideration but not a very important one. Millions of people have been sold so called Tax advantageous products only to then be let down by poor performance and high deductions and paying for needless incorporated life insurance.

Conrad

dunstonh wrote:

An investment novice advisor may only recommend one or two funds (excluding fund of funds which can appear as one fund but really be a portfolio of many). A more experienced investment advisor would normally recommend many funds. Say 5 to 15.

Dunstonh, I recall many a training session as an investment adviser. The whole thing would be centred on Tax and other items. I never once recall any training that looked at what global trends meant for investing, for example - that Gold demand would rocket, or Moscow real estate. I talk to friends still in the industry and they tell me nothing has changed.

Surely the public percieve an investment adviser is someone who ought to be highly focused on what areas are likely to be good performers, NOT JUST BASED ON WHATS BEEN GOOD THE LAST 5 YEARS?

I go into IFAs (business related) and see stacks of unopened investment newspapers as they dont see it as important to keep abreast of subtle market indicators and new fund news.

When I say to IFAs 'are u recommending German real estate funds' they give me a blank look, just as they did in 1995 when I requested info on UK property funds and B2L.

A new breed of mega adviser who is 100% focused on delivering cutting edge investment advice is required. Ive even called top named advisers in the City and found them completely in the dark as far as cutting egde investment goes. Its just the same tired old funds that are far far removed from the actual investing.

Do you guys ever step back and ask yourself 'what will be in demand in terms of raw materials, products, property in 5 years time'?

I can tell u that no adviser Ive ever met would for a minute ask himself such a question.

I find it easy to seek new funds such as the Scandinavian based Baltic fund that I percieve are focused in areas set to benefit from expansion, yet when I asked an IFA for such a fund he said there were none.

Rant over.

dunstonh

Dunstonh, I recall many a training session as an investment adviser. The whole thing would be centred on Tax and other items. I never once recall any training that looked at what global trends meant for investing, for example - that Gold demand would rocket, or Moscow real estate. I talk to friends still in the industry and they tell me nothing has changed.

I am going to assume that the training sessions were on tied basis or salesforce basis. Tied advisors are taught to sell on tax efficiency first. Probably due to the fact that tied advisors cannot recommend portfolios or funds outside the risk rating of the individual (or multiple funds within the risk rating).

If you are talking to tied agents, then that doesnt surprise me. If you are talking to IFAs, then you are, quite frankly, talking to bottom end advisors. That being said, you wont find many IFAs investing on short term "maybes".

Perhaps the business model of the company has a lot to do with the quality of the advice and service given.

Surely the public percieve an investment adviser is someone who ought to be highly focused on what areas are likely to be good performers, NOT JUST BASED ON WHATS BEEN GOOD THE LAST 5 YEARS?

Quite agree.

I go into IFAs (business related) and see stacks of unopened investment newspapers as they dont see it as important to keep abreast of subtle market indicators and new fund news.

I currently have 6 sitting in a pile waiting to be read. I seem to get around 10 publications a week now. Mostly saying the same thing. Then you have online bulletins and reports and research briefings, seminars etc. There is a flood of information available and the old pink papers are not the source of information that they once used to be.

When I say to IFAs 'are u recommending German real estate funds' they give me a blank look, just as they did in 1995 when I requested info on UK property funds and B2L.

Is there a market at general consumer level for it. Is it available on mainstream platforms or do you need to go to some unknown provider to get it. Whilst you may have an interest in german real estate funds, I personally have little interest in being that limited and prefer the Euro/Global real estate funds offered by the mainstream providers. These tend to be better independently researched, UK authorised (rather than unauthorised) and a brand name tends to give security which isnt present on some smaller funds.

Do you guys ever step back and ask yourself 'what will be in demand in terms of raw materials, products, property in 5 years time'?

Nope. Thats not the role of the IFA. That is the role of the fund managers. The IFA's role is to place the investments into an appropriate sector allocation and with the managers that we feel best placed to do that. Short of a crystal ball, no-one knows what is going to be best or worst. So why pretend to be a micro management investment manager when you are not?

I find it easy to seek new funds such as the Scandinavian based Baltic fund that I percieve are focused in areas set to benefit from expansion, yet when I asked an IFA for such a fund he said there were none.

I think you are mistaking the role of an IFA with someone with discretionary management authorisation. If you want someone with that authorisation, you need to pay far more than you are paying an IFA.

Chrismaths

I think you are mistaking the role of an IFA with someone with discretionary management authorisation. If you want someone with that authorisation, you need to pay far more than you are paying an IFA.

And thank you for that introduction dunstonh, I appreciate it!
As an investment manager, I'm constantly on the lookout for new investment ideas. I was early into gold, natural resources, Japan and eastern europe which have all produced multiples of the original investments. I missed Latin America's resurgence completely, didn't own enough property, and allocated too much too large caps rather than mid-caps over the recent year. You win some, you lose some. But that's with 20:20 hindsight, something you don't have when you invest.

Conrad: You've recommended German property, a Scandinavian run baltic fund and a Congolese rat catcher (ok, maybe not the last one, but you get the idea). Assuming that these were a place I'd like to invest, they are only ever going to make up small parts of large porfolios, because of the investor's risk appetite. And how do you decide when to sell? I'd love to fly to sweden every month, have a chat with the manager, have a look around the baltic states to see how things are going on the ground, but sadly my expenses don't run that far. If the underlying market goes south, I have no information that I can use to make a decision, so I'd be gambling.

There are plenty of places to make money in the world - the investment universe is huge. I've invested some of our client's money in more esoteric investments - but only ones where I have an understanding of the underlying market, good contact with managers, and strict sell discipline.

And on the issue of cost, because of the rates we get from managers and the fact that we rebate any trail received, I don't think we are much more (if any more) expensive than an IFA. But then we don't advise on insurance, pension wrappers, or mortgages, so you get a different service. We just do investments - specialist as opposed to GP I suppose.

One final note - new model advisors are the best thing to happen to this industry, ever. If you are looking for an IFA, make sure you get the latest model

dunstonh

One final note - new model advisors are the best thing to happen to this industry, ever. If you are looking for an IFA, make sure you get the latest model

I totally agree, but then I work on the new model basis so perhaps that makes me biased. However, any advisor that works on 1% plus 0.5% fund based regardless of wrapper has no bias of any sort to worry about and that is a good thing. New model advisors also tend to be more experienced and/or knowledgeable with investments than old model advisors.

Chrismaths

Or indeed advises solely on the wrappers, assesses risk profile of the clients, and then passes off the investment management to an investment manager - I particularly like those NMAs

The issue of bias is the most important here - it's not that you should not only be 'not biased', but that you should have no incentive to be biased in the first place. I have no incentive to buy a UT over an IT/equity/ETF (or cash!), just as an IFA should have no incentive to recommend an Investment Bond over a ISA/UT/nothing at all. The sooner fees become advice/work based, the better IMO.