Monthly income from £140,000

Lyncroft

Bloody hell. Can anyone makes sense out of all this?

ReportInvestor

The financial services industry doesn't want anyone to be able to make sense of it.

Could jem please "show her working" - ie what is added to and taken from what to get her "profit" figure.

And then please define "profit" and say who is making the profit.

It's good to have a concrete current example in front of us.

dunstonh

Perhaps Dunstonh could provide a link to this.

They are provided to every FSA authorised firm to publish on the initial disclosure documents and updated on a 6 monthly basis. It is a mandatory requirement to provide them to clients before any investment business is transacted and commission is taken.

Perhapos he could also offer some simple instructions to readers about how to work out the charges they are paying.

Yes. Read the illustration. Its not rocket science and all charges are shown on there.

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:

Easily justifiable. Stick your investment money under your bed and pay nothing in charges. Of course, you wont make any money either. We are not a communist state and charges exist when you buy any service. If you make 10% a year on the investment and the charge is 1.5% then you get 8.5%. Simple. If you invest £100k, you do not pay £25k charges a year as Ed is suggesting. I think even the total novice investor realises all that.

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.

Of course its good to learn something but you could end up like Ed who has a little knowledge on these things and thinks she is an expert on it. A little knowledge can be a dangerous thing.

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?

I work on 1% initial charge and 0.5% natural fund based (which comes from the normal annual management charge and is not incremental) which pays for servicing. The 1% often doesnt cover costs but the aim is to build up the 0.5%. So far lower than Tescos.

How much are Tescos making on every tin of beans, every apple you buy? With investment products you know exactly what the charges are because you are told.

Bloody hell. Can anyone makes sense out of all this?

If you ignore Eds misinformation, the thread makes more sense.

jem16

ReportInvestor wrote:

The financial services industry doesn't want anyone to be able to make sense of it.

Could jem please "show her working" - ie what is added to and taken from what to get her "profit" figure.

I used a very simplistic approach

The charges(assuming 6% growth as in illustration from bond provider) are £3690. £7500 is allocated to my bond right away for reasons already given. £7500 minus £3690 equals £3800. Therefore instead of having to pay charges of £5640 as per the FSA tables, I have been given £3800. There is also the added complication of the charges not being taken all upfront but over 5 years but I haven't gone into that.

I did also make an error with "profit" on ordinary adviser which I have now amended. However it still shows that the figures quoted by the FSA tables are not what happens in reality.

And then please define "profit" and say who is making the profit.

The "profit" in this case is only the difference between charges and initial allocation due to the nature of the bond. As it's money into my bond, I am making this "profit"

It's good to have a concrete current example in front of us.

I agree. Comparative tables don't always tell the true/whole story. It's the same for league tables published for schools - it doesn't tell the whole picture.

ReportInvestor

jem16 wrote:

The "profit" in this case is only the difference between charges and initial allocation due to the nature of the bond. As it's money into my bond, I am making this "profit"

Allocation rates scare even those who are arithmetically unchallenged. They are designed to make comparisons difficult.

What is the "initial allocation" in this case, and please explain how it relate to the "nature of the bond" so that we can begin to understand.

dunstonh

Allocation rates are not difficult but can be used by some companies to give money with one hand and take it back with another. There is one recently demutualised company (hmm, wonder who that is? ) who has an intial allocation in excess of 100% but has a bid/offer spread. If they give you 105% allocation but there is a 5% bid offer spread then the two basically wipe each other out. However, the 105% allocation looks good on advertising. Another company (who had certain ties to a company often referred to as Crowbar) gave higher initial allocations but had larger charges over the first 5 years which clawed it back plus more.

The fact that some companies do this shouldnt take away from the fact that some do not. You should never measure the best examples by the worst. The best method is to compare reduction in yield over 10 years or 20 years to get a bettter idea of cost. One that seems cheap up front could have higher annual charges or vice versa. The RIY over 10 years gives you a much better clue. This appears on any and every illustration you get for a life and pensions product and is laid out in an industry standard method so its easy to compare one provider/product to another.

jem16

ReportInvestor wrote:

What is the "initial allocation" in this case, and please explain how it relate to the "nature of the bond" so that we can begin to understand.

Why does it look as if you're investing more money than I've paid?

In the 'Your bond summary' section you'll see that we invest 107.50% of your money.

This reflects the design of your bond and the way our charges are
taken. We invest a greater amount which helps your bond overcome the higher charges of the first few years. You should not view this as 'something for nothing', as our charges take this extra investment into account.
We've increased the amount we'll invest for you, normally 102.5% of your
payment, by:
- 1% because of our special offer
- 4% because your financial adviser is taking reduced commission

So even an adviser taking full commission and no special offer would have seen £2,500 being allocated initially to offset the higher charges in the early years.

ReportInvestor

All smoke and mirrors, isn't it?

I assume - putting dh and jem's posts together - that the "design of the bond" in the Q&A = a bid offer spread? (Although the company itself doesn't seem to make it very clear from the Q&A given above.)

If so, what is jem's bid offer spread or equivalent?

And what would jem's RIY (Reduction in Yield) be assuming 6% growth after 5 years and after 10 years?

P.S. All the best with your investment if you have gone ahead !

EdInvestor

If you invest £100k, you do not pay £25k charges a year as Ed is suggesting.

Of course I am saying this is over the 10 year life of the bond, not every year.


Could jem state the Reduction in Yield on her bond,the time frame ( 5 or 10 years) and the assumed growth? Then the charges can be worked out.

The charges in year 2 on a share portofolio held in an account with no annual fee using a non trading strategy such as an HYP, would be negligible.If the investor was happy just to take the 5% dividend allowance, the cost would be nil. If s/he wanted to sell some shares to cash in some capital gains for spending purposes and use up the year's CGT allowance, then it would depend on how many trades were involved, unlikely to be more than 3 or 4, so that would be a maximum of 50 quid.

We are talking major difference. And that's not counting the 20% tax the poor BRT is being stung for in the bond which would not be payable on a direct investment in the same shares.

As for the pension credit idea, the Revenue must be having a laugh.All these people ( not you jem!) trying to cheat by putting money into a bond so they can get benefits they're not really entitled to, when all the while the Revenue is taking the money back by taxing them via the life companies - and they get to pay a "fine" through all those charges, as well.

Nice one.:rolleyes:

jem16

ReportInvestor wrote:

All smoke and mirrors, isn't it?

I assume - putting dh and jem's posts together - that the "design of the bond" in the Q&A = a bid offer spread? (Although the company itself doesn't seem to make it very clear from the Q&A given above.)

If so, what is jem's bid offer spread or equivalent?

There is no bid/offer spread.

And what would jem's RIY (Reduction in Yield) be assuming 6% growth after 5 years and after 10 years?

0.7% after 5 years. 0.4% after 10 years.