Suitability of Nationwide 6 year Protected Equity Bond for 73 year old

sham63

I've just spoken to my mother - She has been to see the financial advisor at the Nationwide regarding £70k she has inherited.

I was horrified to hear that he has advised her to invest £50k in the 6 year 'Protected Equity Bond' - she will be 79 when this bond matures!

This leaves her with £20k 'instant access' for the next 6 years.

A couple of questions;

How easy is it to get her money back? Is there a cooling-off period with this sort of product (she signed all the paperwork last Wednesday)?

Is this mis-selling by Nationwide given her age?

Thanks!

opinions4u

To assist others, here's a link to the product.

Summary:

Returns stock market growth (up to 50%) - so caps return at 6.99% AER.
If the stock market falls capital is returned.
It's a savings product and doesn't earn dividend income.
It can be ISAd.

In summary: You're gambling 6 years interest and they aren't giving you double or quits. It's stacked in favour of Nationwide.

I would suggest a 5 year fixed term deposit paying around 4.5% but allowing emergency access would be more appropriate.

dunstonh

How easy is it to get her money back?

If she is in the cancellation rights period then very easy.

If she is not, then she can request a surrender value. Depending on the value of the underlying assets at this time compared to investment then she could find she gets return of capital investment in full or with a reduction. That reduction could be significant depending on the strike date.

Is this mis-selling by Nationwide given her age?

No. She is just 73 and you dont suddenly become senile at age 73. Peoples financial planning and need to invest doesnt stop at 65. It can carry on for life. However, generally you do tend to reduce the risk profile as you get older but many people continue to invest into their 80s or 90s. Age 73 in 2010 is not old.

That said, from an independent overview, having 71% of your capital in a SCARPS is considered poor advice. Having 71% with one market counterparty risk even more so. However, Nationwide, like most tied sales reps, dont have that level of advice quality to worry about. If it had been an IFA then you could go for mis-sale on the basis of counterparty risk but as its a tied sales rep that wont work. We go by the benchmark of no more than 25% in SCARPS and no more than 10% with the same market counterparty risk. Different advice firms will have their own views on the level of acceptable risk. The FSA dont set any figures but leave it to the firms to interpret FSA guidelines and opinions.

In the FSA review of SCARPS they highlighted one particulary bad example (in 3.16) as someone having been recommended in excess of 85% with one market counteryparty. Your mum at 71% is not far off that. the same section highlights 10% (per product) and 25% total portfolio in SCARPs as good practice.

A well written complaint from an IFA could probably rip the nationwide sales rep to shreds and with reference to the FSA review document of October 2009, they wouldnt really have a leg to stand on. Nothing to do with age as a complaint on that front would almost certainly fail and quite rightly. Its more a case of poor quality advice and an ignorance of FSA guidelines.

However, as she is in the cancellation rights (and the L&G product Nationwide are offering is naff), a complaint isnt necessary unless you want to that sales rep to have a complaint on their record.

sabretoothtigger

Half the amount and buy a few different index trackers, near 100% return of any upside growth.
50% over the next six years will not be good, either rates will rise and/or inflation will.
Shares go up with inflation generally just like grocery prices and also house prices will, which is why government is doing this

nicko33

dunstonh wrote: »

Age 73 in 2010 is not old.

If I'm reading them right, the ONS tables indicate that the average 73 year old female in 2009 had a life expectancy of 87

http://www.statistics.gov.uk/downloads/theme_population/Interim_Life/iltuk-reg.xls

Cautious_Investor_3

dunstonh wrote: »

That said, from an independent overview, having 71% of your capital in a SCARPS is considered poor advice. Having 71% with one market counterparty risk even more so. However, Nationwide, like most tied sales reps, dont have that level of advice quality to worry about. If it had been an IFA then you could go for mis-sale on the basis of counterparty risk but as its a tied sales rep that wont work. We go by the benchmark of no more than 25% in SCARPS and no more than 10% with the same market counterparty risk. Different advice firms will have their own views on the level of acceptable risk. The FSA dont set any figures but leave it to the firms to interpret FSA guidelines and opinions.

In the FSA review of SCARPS they highlighted one particulary bad example (in 3.16) as someone having been recommended in excess of 85% with one market counteryparty. Your mum at 71% is not far off that. the same section highlights 10% (per product) and 25% total portfolio in SCARPs as good practice.

Hi

Forgive me dunstonh, however I don't think the Nationwide / Legal & General plan being discussed here comes under the SCRAP catagory it comes under the Structured Deposit catagory.

Furthermore it is deposit based and therefore potentially covered by the FSCS.

I'm not saying that the plan offers good value, just that it is not a SCARP.

The Cautious Investor

Loughton_Monkey

sham63 wrote: »

Is this mis-selling by Nationwide given her age?

It is impossible, really, for us to judge. It is so easy to envisage two extreme scenarios. 1. A very articulate 73 year old stressing that she has all the money she needs for now, is reluctant to 'save' in a miserable 3% savings bond, but doesn't want to risk capital, and simply wants something that protects capital, but gives a good chance of 6% or 7% compound growth given a fair wind in the Stock Markets.

2. We can also envisage a very financially unsophisticated 73 year old having no idea whatsoever what to do with it, blindly trusting the FA to 'do the right thing'. A rogue FA could probably then review which product gives him the best commission, and then 'put words into her mouth' that would appear to justify (on paper) the aptness of this bond.

Neither extreme is likely. Given what you have read above, I suggest you simply talk it over with your mother and if she is unsure, simply invoke the Cooling Off notice. If she is perfectly sure it's what she wants, then let her carry on.

dunstonh

Forgive me dunstonh, however I don't think the Nationwide / Legal & General plan being discussed here comes under the SCRAP catagory it comes under the Structured Deposit catagory.

I did rather go to town on that one with the assumption is was a normal SCARP. last time I looked they didnt offer deposit based ones. Opinions4u hadnt posted the link either at that point. So, I withdraw some of the comments I make but I will leave them on the thread as they may prove useful for others considering scarps (which the banks do love to sell).

That said, 71% in a fixed tie in product like with those poor terms is still undesirable.

Cautious_Investor_3

dunstonh wrote: »

That said, 71% in a fixed tie in product like with those poor terms is still undesirable.

I wouldn't disagree, its a significant bet on one index going one way over a very specific period of time.