WHY are my endowments underperforming?

macca789456

holly hobby what do you mean by in current financial circs that you are in recript of a return at all is actually positive the company would have to go bust not to be able to give a return at all.It is a very poor show by them to take 25 years premiums and retun such a low figure there have been lots of good years over the last 25 years company profits well into double figures.Although the growth rates are quoted by the F S A it is the company prudential by the way, that is making the assumptions each year that 6% is easily achievable.I dont agree with dunstinhs comments, my annual bonuses, as i said earlier have alwys been no lower than 1.5% and no higher than a very poor 2.8% over the 25 year period also the terminal bonus was 130% about 10 years ago, of the polcy total now that has dropped to about 30% the last few years

dunstonh

It is a very poor show by them to take 25 years premiums and retun such a low figure

What makes you think it is a low figure? Typically, most have beaten cash.

I dont agree with dunstinhs comments, my annual bonuses, as i said earlier have alwys been no lower than 1.5% and no higher than a very poor 2.8% over the 25 year period also the terminal bonus was 130% about 10 years ago, of the polcy total now that has dropped to about 30% the last few years

Annual bonuses are always lower on plans with a guaranteed sum assured.

It would be interesting to know why you feel the pressures put on solvency havent reduced annual bonuses when it is widely recognised?

holly_hobby

No, you have not read correctly my reply post to your question.

Your policy does not directly participate in the annual profits of the company - shareholders have that privilidge.

The allocation of policy bonuses, as explained earlier have little to do with the level of operating profit os of the WP fund . So no, the provider would not "have to go bust " to be in a position to declare either a low or no reversionary or terminal bonus at all. Thats why I say that to be in reciept of any return in todays poor investment climate, is actually a positive (although I know thats painful to hear).

As explained earlier, your policy (along with all other WP vehicles) participate in the with profits fund of the provider. The "profits" generated by the underlying investments, are then utilised (following essential provision) in the assessment of IF an annual bonus may be declared, and if so, what level that bonus will be at.

It is certainly unfortunate and disappointing how such contracts have suffered, which as already discussed, are as a result of several influencing (and in some cases unforseen) factors.

Moving on, I assume that having been aware of a potential shortfall for circa 10 yrs, you have already made alternative mortgage repayment provision - if not its an urgent job to be undertaken.

Hope this helps

Holly

bigadaj

The selling of endowments was always questionable and purely relied upon a gamble on stock market returns that paid off in the seventies and eighties but has failed spectacularly more recently.

As an engineer I can respond a bit more objectively than the IFAs posting here, but I could never work out why anyone would risk their home on the possibility of a lump sum at the end of the policy.

One of the main reasons that policies have fallen short is the high charges all the way through the system from IFAs through brokers to the insurance companies and banks.

At the end of the day the so called professionals are just taking a punt with other people's money, if it comes off, normally by luck in a rising Market, then the high charges look fine, if not then we go all the way back to mis-selling, compensation, firms going bust at not having to make payouts and the individuals keeping their over inflated bonuses for mis selling the original products.

holly_hobby

I'm not an IFA. But I am a qualified industry professional, which means my comments are based on facts - and I am always objective.

Investment into the funds, are net of policy charges (i.e monthly policy charge and life cover provision).

All investments - inheritantly have some risk of return, the fund managers role (in pooled mediums) is to manage the diversification and movement within the fund to maximise return aka "taking a punt".

A policy would only be be mis-sold if the individual was led to believe that returns were guaranteed - loss of expectaion is not a mis-sale, but a by product of investing where there is no guaranteed return.

Re why they were used to support a mortgage - individuals often took such polices, because essentially in most cases they were cheaper on a monthly basis than an equivilent capital and interest mortgage, the policy premium included provison for life cover equal to the target sum, with anticipated (but not guranteed) meeting of the target sum, and the additional posability of a lump sum in excess of the target figure. This was why the basis of contract was attractive at the time - especially in the 90s when interest rates were quite bouyant.

Further to which, the subsequent reasons resulting in a "deviation to form" has already been well discussed in the thread.

I know you did say you are an engineer, so FS is not your area of expertise, but I believe its important to be imparital and base comments on fact rather than hearsay.

Hope this helps

Holly

dunstonh

As an engineer I can respond a bit more objectively than the IFAs posting here

There is only one IFA posting here and that is me. I cant see why the fact you are an engineer makes you more objective. It certainly makes you less knowledgeable.

One of the main reasons that policies have fallen short is the high charges all the way through the system from IFAs through brokers to the insurance companies and banks.

A minor reason. There are far more obvious reasons they they didnt. Target growth rates, two once-in-a-generation crashes within a short period following a sustained period that didnt have any real corrections/crashes, financial solvency, low inflation etc are far more powerful reasons.

Many endowments actually have very low charges after the first few years.

2sides2everystory

bigadaj is on the money.

People relied on these things in droves because they were advised they were a sure thing. To dismiss outright an endowment based mortgage alternative when arranging a new mortgage was seen as plain daft in the early 1980s.

Then by about 1986 hybrid competing alternatives to the strong low cost with profits endowments which had defined the practice up to that point were introduced.

The true "With Profits" providers responded for a while by making their projections even more optimistic in a falling market and then after a few years gave up the job as a bad one. They even started messing with using the tax free lumpo sums from pension policies as a similar vehicle which might compete better for a while. Then they set about reneging on all the endowment deals. A decade or two later they reneged big time by starting to steal "inherited estate" or "ophaned assets" within the decimated With Profits funds that they had deliberately run into the buffers and let the shrubs grow up behind them. They've been mugging With Profits policyholders behind the bushes ever since.

Anyone that bought endowments after about 1990 was probably sold a pup that was always going to be a pup. The game was up by then - the backpedalling had already begun.

Anyone sold With Profits anything after about 1998 was being set up for ambush.

bigadaj

Nice to see a rapid response from the industry professionals. My main point is that the level of relevant qualification and training is poor within the financial services community compared with most other professions. The term ifa is obviously controversial if not misleading given that their work, or rather sales, is so much commission driven. The note about my job was primarily to provide comparison as i have two relevant degrees from top universities and professional institute membership and charge my mainly ftse 250 clients around £100 per hour for-consultancy the idea of charging two or three times that for potentially non objective advice to an individual of limited means does not make sense to me, particularly as the only relevant qualifications seem to be one or two day courses.

holly_hobby

Well thats not quite right ... I'm a Diploma Qualified Adviser, Duns in his position, will also hold advanced professional qualifications too - further to which there are basic entry professional qualification requirements for new entrants, supported by training and on going monitoring, in order to be assessed and continue as a proficient industry adviser, sitting a 1 week training course went out with the ark. (but I wouldn't expect you to know that).

I digress, I don't expect you to agree with something that you simply won't accept, but unfortuately we also can't tell you what you want to hear (i.e - that this is ALL the fault of the providers and their devious sales tactics, and nothing to do with market constraints). Unfortunately, the facts are what they are - yes its uncomfortable and disappointing for the industry - but don't forget advisers themselves held endowment mortgages, and have also suffered the same performance issues and concerns ....


Hope this helps

H

dunstonh

The term ifa is obviously controversial if not misleading given that their work, or rather sales, is so much commission driven.

I'm fee based, like so many other IFAs. People buy my advice. Just like they buy your services. I guess that makes you commission based too going by your description.

The note about my job was primarily to provide comparison as i have two relevant degrees from top universities and professional institute membership and charge my mainly ftse 250 clients around £100 per hour for-consultancy the idea of charging two or three times that for potentially non objective advice to an individual of limited means does not make sense to me, particularly as the only relevant qualifications seem to be one or two day courses.

one or two day courses lol. Still, given your lack of knowledge shown already on endowments, it doesnt surprise me about the qualifications either.

You seem to have formed an opinion which is incomplete and with a chip on your shoulder and dont really want to know the issues. No point debating if you are not going to listen and understand what went wrong with them.