Clerical Medical Investment Bond

jimmyringo

Hello there.
Just looking for a bit of advice here.
4 years ago my wife and myself,after receiving an inheritance,took advice from a local bank and opened an investment bond to the value of £25000.Within a year this had dropped significantly but up to last year had gradually pulled back to where it was worth £23,969.
We have just received our annual summary and it is now worth £23756 (£22881 if we cash in now).
I have no idea how investments work but was wondering should we be cutting our losses and cashing in now or letting it go for another year to the end of it's term.I 'd be scared of it dropping significantly again in the next year.
I'd appreciate any advice.

Aegis

Investments regularly rise and fall in value, and if you sell now you'll be selling at a bad time compared to most occasions within the last 10 years or so. When you took the product out you should have been given numerous warnings about investment performance not being guaranteed and that the value could fall as well as rise.

That said, the use of an investment bond may in itself be suspect. Have you and your wife both utilised your ISA allowances in full each year for the term of the product (i.e. have you paid in the maximum into your stocks and shares ISA each year)? If not, this could well be a mis-sale, as ISAs should always be recommended ahead of investment bonds due to ISAs being tax free (mostly) and investment bonds being subject to basic rate and possibly higher rate tax depending on circumstances.

Do you know why the bank recommended an investment bond rather than ISAs? If they didn't justify that in their suitability letter, then you should certainly think about putting in a complaint asking for the cost of advice (likely to be considerable for an investment bond) to be repaid to you in full and for an additional sum to be paid for loss of the ISA allowances that you have now lost because they can't be carried over from one tax year to the next.

You might not get that, of course, but it's certainly worth your time.

Bear in mind that you should not focus on the investment performance if you choose to complain, as this is not valid grounds unless you were sold an investment outside your risk profile.

jimmyringo

Thanks for your reply.
It wasn't mis-sold,and we knew it could go down as well as up.I have no complaints about the advice given.I'm just looking for advice on what to do now.And i know it could go either way in the next year as well.I'm just hoping some people here with more knowledge than myself on these matters could give their opinoions.

jem16

jimmyringo wrote: »

Thanks for your reply.
It wasn't mis-sold,and we knew it could go down as well as up.I have no complaints about the advice given.

Have to agree with Aegis on this. £25k into an investment bond, especially through a bank, would be considered bad advice unless there was a very specific reason for using that tax wrapper. The same investments within an ISA or even unwrapped would probably have been cheaper therefore giving better returns. It's usually only cost effective for 6 figure sums.

The Investment Bond wrapper should only be used for higher rate taxpayers (even that isn't as clear cut as it was), those who want it written into trust and IHT planning. There are one or two other niche areas.

I'm just looking for advice on what to do now.And i know it could go either way in the next year as well.I'm just hoping some people here with more knowledge than myself on these matters could give their opinoions.

No-one has a crystal ball so really no-one can say with any degree of certainty which way you should go. At the moment withdrawing is a certain loss is all that could be said.

Aegis

jimmyringo wrote: »

Thanks for your reply.
It wasn't mis-sold

It may well have been even if you felt happy with the advice at the time. It's worth checking the questions I asked above to make sure that the product was appropriate from a tax perspective.

and we knew it could go down as well as up.I have no complaints about the advice given.I'm just looking for advice on what to do now.And i know it could go either way in the next year as well.I'm just hoping some people here with more knowledge than myself on these matters could give their opinoions.

If you're still happy with the level of risk, then unless there's a secondary issue (e.g. tax) there's no need to sell just because the market has dropped. You might still get further losses, but that was a possibility from the outset.

dunstonh

25k in an investment bond looks like a mis-sale based on limited info. two £10,000 S&S ISAs and the rest in unit trust/oeics would be more tax efficient as well as probably being cheaper (as this is a bad sold product after all and they take maximum commission. Plus, they dont get IFA terms - CM regulary discounted the charges to IFAs but not tied agents).

laurmurph

this thread was interesting as we're in a similar situation having invested 5 years ago. I do think we were missold and made a case to the FA who sold us the bond but haven't got anywhere with it: apparently my OH was given the full spiel and we haven't got the grounds for a misselling case.

our bond has lost about £4000 in value and frankly I'm terrified about the economy at the moment (i am very low risk in attitude) so am tempted to cash it in with a £4000 loss as it could get even worse. I would have to cash in the bond in the next two years in any event to support children's HE...

Anyone with a crystal ball want to make a stab at predictions?

dunstonh

our bond has lost about £4000 in value

In what context is that £4000 loss? i.e. if you have £100k invested then a £4k loss is nothing. If you have £10k invested then it is significant.

Anyone with a crystal ball want to make a stab at predictions?

No. And any prediction would be useless as there are far too many variables to consider. Most of which would be unknown. Could you predict the Japanese Tsunami?

Investments zig zag in value. Always have, always will. You know you will get negative periods. You know you will get positive periods.

I do think we were missold and made a case to the FA who sold us the bond but haven't got anywhere with it:

Why do you think you were mis-sold?

laurmurph

we invested £28,000 left to me. We hadn't used our ISAs (still haven't as the money's in the bond) and still have a mortgage, only one of us was a tax payer at the time (basice rate) and still are both basic rate taxpayers, and we have 4 children in or going in to HE so we knew we'd need the money at the 5th year...so it appears it wasn't the best financial advice for us. I have made myself more aware of what investment bonds are now - should have then - and have checked the unit linked daily fund prices to get a sense of today's selling price. I think i understand a bit more now.
From what I've read i'll try to be more patient and not cash in the whole lot but cash in either part of both bonds (we've got 'Ethical' and 'Managed Income (Acc)) or one whole bond to raise about £12000. From what i understand cashing in one whole bond may be more tax efficient but i'm starting to get lost again.... I'm reluctant to go back to the original IFA to get advice on this part, to be honest.

I'm not a natural investor - too nervous and not enough cash to risk - it seemed like an excellent idea to the OH at the time but who knew?

dunstonh

we invested £28,000 left to me. We hadn't used our ISAs (still haven't as the money's in the bond) and still have a mortgage, only one of us was a tax payer at the time (basice rate) and still are both basic rate taxpayers, and we have 4 children in or going in to HE so we knew we'd need the money at the 5th year...so it appears it wasn't the best financial advice for us.

Based on limited information, it doesnt appear to be the right tax wrapper. You could have used both ISAs (worth around 1.1% a year extra in tax saved on a like for like basis). two ISAs would have been £7200 each allowing the remainder to go into unit trusts which on that small amount would never see a CGT liability and save you again around 1% a year in tax. So, unless it is in trust or used to avoid means tests (indirectly) then it is the wrong tax wrapper and a mis-sale.

we have 4 children in or going in to HE so we knew we'd need the money at the 5th year...so it appears it wasn't the best financial advice for us.

5 years is sufficient to consider investments. You just managed to get an awful 5 year period with the credit crunch and global recession. The 5 years before that could have seen you double the money. That is bad luck rather than bad advice.

A loss on 5 years with no withdrawals is a concern. You would expect a small armount of growth on a typical investment spread unless you have taken income/withdrawals (where a loss would be expected in that timescale).

laurmurph

thanks for your guidance, I am grateful!

we tried that 'tax wrapper' argument in our claim for misselling but apparently my OH was advised we could put the money in ISAs and he decided we wouldn't because the returns wouldn't be high enough.

we haven't taken anything from it and it showed a loss within 2 years and carried out showing the same sort of £4000 ish loss, give or take hundreds in the last 3.

Your point about a bad 5 years is a good one, that's why the OH was keen to invest because the previous 5 had been good. I've just got to decide now if the next 2 will be even worse and we're better cutting and running.

the point about taking a bit from both funds or closing down one fund in the bond to make a difference to our tax situation is confusing me. Apparently better if we shut down one (Managed income (ACC)) as we won't get hit with a tax bill?

I'm trying to look at it as the money wasn't 'ours' to begin with so we've lost nothing but it's hard when i emotionalise the money as it came from my brother's will for our children.

I don't envy you financial folk, 'cause you get people like me who can't distance themselves emotionally from their financial decisions.