Monthly income from £140,000

jem16

EdInvestor wrote:

This would compare with as much as 5-7000 pounds upfront to get an investment bond.

So you're saying a 100k investment bond would cost me £5,000 - £7000 pounds in commission? In other words 5-7%?

Chrismaths

If you went to a high street bank, most probably. But that's the most you could possibly pay - in reality with the right advisor you can get an investment bond for around 1%. Just like if you go to Currys to buy a TV, you'll pay more than from a decent internet retailer. However, this seems to escape Ed.

dunstonh

In reality with the right adviser, you can do a heck of lot better than that as well. NU 106% currently, CM 107% L&G 107%...

107% on 100k means overnight your investment is valued at £107,000. Ed is focusing on the very very worst possible examples (and I am not sure that many exist that are that bad).

Chrismaths

dh - is it really though? I value all my investments at bid - what would you get back from an investment bond with a 107% allocation rate if you surrenderred it after 1 day?

It's one of the valid criticisms of investment bonds, the charging structures are so opaque with so many gimmicks (like allocation rates) that they serve to obfuscate rather than illuminate. (i like that sentence!)

dunstonh

There is a 5 year tie in so the surrender penalty would apply in the first five years. However, anyone investing should be looking at longer than 5 years anyway. So, after 5 years, the initial allocation is effectively free money for you. Although you have to make sure that they are not giving it with one hand and taking it back with another (Abbey National for example, and certainly not only one). You can chose to reduce the allocation and pick no surrender penalty if you wish.

I do agree that the charging structure is harder to understand and does allow abuse. This is why the best way to measure is not the allocation but the RIY over 10 or 20 years. However, that doesnt excuse Ed unfairly criticising them by comparing a full cost, most expensive example against a low cost, commission rebated alternative and not taking into account individual circumstances.

Personally, I find that around 20% of my investment business goes into bonds. On threads like this it can appear that those supporting one side are saying that they are right all of the time. They are not right all the time or most of the time. However, they are the right thing to do when the circumstances fit.

EdInvestor

For those who wish to see the charges levied on investment bonds, they are here:

https://www.fsa.gov.uk/tables

Require any advisor to tell you the comparative charges for the product he is recommending you buy.If he won't, walk away.

The charges payable upfront to an advisor on many of the bonds listed for a 25K investment are 2k - so that will be 8k for a 100k investment.

If you were to invest 100k over 10 years with no charges and it grew at 7% you would get 196,715.

If there was a charge of 1.5% a year, you would get 170,814.

The total charges in this case would amount to 25,901. That is 26% of the original amount invested and 15% of the final amount.

An investment bond will cost you more than this.

jem16

EdInvestor wrote:

For those who wish to see the charges levied on investment bonds, they are here:

www.fsa.gov.uk/tables

Require any advisor to tell you the comparative charges for the product he is recommending you buy.If he won't, walk away.

The charges payable upfront to an advisor on many of the bonds listed for a 25K investment are 2k - so that will be 8k for a 100k investment.

Where does it say this? I can only see the charges payable to the provider, i.e. a Norwich Union Bond - charges are paid to NU. I can't see where it mentions an upfront amount to an advisor.

The total charges in this case would amount to 25,901. That is 26% of the original amount invested and 15% of the final amount. An investment bond will cost you more than this.

How?

dunstonh

For those who wish to see the charges levied on investment bonds, they are here:

www.fsa.gov.uk/tables

Require any advisor to tell you the comparative charges for the product he is recommending you buy.If he won't, walk away.

Its getting boring now Ed. You are posting the maximum commission entitlement which the FSA publish. The FSA also publish every 6 months the average commission taken by advisers on products and that currently stands at 70% for bonds. If you are goint to post one FSA reference point, then it should be balanced by the other.

The charges payable upfront to an advisor on many of the bonds listed for a 25K investment are 2k - so that will be 8k for a 100k investment.

I'm afraid Ed doesnt have a clue about this product. That is not the case at all. I cannot think of a single investment bond that has an 8% initial charge. I can think of a few that have 5% but most have a positive initial allocation. All the ones I have done for as long as I can remember have had a positive allocation with the average being 106%.

If you were to invest 100k over 10 years with no charges and it grew at 7% you would get 196,715.

If there was a charge of 1.5% a year, you would get 170,814.

The total charges in this case would amount to 25,901. That is 26% of the original amount invested and 15% of the final amount.

An investment bond will cost you more than this.

And what has that got to do with anything. An investment bond may have 1% AMC or it may have 1.5%. So do ISAs, Unit Trusts, Pensions. Why is it you are singling out investment bonds?

Charges exist to allow the manager to invest the money and administrate the investment. Explicit charged contracts highlight the charges cleanly. Implicit charged contracts, such as Cash ISAs, savings accounts, with profits, GEBs hide the charges behind the scenes. They could be charging your a lot more but your dont know about it.

If you bought all your food at cost, you would save hundreds of thousands of pounds over your life. If you bought your car with no profit or cost built in, it would be cheaper. To expect charges not to exist is foolish.

If you dont want to pay explicit charges then stick it in a GEB and make nothing over 5 years. Or pay the explicit charges and have a proper investment giving you proper rerturns.

We have all seen Ed promote HL for investment funds. If you invested in most of the funds they offer, you would pay the same or more in charges than highlighted in Eds post.

EdInvestor

Where does it say this? I can only see the charges payable to the provider, i.e. a Norwich Union Bond - charges are paid to NU. I can't see where it mentions an upfront amount to an advisor.

Look at the "charges in the early years".

The FSA also publish every 6 months the average commission taken by advisers on products and that currently stands at 70% for bonds.

Perhaps Dunstonh could provide a link to this. Perhapos he could also offer some simple instructions to readers about how to work out the charges they are paying.

As usual he is unable to defend the charges when you actually point out that what sounds like an innocuous 1.5% actually works out at a quarter of your fund. :eek:


I personally think it's worth putting in a small amount of time and effort on learning DIY investing because it's comparatively easy to learn, and the savings you can make are really very large.

Unfortunately it seems to me that most people have no idea at all how much is actually being siphoned off by this overpaid high cost industry.By comparison the profit margins at Tesco and similar grocers are rarely higher than 5%.What's your profit margin, DH?

jem16

EdInvestor wrote:

Look at the "charges in the early years".

OK Ed let's look at facts, not fiction

The charges include the commission, expenses, profit and any charges if you cash in. Therefore the "charges in early years" are not what the advisor gets upfront as you said.

The FSA tables are a guide to the charges but not necessarily reality. I recently had a quote for a 100k bond from two advisors, one NMA and one not. If I look at the FSA tables it tells me that the "charges in early years" would be £5640, which according to you is what I would have to pay upfront to an advisor.

NMA quote

£1000 commission
£7500 paid into my investment as a result of commission rebate and special offer from bond provider
£3690 in early year charges based(5 years) on 6% growth.

Net result - all charges paid, including commission, £3810 profit

Ordinary adviser

£4000 commission
£3500 paid into investment as above
£3690 charges as aboev

Net result - all charges paid, including commission, £190 loss ( edit of calculation - too much of a hurry and turned the figures around)

What would your low cost 100k worth of shares be worth for me in charges after 5 years? You mentioned £640 to buy - what other charges over 5 years?