with profits bond

moneytroll

"The charges you have mentioned so far seem quite reasonable for an offshore bond"
"Everything you have said so far indicates charges are lower than had you invested into unit trusts."


Interesting. so it's not all bad news then... + the added benefit of offshore gross roll-up. (is this correct?)

"Was there an increased initial allocation? My guess is that there was due to the establishment charge."

Judging from policy docs, it seems that an extra of £400 has been allocated (I invested 20k but the amount invested somehow shows up as 20.4k). also there's a guaranteed growth rate of 7.5% for first year only (that's rather risky for the fund providers IMO, and shows why they need to apply the MVA rate at some points. I just hope they wont start increasing it again...)

There will also be an allocation of extra loyalty units (1% worth), rewarded after 10 years for long-term investors.

"With profits is just one fund. Its like a cautious managed fund now and can invest in a range of areas. You have the option to switch to other individual funds and create your own portoflio within the bond."

Would these funds include unit trusts and oeics or would the switches have to be into other with profits funds?

many thanks for your help guys - it is quite a relief when something is understood more or less properly...

moneytroll

"Yes.Before the markets started to crash, WP funds were normally - and this would apply to CM - invested around 75% in equities, and the rest in property and bonds/cash."

But 75% in equities is not at all a low-risk composition! (or was the meaning of "low-risk" different 5 years ago??) In my docs, I clearly have "low-risk" as one of the priorities! (i was paranoid at the time)

"Did your IFA mention the MVA penalty to you?"

They must have done, but I didn't know what it was at the time anyway (thanks to the posts of some knowledgable people on this site, i have since then acquired a much better understanding!)
I remember though that I was told at the time (probably off the record) that though the investment can go down as well as up, if it does go down, it'll be because of some major economic catastrophes where banks will collapse etc and is very unlikely to happen.

moneytroll

"Ironically in your case, this is probably more or less what you wanted in the first place.But like many people you were put into an investment that was a lot more risky than what you wanted."

But generally speaking, if they constantly mess around with the sector/asset allocations of the with profits funds (moving into safer areas during bad times and more risky in good times) this is IMHO a very amateur-like approach and not at all how a typical IFA would manage a portfolio (from what i gathered here so far). This is a bit like (very bad) market timing and could result in sharp declines in bad times (when more invested in equities) and very slow growth in good times (when in safer assets).
However, taking facts into account, somehow I am surprised that the fund hasn't performed worse (if it was indeed 75% in equities in 2001).

EdInvestor

But 75% in equities is not at all a low-risk composition! (or was the meaning of "low-risk" different 5 years ago??) In my docs, I clearly have "low-risk" as one of the priorities! (i was paranoid at the time)

THis is why you may have been missold.Because WP funds have smoothing and guarantees they are not as high risk as a unit linked fund with the same asset allocation.

BUT, the MVA means that the risk is not low.Hence my query about whether it was mentioned.

You say

They must have done, but I didn't know what it was at the time anyway

It's the job of the advisor to make sure you do understand this,and as CM had an MVA in place for the 2nd bond, IMHO you should make a misselling complaint on the basis the advisor did not properly investigate your attitude to risk and that the product was not suitable for your needs.

moneytroll

"WP bond misselling complaints news"

How could I complain though? I wanted a low risk investment at the time and if w/p funds were classified as low-risk investments at the time anyway, then there's no point complaining if the system has put them in this class. If now they are seen as medium or high risk investments, then it seems there's a flaw in the system of classifying these investments properly...+ in practice, despite the mediocre-to-average growth of the w/ps fund, it hasn't actually made a loss, so again, there's no ground on which to complain really, is there???

PS: + what sort of compensation one would hope to achieve if the fund hasn't made a loss? (except maybe due to inflation)

dunstonh

Would these funds include unit trusts and oeics or would the switches have to be into other with profits funds?

They would include mirror funds of unit trusts and oeics. So you should see funds like Clerical Medical Invesco Perpetual Income fund etc in the list available. You can hold multiple funds within it but there is a cap (usually around 8-10 with old insurers).

"WP bond misselling complaints news"

How could I complain though? I wanted a low risk investment at the time and if w/p funds were classified as low-risk investments at the time anyway, then there's no point complaining if the system has put them in this class. If now they are seen as medium or high risk investments, then it seems there's a flaw in the system of classifying these investments properly...+ in practice, despite the mediocre-to-average growth of the w/ps fund, it hasn't actually made a loss, so again, there's no ground on which to complain really, is there???

PS: + what sort of compensation one would hope to achieve if the fund hasn't made a loss? (except maybe due to inflation)

The general feeling is that the complaints companies have missed the boat on this one with most companies having already or close to removing the last of their MVRs. You cannot complain about investment performance and if there is no penalty of any sort to get out, then there is no redress payable.

Also, you appear to have understood that it was a risk based investment so you have nothing to complain about.

The comparable fund at the time would have been the CM Balanced Managed fund and that has achieved 2.04% growth p.a. average over the last 5 years. If invested in 2001, it would have dropped from 20k to 15k during 2002 before recovering to 22,122 now. That should give you a benchmark to compare against.

"Did your IFA mention the MVA penalty to you?"

They must have done, but I didn't know what it was at the time anyway (thanks to the posts of some knowledgable people on this site, i have since then acquired a much better understanding!)
I remember though that I was told at the time (probably off the record) that though the investment can go down as well as up, if it does go down, it'll be because of some major economic catastrophes where banks will collapse etc and is very unlikely to happen.

A 2001 policy is almost certainly going to have MVR documented. Its the older ones when it rarely mentioned. Partly as there had never been a time previously when it had been applied.

whiteflag_3

dunstonh wrote:

They would include mirror funds of unit trusts and oeics. So you should see funds like Clerical Medical Invesco Perpetual Income fund etc in the list available. You can hold multiple funds within it but there is a cap (usually around 8-10 with old insurers).



The general feeling is that the complaints companies have missed the boat on this one with most companies having already or close to removing the last of their MVRs. You cannot complain about investment performance and if there is no penalty of any sort to get out, then there is no redress payable.

Also, you appear to have understood that it was a risk based investment so you have nothing to complain about.

The comparable fund at the time would have been the CM Balanced Managed fund and that has achieved 2.04% growth p.a. average over the last 5 years. If invested in 2001, it would have dropped from 20k to 15k during 2002 before recovering to 22,122 now. That should give you a benchmark to compare against.




A 2001 policy is almost certainly going to have MVR documented. Its the older ones when it rarely mentioned. Partly as there had never been a time previously when it had been applied.

I agree that the MVR would have been documented, however it appears to me that the whole process was sales exercise on the part of the Natwest ie no real quality advice but a product sale based on a high initial bonus rate .


As you have said before Dh, another reason to avoid salesforce IFAs. No doubt the Natwest/ Royal Bank IFA would have been on a juicy commission uplift as well!

Having a friend who worked for the Royal side when they merged with NAtwest, I recall many a conversation where he outlined their( the banks compliance department) idea of diversification was 4 with - profits bonds.

All on full commission .

My mate left as he couldnt stomach taking £14,000 commission on a £200k investment knowing he would never have the option of seeing the "clients" again as the banks sales driven approach did not allow for reviews or trail commission.

moneytroll

"The comparable fund at the time would have been the CM Balanced Managed fund and that has achieved 2.04% growth p.a. average over the last 5 years. If invested in 2001, it would have dropped from 20k to 15k during 2002 before recovering to 22,122 now. That should give you a benchmark to compare against."

Almost exactly the same performance over 5 years as my w/p bond! (mine works out as 2.06%, minus the 4% MVA) Pretty dreadful performance...

"A 2001 policy is almost certainly going to have MVR documented. Its the older ones when it rarely mentioned. Partly as there had never been a time previously when it had been applied."

I still feel that had i understood how the MVR works (and especially that 75% of the money was in equities which is not mentioned anywhere in my documentation! - that is certainly not what I considered low risk at the time), I would have kept the money in a savings account...

Seriously, how was this investment considered to be low-risk?

Also, in regards to whether I should switch to other "mirror" funds (which i understand better now than w/p funds), it is important to know whether they are likely to start tinkering the composition of the w/p funds again (actually, it says in my most recent brochure: "we will change the asset mix depending on market conditions and the total amount of guarantees provided on policies in the fund." In other words, the company is likely to do some more inadequate market timing, which might provoke another set of MVAs...
that probably speaks in favour of switching into uts/oeics as soon as MVR is completely removed (and possibly keeping the wrapper for now).

Also, thinking about it, once the 12 years are over, and everybody's MVRs are guaranteed to be removed, the return rates will drop further, if the company will be unable to meet the guarantees. So the concept doesnt even seem to work neither in practice OR in theory!

moneytroll

"My mate left as he couldnt stomach taking £14,000 commission on a £200k investment knowing he would never have the option of seeing the "clients" again as the banks sales driven approach did not allow for reviews or trail commission."

Interesting...I was also surprised that after establishing a (what I thought) friendly and not-so-formal relationship with the IFA who originally recommended the w/p bond to me, there was a change in personnel almost every few months (my emails were always replied by a different person, though I sent them to a particular name address. It was also impossible to locate the original IFA to answer some questions that i had after i invested.) rather sad...

PS: Also, the way I was almost pushed into seeing an IFA by the bank at the time seems now quite unacceptable. Whenever I was paying in cheques and the bank workers would notice a larger than usual balance, almost every single time they would tell me to go and see their IFA (doesn't seem to happen anymore to me). So one day I just decided to get it over with and see the IFA. i was very risk-averse at the time (actually i thought banks/savings accounts are low-risk and i was just looking for an alternative to a savings account. If I knew it was mostly an equity based investment, I don't think I would have slept in the past 5 years, before I started learning about markets/shares etc. The meeting with the IFA was over in 15 minutes.

However, to be fair and as Dunston points out, the charges seem to be reasonable (TER of 1.6%), it's the actual w/p fund that is very questionable for my circumstances.
The charges on other funds from CM within this wrapper are a bit higher which will probably be about the same as equivalent UTs/OEICs so I might at least keep the wrapper and change to different spread of funds.

dunstonh

Having a friend who worked for the Royal side when they merged with NAtwest, I recall many a conversation where he outlined their( the banks compliance department) idea of diversification was 4 with - profits bonds.

I have heard and seen that before from salesforces. Scary.

Seriously, how was this investment considered to be low-risk?

Because in 150 years of them being around, they had always done the job and they do contain certain guarantees. Then in the space of a few years a number of changes happen which virtually kills off with profits from being a mainstream fund to being a niche fund. No-one saw it coming.

Also, in regards to whether I should switch to other "mirror" funds (which i understand better now than w/p funds), it is important to know whether they are likely to start tinkering the composition of the w/p funds again (actually, it says in my most recent brochure: "we will change the asset mix depending on market conditions and the total amount of guarantees provided on policies in the fund." In other words, the company is likely to do some more inadequate market timing, which might provoke another set of MVAs...
that probably speaks in favour of switching into uts/oeics as soon as MVR is completely removed (and possibly keeping the wrapper for now).

Unit linked funds have rules on where and how they invest. They can make changes but they have to notify you and the good thing about unit linked funds is that they have a daily value and if you dont like the proposed change, then you can switch out at no cost.

CM have access to a range of low risk funds through to high risk and ideally you can build your own spread to match your risk.

Interesting...I was also surprised that after establishing a (what I thought) friendly and not-so-formal relationship with the IFA who originally recommended the w/p bond to me, there was a change in personnel almost every few months (my emails were always replied by a different person, though I sent them to a particular name address. It was also impossible to locate the original IFA to answer some questions that i had after i invested.) rather sad...

That is another one of the reasons why you shouldnt see salesforce advisers. They come and go and banks are notorious for it more than most. If you see the partner of a local firm (for example), then chances are he/she will be there long term as it's their business. Employees will move. Owners/partners/directors tend not to as much.