Aviva CIS Sustainable Diversified

agent_orange_2

Hi, I wondering if anyone could confirm my thoughts. A good friend of mine contacted CIS, with a view to invest some savings. He was told by the CIS rep that , if he were prepared to invest £15,000 into CIS Sustainable Diversified fund they would be prepared to drop the 5% initial set-up fee. The CIS man was telling him how the fund had risen by 10% since March.
My friend is not too savvy on these funds, but would he be better seeking advice from a financial advisor who isn't tied to any one institution?

Thanks in advance for any advice.

Lokolo

10% since March is not a huge gain tbh.

agent_orange_2

Lokolo wrote: »

10% since March is not a huge gain tbh.

I thought the same. From that, I was assuming it is pretty low risk.

jem16

agent_orange wrote: »

on these funds, but would he be better seeking advice from a financial advisor who isn't tied to any one institution?

Always the best plan to see an IFA rather than a tied adviser.

Lokolo

I like the sales tactic of, we'll drop the 5% initial charge if you invest £15k!

Jeez. You can get 0% initials all over the place with HL!

dunstonh

Your friend has been lied to and the figures given manipulated

The Aviva product CIS sell has no initial charges by default. It is an investment bond and Aviva offer this a few different ways of charging (although CIS wont have the variety an IFA has). However, none of them involve an initial charge. He's making it sound special when its not.

Also, an investment bond for £15,000 is disgraceful advice. Most tax efficient is an ISA. Then on that amount a unit trust and then an investment bond. Teid agents get paid the most on investment bonds. So, this looks like a clear case of commission bias on the part of the sales rep.

Using March as the start point is crazy. That was the low point in the economic crisis. Since, then its largely been recovery and portfolios have been up 10-40%. If you only look at that period then you obviously going to see very strong gains. What about the previous 18 months when everything went down in value?

Never ever get advice from a tied agent/sales rep of an insurer. They dont have the full advice remit (cant portfolio plan being one of the main ones), they have sales managers and targets putting pressure on them and they only have a limited product range. This one seems to be using commission bias to recommend whats best for his pocket and not his customer.

agent_orange_2

Thanks Dunstonh,

Here is a link to the actual product - http://www.cfspressoffice.com/cfscombi/pdf/invest/CIS_Sustainable_Diversifed_Trust_240709.pdf

Is this the same as the aviva cis sustainable diversified, or did I get it mixed up?

dunstonh

That is the unit trust version of the fund. It is not the version used in the Aviva investment bond.

I just looked up the Aviva version and it only launched in July 09. Interestingly, so did the unit trust version. So, past performance stats back to March are not available. So, this again looks dodgy on the part of the sales rep. How can you claim performance stats back to a period when the fund wasnt even running?

In case you want to look up both versions of the fund, the codes are as follows:

The Aviva fund has an ISIN number of GB00B3FB0205, SEDOL: B3FB020 , CITI: FVX1

The unit trust version has ISIN: GB00B3PXJV84 , SEDOL: B3PXJV8 , CITI: FXV4

The unit trust version if bought through CIS has an initial charge of 5% and an annual management charge of 1.5%. IFAs can retail that fund cheaper if they really wanted to recommend it (and I can see nothing on it to make me want to recommend it).

Since launch, the unit trust version has grown just under 8.5% (thats to close of business last night and does not include the initial charge.

Since luanch the life fund version has grown just over 7% (again, close of business last night).

Looking at the short term performance charts (which the CIS sales rep wont have available), its clear that there is quite a big tracking error on the life fund version compared to the unit trust version. Its almost is if there isnt daily tracking but every 3-4 days. Given that its 50% equities, the life company would have to pay 20% corporation tax on gains (taper relief would bring that down over time but a new fund isnt going to be able to benefit on it to begin with unless they have seeded it with pre-owned assets). The same fund in an ISA would have no corporation tax to pay and nearly half the assets are fixed interest and the tax on those can be reclaimed. I estimate that in an ISA, the return would be around 1% to 1.5% a year than the life fund per year due to tax.

That doesnt take into account the difference in AMC which is higher on the Aviva version and the version CIS are selling almost certainly has an establishment charge for the first 5 years. So you can add another 0.6% a year for charges.

So, performance will be around 2% a year lower in the aviva bond compared to unit trust. If these two versions were the only investments in the world, I would pay the 5% and have the fund in an ISA and then Unit Trust (e.g. £7200 in ISA and the rest in unit trust - move the rest into ISA next tax year). You just cant justify the bond version in this case.

To be honest, if he is doing this fund with Aviva, then its got mis-sale written all over it. Any IFA would have no trouble putting in a complaint against him and getting it upheld. I have put in a few over the last 12 months on a similar basis (N&P b/s and A&L and both have been upheld).

agent_orange_2

Thanks again for your detailed response, after my initial mistake. I took the liberty of copying your post in an e-mail to my friend. He has decided to seek some independent advice.

Madgolfer_2

Hi,

A few corrections regarding the scary comments from the IFA.

Unlike IFA's who get around 7% commision for a bond all CFS advisers are restricted to 3% irrespective of the product that they sell, therefore not selling for commission as was suggested. IFA's rarely pick products that sell them the lowest commission. Look at the cost of advice on the menu they should give you and for lump sum investments they are usually the most expensive form of advice and will generally churn the product to another provider in 5 years time.
I agree its a close call between an ISA and bond, but there are so many other variables that weren't known such as do they want a guaranteed income? did they want it in joint names? did they want the option to switch funds several times a year? These could have been mentioned to the Co-op man and his advice actually reasonable. You should never make assumptions, and when giving advice performance is only one factor to take into account.
Finally IFA's cannot recommend the funds that are within CFS and the Aviva bond as were not available at that time.

Cheers

dunstonh

Unlike IFA's who get around 7% commision for a bond all CFS advisers are restricted to 3% irrespective of the product that they sell,

So what? The policyholder doesnt pay the commission. The product provider does. Its quite normal for IFAs to get paid more than tied sales reps but still offer the product cheaper. Its what the policyholder pays that matters most. The fact the CIS keep half the commission for themselves and only pay the sales rep half doesnt mean the policyholder is paying less.

IFA's rarely pick products that sell them the lowest commission.

evidence to support that wild claim? Especially as most have already moved to agreed remuneration.

Still better than a sales rep that can only offer a lower quality product.

I agree its a close call between an ISA and bond

Its not a close call at all. ISA will trump bond in most cases.

but there are so many other variables that weren't known such as do they want a guaranteed income?

Which you can get on the ISA tax wrapper or unwrapped.

did they want it in joint names?

Very rare but you would have to document that as in insistent client overriding what is best advice but then that still doenst get around unit trusts being better for most people.

did they want the option to switch funds several times a year?

If they are switching that much then its unlikely to be a problem as the gains are not likely to be in CGT territory.

These could have been mentioned to the Co-op man and his advice actually reasonable.

Thats just sales rep thinking. Not quality advice.

Finally IFA's cannot recommend the funds that are within CFS and the Aviva bond as were not available at that time.

The CIS funds were not initally available on the Aviva bond but have been for some time. Not that you would really want them. The IFAs had the hundred or so whole of market funds available and didn't need to restrict themselves.

Sorry, but apart from making yourself sound like a CIS sales agent, you havent changed my views.