advice on this investment

daniel80

My wife who is 53 cashed in some company shares where she works to invest for her retirement [pension pot] she does her own pension but this is a very small amount. We took advice on what to do with this money from their company bank Lloyds. She had £100000 to invest and did not want anything high risk. The advisor after about an hour consultation recommended Scottish Widows Flexible Option Bond and said that at any time we could change the investments in the bond if not performing well but he would keep us updated. Perhaps during the current market its done ok, after start up fees of £5000 the £95000 was invested at 80% in UK mixed funds and 20% in commercial property,the fund is now worth about £107000 and was taken out in June 2009. There is an exit penalty if we take the fund out before 5 years. As he has not advised on moving anything just wondered if the fund is about standard or he is not bothered unless we suggest changes. As we dont intend to use the money for quite a few years yet my wife seems happy to leave it alone,where as i was wondering if she could be doing better.Any advice would be appreciated.

dunstonh

We took advice on what to do with this money from their company bank Lloyds.

oh well, never mind.

The advisor after about an hour consultation recommended Scottish Widows Flexible Option Bond and said that at any time we could change the investments in the bond if not performing well but he would keep us updated.

Lloyds sales reps are transactional advisers and not servicing advisers. If you have evidence that a servicing agreement was in place and no such servicing has occurred then you have grounds for complaint.

Also, one assumes that ISAs were also recommended? They are more tax efficient than a life assurance bond. If they werent then there are mis-sale issues there.

Was a cost/tax analysis done between the bond and OEICs? (no will be the answer to that). Its possible there could be some mis-sale comments made there as well. Although transactional advisers dont usually include things like annual bed & ISA which when factored in to the analysis can make a big difference.

, after start up fees of £5000

You paid £5000 for basic advice when you could have had proper independent advice for around £1000. Plus, the old SW bond was never that cost efficient either.

As he has not advised on moving anything just wondered if the fund is about standard or he is not bothered unless we suggest changes.

As mentioned, they dont offer a servicing contract so dont expect contact unless they need to make up appointment numbers in an attempt to sell you more. SW internal funds are nothing special most of the time. The product, as already mentioned, was not great. About mid table on costs (and thats on a like for like basis, let alone getting it on whole of market terms).

i was wondering if she could be doing better.

Almost certainly, yes. However, the problem is going to be the cost of exit and that may act as a blocker.

Any advice would be appreciated.

Asking after the event is a bit late. Chances are any good IFA would pick the recommendation to bits and find fault in it. They may even be able to persuade mis-sale and misrepresentation of facts as well depending on the documentation. However, this should have been looked at before it was taken out. If you can get an IFA to take it on board now on a low cost basis and look at a proper cost/benefit analysis using annual CGT allowances and bed&ISA if applicable then the cost of exit may be recovered in the tax and charges saved on an ongoing basis. i.e. taking a step backwards to take two forward.

daniel80

Thanks Dunstonh for the advice, we did know the advisor was acting on behalf of Lloyds so in hindsight he was going to go for one of their products. I think now the exit fee is about £3000, but if this bond is low to medium risk and about average in the performance tables she is happy to see the 5 years out. Does anyone know where it lies performance wise, i am unable to find any information.

dunstonh

we did know the advisor was acting on behalf of Lloyds so in hindsight he was going to go for one of their products.

Not just that but also a limited range of their products (as they dont get the full Scot Wid range) and you get it at maximum cost as well. You also dont get full advice. Its far more basic. More geared up for £10k investments rather than £100k.

but if this bond is low to medium risk and about average in the performance tables she is happy to see the 5 years out.

The bond is not low to medium risk. The investments within it carry the risk. Why is the focus to see her to the end of 5 years? Are the objectives more open ended over the long term or is there a need for the money after year 5? Does she use her annual ISA allowance? Is she currently a higher rate taxpayer? (and if yes, will she be at the end of 5 years?)

What if the bond is around 2% a year more in tax and charges compared to the alternative methods. A 3% step back now with 1-2% a year gained for the remaining 4 years offsets the get out charge. If the asset spread is high in equities then the growth (not income within the investments) is taxed at 20% minus relief. So, a 10% return is hit by nearly 20% in extra tax that would not be paid in an ISA. (thats your 2%). Income is largely taxed the same in investment bonds compared to unit trusts unless you are a higher rate taxpayer or aged over 65 and close to the age allowance reduction figure? However, unit trusts and ISAs can largely be worked to put the higher yield funds into the ISA and low/no yield funds in the unit trust until everything is bed & ISA'd over to the ISA. Income in the ISA from fixed interest securities saves 20% in tax over bond and unit trust. So, the tax savings can be even greater.

I have put complaints in on these in the past where we have identified mis-sales but there has been growth and said that we want the early exit charge waived (rather than void the investment) and that has been accepted a few times.

Does anyone know where it lies performance wise, i am unable to find any information.

Trustnet is probably the best place. You need to look under insurance funds. Not unit trusts.

lvader

Bonds are a terrible place to be right now, no chance of repeating the last years performance.

jimjames

I would consider Dunstonh's advice very carefully, it definitely sounds like it is worth investigating as it does sound as though you have not been sold an appropriate product.

jem16

lvader wrote: »

Bonds are a terrible place to be right now, no chance of repeating the last years performance.

It's not that kind of bond - it's an Investment Bond which is merely a tax wrapper like a pension or ISA.

daniel80

Dunstonh thanks again for your views,the reason why i mentioned 5 years was because that was the minimum recommended time and after 5 years there is no exit penalty. We will not need the money until my wife retires at least another 7 years unless the company is sold, its an IT recruitment company owned by her sister in law, and yes she is a higher rate tax payer. She has not used her isa allowance due to the poor returns on cash,thats why she wanted somewhere reasonably safe over the long term. We do have about £60000 invested in various stocks and shares isas but these are in my name. We were also thinking of going back to Lloyds to see if they recommend any thing different at the moment, i know they will only plug their products but there might be something more suitable.

mr_fishbulb

daniel80 wrote: »

We were also thinking of going back to Lloyds to see if they recommend any thing different at the moment, i know they will only plug their products but there might be something more suitable.

And I'm sure they'd love another £5000 in fees.

I'm going to quote dunstonh in the post you thanked, and highlight some parts:

Chances are any good IFA would pick the recommendation to bits and find fault in it. They may even be able to persuade mis-sale and misrepresentation of facts as well depending on the documentation. However, this should have been looked at before it was taken out. If you can get an IFA to take it on board now on a low cost basis and look at a proper cost/benefit analysis using annual CGT allowances and bed&ISA if applicable then the cost of exit may be recovered in the tax and charges saved on an ongoing basis. i.e. taking a step backwards to take two forward.

dunstonh

the reason why i mentioned 5 years was because that was the minimum recommended time and after 5 years there is no exit penalty.

As she is a higher rate taxpayer then you have the issue that any surrender before she becomes a basic rate taxpayer would see her suffer additional tax due. The use of an investment bond tax wrapper for higher rate taxpayers who will be basic rate in future is a justifiable reason for doing it. However, it does mean that to avoid higher rate tax, it does have to be held until her first tax year of being basic rate (and then care taken to ensure the chargeable gain after top slicing relief doesnt take her into higher rate).

She has not used her isa allowance due to the poor returns on cash,thats why she wanted somewhere reasonably safe over the long term.

That makes the investment bond a probable mis-sale. She should have been told to put £10,200 into the ISA. Maybe hold another £10,200 back for the following tax year (depending on when it was done) and the rest could then justifiably be put in the bond.

The use of the investment bond wrapper doesnt make it safe. The same investments could have been held in an ISA but without the tax issue and with identical risk.

We do have about £60000 invested in various stocks and shares isas but these are in my name.

Do you bed & ISA each year?

We were also thinking of going back to Lloyds to see if they recommend any thing different at the moment, i know they will only plug their products but there might be something more suitable.

Why are you fixated with Lloyds?

1 - your wife has a probable mis-sale here (due to not being told to use the ISA)
2 - your wife paid £5000 in charges to set it up. An independent on fee basis would have been around £1000
3 - Lloyds are transactional advisers, not servicing.
4 - Lloyds advisers are not allowed to recommend the cancellation of existing products even if a newer product which is better exists unless Lloyds themselves ok it.
5 - Lloyds advisers are not allowed to recommend investment funds. (you may think they do this but check your documentation and you will see it is documented as "you chose" and not "I recommend")
6 - Lloyds advisers are limited to a panel of Scottish Widows products (so not even the full SW range let alone whole of market)

So, considering those points, what is it about Lloyds that you like so much?
Also, what are you doing on this site? Its a moneysaving site. Banks are typically the most expensive distribution channel out there (although St James Place probably are at the moment - who happen to also be owned by Lloyds Banking Group).

jem16

daniel80 wrote: »

She has not used her isa allowance due to the poor returns on cash

You do realise that ISAs are not limited only to cash ISAs don't you?

With a cash ISA you can only deposit £5100 each tax year. With a S&S ISA you can deposit £10,200 each tax year.

First and foremost Lloyds should have used your wife's S&S ISA allowance.

dunstonh wrote: »

She should have been told to put £10,200 into the bond.

Presumably a typo here and you really meant put £10,200 into the ISA?