Liverpool Victoria (LV=) Savings Plan poor returns

dunstonh

Ok, maybe misleading was the wrong choice of word but I think stressing the tax free nature so heavily above any mention of returns is wrong.

Thats marketing for you. These plans were largely obsolete nearly 15 years ago, let alone 10 years ago. They dont have much positive to say about themselves. So, they have to use the tax free element.

Not mentioning that being tax free is of no benefit to the majority of people is, in my view, misleading.

Thats an advice issue though. Not a compliance one for direct marketing.

Its a bit like those over 50s life insurance plans. "No salesman will call" is said to make it sound better. However, in reality, no "salesman" would recommend one either as typically they are poor value for money and an option of last resort. Or the plans with the gimmick if you buy one. i.e. a carriage clock or a dvd player or a parker pen. The gimmick is to deflect from the reality that the plan is not good enough by itself.

Reaper

dunstonh wrote: »

However, ITs are not normally recommended because most advisers do not have the remit to recommend them. They are outside the scope of permissions.

I'm curious as to why. In the past when commission based fees were the norm they never got recommended as they weren't profitable, but now fees based is spreading I would have thought they would get recommended more often. Why can't most advisors include them? Does the standard training ommit them?

dunstonh

I'm curious as to why. In the past when commission based fees were the norm they never got recommended as they weren't profitable, but now fees based is spreading I would have thought they would get recommended more often. Why can't most advisors include them? Does the standard training ommit them?

Most ITs are not packaged products but direct investments. Direct investments came under the remit of stockbrokers. Much like the same reason why most advisers dont recommend shares. Advisers have the remit to provide advice on packaged products. Those advisers that did offer ITs typcially did it either with packaged ITs or by having an in-house stockbroker. The FSA did make some rule changes to the control functions a couple of years back but its still under consultation as to what investment types advisers will be able to provide advice on using standard permissions after RDR.

There was also a period when investment trusts were beginning to drift away. Features that worked to the advantage of closed-ended funds in rising markets have had the reverse effect in volatile markets. A prolonged period of poor equity returns was accompanied by a significant increase in investment discount to net asset value that exacerbated negative portfolio returns. Gearing is a double-edged sword and it becomes a serious impediment if returns are lower than the cost of borrowing. (so not your typical inexperienced investor product - remember the FOS generally feels most consumers are low knowledge and cautious in nature unless proven otherwise).

Unfortunately falling markets revealed that certain zero-dividend preference shares were not as safe as the marketing literature suggested. It also brought to light a ’magic circle’ of mutually invested funds. Compensation issues have not been resolved and the episode has dented the image of investment trusts. Some believe that investment trusts are increasingly an anachronism whose reason for existence is passing. They are eclipsed by open-ended investment schemes on the one hand and by hedge funds on the other. OEICs offer retail investors more transparency, additional controls and are without the uncertainty of a varying discount to net asset value. Investment trusts position as high risk-reward vehicles for institutional or sophisticated investors has been increasingly replaced by hedge funds that have far greater investment freedom and little of the regulatory burden imposed on onshore closed-ended funds.



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Rollinghome

Reaper wrote: »

I'm curious as to why. In the past when commission based fees were the norm they never got recommended as they weren't profitable, but now fees based is spreading I would have thought they would get recommended more often. Why can't most advisors include them? Does the standard training ommit them?

I'd be interested to know the actual figures for fee-based work. I suspect that despite the demand due to widespread suspicion of commission-based selling the proportion of genuine fee-based advice is still quite low.

IFA Promotions Ltd, the peeps who run the unbiased.co.uk site, explained to fee-based advisers that it's hard for them to be sure that IFAs who claim to be fee-based genuinely are that. They found that many, while headlining themselves as fee-based, are in reality using it for switch-selling to a commision basis or offering commission offset.

Fidelity did find a way of paying advisers 0.5% trail commission to promote sales of their China Special Situations IT, which doesn't bode well.

Morningstar had an interesting analysis last month showing that where similar ITs and UTs are run by the same managers how, without the need to pay sales commission to advisers and greater flexibilty, the IT performed substantially better. http://www.morningstar.co.uk/uk/news/article.aspx?lang=en-GB&articleid=92875&categoryid=442

Reaper

dunstonh wrote: »

Advisers have the remit to provide advice on packaged products.

I hadn't realised advisors don't do direct products, I had assumed it was out of choice. Better that they are allowed to as I'm sure customers don't understand they can only be offered a subset of the available options.

Gearing is a double-edged sword and it becomes a serious impediment if returns are lower than the cost of borrowing. (so not your typical inexperienced investor product - remember the FOS generally feels most consumers are low knowledge and cautious in nature unless proven otherwise).

Indeed but I suspect it is easier to explain gearing to a customer than the complicated small print in a GEB or similar, and advisors are happy enough to sell those.

Some believe that investment trusts are increasingly an anachronism whose reason for existence is passing. They are eclipsed by open-ended investment schemes on the one hand and by hedge funds on the other.

I would have thought they fit quite nicely between the two. They have more flexibility than a UT but are preceived (rightly or wrongly) as less risky than a hedge fund.

Rollinghome wrote: »

Fidelity did find a way of paying advisers 0.5% trail commission to promote sales of their China Special Situations IT, which doesn't bode well.

I second that. It has a small performance fee too, something else I'm not keen on.