Protected FTSE Plan and Guaranteed Equity bonds - are they same thing?

dunstonh

Just as a point of interest are you telling me that you rebate all trail comission and therefore your sole income is 1% comission. I very much doubt it. I suspect you take a reduced initial comission on investment bonds and then take annual trail comission.

1% plus 0.5% p.a. as you say on all contracts that pay a 0.5%. Or 1% with no trail if they dont pay a trail.

Also manipulating figures to make investments look like good value is incredibly easy. can I ask you where ou got these figures from? Was it from research done by IFA's or investment companies by any chance?

The figures were from Lipper but you can look at Financial Express, Morningstar or S&P of you prefer. None of which are IFAs or investment companies.

Finally - if you spent 5 years working night and day to become a doctor, your parents had sacrificed virtually everything they had to help you through uni, only for you to then be faced by further hurdles put up by the government and you were as good at your job as most doctors I know - you would expect to be well paid also!!

Sounds very similar to my training. Except my additional qualifications were two nights a week from 6pm to 9pm after finishing 9-5 in the day job for 3 years.

Can I ask how much the average IFA charges on a fee basis - I can assure you it is far more than virtually every doctor in England earns per hour. And when was the last time you were a work at 3AM!!!!

Typically, £125 an hour seems to be the average. Last time at 3am was abour 2 weeks ago. Although I frequently go to midnight.

Your occupation was your choice and I have mine. I actually have a very negative experience of doctors in general with a few exceptions. My daughter has one Kidney and many of the doctors we have seen over the years knew less about it than we did. I however, dont measure all doctors by those poor examples.

SeanW

My point is that with Heritable Bank (just an example) you are almost guaranteed a 34.1% return over the 5 years. To get the same return from one of these two products, the FTSE has to rise 28.4% in the five years (or within 4 years because of the averaging out).

Somebody who chooses to invest in one of these protected plans is probably not wanting any risk, hence the capital guarantee that they are paying for in commission and lack of dividends. I suggest this type of person should just use the savings account if they don't want to risk capital.

medicman

Dunstonh - Firstly I'm sorry to hear about your daughter and hope she's getting appropriate care from the doctors looking after her. I guess we'll just have to agree to disagree on this whole subject. My experience of IFA's has generally been very negative. I find that they only ever recommend products which pay hefty comission to them and I think it's says a lot that you chose to defend yourself by attacking my profession rather than trying to justify the actions of your own profession.

jamesd

medicman, please take a look back to see who threw the first stone, then consider your own reaction to the return throw. While you did subsequently clarify, dunstonh's reaction to criticism of his profession seems as understandable as yours to criticism of your own.

You might try seeking out IFAs who operate on the same New Model Adviser (NMA) basis as dunstonh and also consider asking for for-fee service to reduce your concerns about the influence of commission on recommendations. It's my impression that these filters will eliminate many of those who might engage in unhelpful conduct, though they would also eliminate many who would be fine.

dunstonh

My experience of IFA's has generally been very negative. I find that they only ever recommend products which pay hefty comission to them and I think it's says a lot that you chose to defend yourself by attacking my profession rather than trying to justify the actions of your own profession.

Most people in the UK have never sought advice from an IFA. There are about 30,000 advisers in the UK so you must have seen lots of them to judge every single one the same way. I would like to know when you saw me as you seemed quick to pass judgement on my ability with your "it doesnt surprise me that an IFA like Dunstonh.. " comment?

I have seen more doctors than you have advisers over the years yet I dont let the bad ones (which outnumber the good) put me off. I fail to understand this mentality that sees some people slag off a whole profession on the basis of one low quality individual. On that basis, as Harold Shipman was a murderer, that must make all doctors murderers.

Every single profession has good and bad. Dont measure everyone by the bad examples.

Dunstonh - Firstly I'm sorry to hear about your daughter and hope she's getting appropriate care from the doctors looking after her.

Thank you. She is; now that we have gone Private. I guess it just proves, that paying can be the best option when what you paid for gives the best results.

whambamboo

medicman wrote: »

I have to say that I completely disagree with Dunstonh. There is undoubetdly a place for guaranteed trackers in a cautious portfolio. For example the current Legal and General Guaranteed product pays out 125% of the growth in FTSE100 after 6 years with a guarantee of no loss of inital capital if held to term. The extra 25% surely helps compensate for dividends, and even if dividends were to be more than 25%, well this is the price one must accept for the guarantees in place. There is also an early get out clause after 3 years that if the FTSE100 has grown by 15% or more then you will receive fixed growth of 25% of your original investment. Furthermore you can get a guaranteed 2-2.5% back in comission by going through a discount broker. This means that even if the early trigger point is reached, including the comission back from the discount broker you have earned about 27% growth in 3 years, which strikes me as pretty good for no risk to your capital and way ahead of any deposit account.
In all honesty it doesnt surprise me that an IFA like Dunstonh wouldnt recommend such a product. Virtually every IFA I have ever met (which is about 10 in total) has only ever recommended expensive products with high upfront comission and trail comission. The difference here is that whilst there is an upfront comission of 3% on such a product, there is no trail comission (typically 0.5% a year) so why on earth would someone like Dunstonh recommend this product when he can recommend a much riskier product where you could in theory loose a lot if the markets go against you, but that pays him his trail comission.
P.S. I am in no way linked to Legal and General. I work as a doctor

I would suggest you stick to the day job...

Firstly, the capital guarantee is almost worthless, as the chance of a fall over 6 years is close to zero. So the guarantee is worth about £2.50 (and note that inflation would still ravage your capital).

Secondly, your logic is not based on any analysis:

The extra 25% surely helps compensate for dividends, and even if dividends were to be more than 25%, well this is the price one must accept for the guarantees in place.

That's not the case.

If we get growth at 7% PA, with 3% dividend yield, then the total growth is 10% PA.

So after 6 years, the fund is worth 1.1 ^ 6 = 1.77 = 77% growth

With your GEB, the last year is averaged, so you actually get 5 years of 7% growth, and 1 year of (on average) 3.5% growth.

So you get 1.07 ^ 5 * 1.035 = 1.45. Adding on 25% gives (1.45 - 1) * 1.25 + 1 = 1.56. That's 56% growth. You're vastly worse off - the annual effect of taking away a 3% charge *EVERY YEAR* seriously damages your return.

And that's before you look at the 'early get out clause', which you mistakenly think is a positive attribute. This early repayment is a con - if the growth after 3 years is more than 15% you get back 25% - this sounds good, but if the growth is more than 25% you still only get back 25%. Over the last 3 years, for instance, the growth was 45%. This is not unusual.

This clause is designed to increase L&G's profit margins - in other words, damage your investment. 25% growth over 3 years is only 7.7% annual growth. Due to market volatility, 25% will be exceeded on a large number of occasions. The only way this clause could benefit you is if growth was between 15% and 25%, but as 15% is 4.8% PA over 3 years, and when adding in a dividend yield of 3% (which you'd have received if you were actually invested in the FTSE), you'd have got over 25% anyway.....

The effect of the clause is that only in the event that the stockmarket has performed poorly (which under 15% in 3 years is) will you actually stay invested till full term. 9 times out of 10, this product will not make it past 3 years.

That's a fact.

These products are pretty dishonest, full of tricks designed to deceive naive investors, full of things that sound like they are good but are actually bade. This one's a classic example - compared to previous products, they've made the early repayment clause (which is always bad - otherwise they wouldn't offer it) compulsory. They also feature averaging, which costs you half the last year's returns, and the classic '125% of growth' conveniently fails to mention any dividends, or the fact that the capital guarantee is not something a sensible investor would pay money for.

I'm afraid you've been conned by sophisticated marketing by unscrupulous banks. This kind of thing does give the finance industry a bad name, but it's why it's sensible to test assertions and examine their statements for yourself, rather than making assumptions such as that 125% of growth would compensate for loss of dividends (it doesn't).

This product would not be so bad but for the fact that if FTSE growth in the first three years exceeds approx 7% PA, you're losing any further return - this is an absolute killer and means the average return from this product will quite likely underperform a high-interest savings account - if the FTSE does 12% PA from now till 2010, you still only get 7% (and lose the divis) return. The effect of cutting off the top 30% or so of samples is to dramatically reduce average returns.

E.g., if this product was released five times, and you got the following returns after 3 years.

-1%
11%
20%
45%
50%

The average return of the FTSE 100 is 25%, but the actual return is:

-1% (continues to maturity)
13% (continues to maturity)
25% (return uprated, product closes)
25% (return chopped off at 25%)
25% (return chopped off at 25%, product closes)

17.4%. Oops.

medicman

another comission hungry IFA speaking by any chance?

jem16

medicman wrote: »

another comission hungry IFA speaking by any chance?

If you mean whambamboo he's not an IFA as is quite obvious from his previous posts. He has given you a lot of reasons why these products are to be avoided but for some reason you would rather stick your head in the sand.

Perhaps you should read the forums a bit longer before slinging accusations about.

jamesd

Here's how you build your own GEB:

1. UK gilts ending in 2013 are currently yielding 5.08% at redemption. If you invest the whole amount that will return 1.346 times it at the end.
2. You only need to guarantee 100%, which takes 1/1.346 = 0.74. So, 74% of the money buys the gilts.
3. Now you put the remaining 26% in a FTSE tracker.

End result? You get guaranteed capital protection plus 26% of the money will grow with the FTSE and get its dividends.

The FTSE would have to fall to nothing to get you only your original money back. If it merely ends up level, you get 126% of the money plus dividends back. If it rises, you get 100% plus your 26% plus the growth on that, plus dividends. Whatever happens, you end up doing better than the GEB.

The effect of the suggestions would be to place money in stocks and shares ISAs or unit trusts via low cost providers like Hargreaves Lansdown and a low risk sector-allocated selection of funds. The only person here to make money from that will be the person following the suggestion.

whambamboo

medicman wrote: »

another comission hungry IFA speaking by any chance?

:rotfl:

My wife has just asked me why I'm laughing....

What a funny suggestion. I've never been accused of being an IFA before. Thanks

I suggest you read what I've said. And then tell me what part of it you disagree with.

I'd hope a doctor would admit when he's wrong. If you're this arrogant when it's something you know nothing about, heaven help your patients.