Ditch your endowment policy - is this the general opinion?

JoeK_3

What an absolutely cynical view you have of us so-called professionals.

The true Independent Financial Adviser is not concerned about generating commission but about giving professional advice and being paid for it like solicitors and accountants do.

Some part of your analogy is true, (certainly about stock market recovery and improving with profits) but generally your cynical view of our profession leaves something to be desired.

Did you ever work for Allied Dunbar by any chance?

JoeK

EdInvestor

JoeK wrote: »

Did you ever work for Allied Dunbar by any chance?

JoeK

Blimey:D :cool: :cool:

Never been accused of that before.:rotfl: :rotfl:

Shambler

EdInvestor wrote: »

Which company is the provider, what is your monthly premium and the interest rate on your mortgage?

Those forecasts are done according to a set formula dictated by the regulator. They do not necessarily bear any resemblance to the likely performance of your policy.

Only a very few companies will achieve 6% growth in their WP fund, most will fall well short of that.

Provider was Woolwich Life, now Barclays Life and premium is £61 a month.

No mortgage as yet, this is an endowment from a mortgage I no longer have.

JoeK_3

EdInvestor wrote: »

Anybody would think it was a heinous crime for an advisor to suggest that someone should surrender an endowment. Is it really a shocking thing to do to "accuse" an advisor of suggesting someone do this?

If so,why?

Getting back to the post, there is absolutely nothing wrong in suggesting that someone should surrender an endowment (if you are qualified to do so) but that is not the point. The OP was suggesting that, Dunstonh (an IFA) had suggested incorrectly and then posting the fact that an IFA had made that suggestion.

I know where I would like the OP to be in the trenches, with me.

EdInvestor wrote: »

The main thing stopping advisors from telling the whole world to surrender their endowments is personal back protection.None of them knows enough about the various With profits funds or how insurers run them, to be absolutely sure the advice will turn out correct - and of course where applicable, they don't have a crystal ball on how the stockmarket will perform either.

You make a constant big issue about this in all your posts. Don't forget that investments are fluid and not stagnant and for this reason investment returns can change on an annual basis.

A good example of this is the number of miss-sold endowments claims being awarded to the client just after the stock market crash. Look at what's happening now since the stock markets have improved.

Awards for miss selling have reduced dramatically.

EdInvestor wrote: »

So what if they advise surrender, and then later the regulator changes the solvency rules, the company reorganises the WP fund, the stockmarket rockets and the policy ends up producing a massive terminal bonus like in the old days?

Ten years later, having surrendered and missed out on this boom, the punter could easily turn round and file a complaint against the advisor who suggested he sell, demanding compensation for his loss ( or rather his failure to profit).

Exactly, you have the analogy in one but not for the cynical reasons but for the reasons highlighted by me above.

EdInvestor wrote: »

So, to avoid future complaints, it's much easier for the advisor to suggest you do nothing, especially as he is no longer selling With profit products like endowments and thus has no incentive to be well informed about the companies that offer them.

Here you go with that tar brush again. Yes the system that we have in earning commission from arranging financial products is far from perfect but we have to make the best of what we've got .

Governments have done nothing but mess about with the financial advisors world for the last twenty years and we are now seeing the effects of all this in lack of pension planning by individuals, pension miss-selling claims, endowment miss-selling claims, mortgage regulations, PPI miss-selling etc..

When you look into it, most of the mass claims have come from the banks, building societies and direct sales forces, with us IFA's having to pick up the thread of giving advice.

EdInvestor wrote: »

In addition, since best advice will often be to to use any surrender proceeds to pay off the mortgage loan - which will generate no commission for the advisor - there is even less incentive to bother with this kind of client, who is unlikely to want to pay a fee.

And how qualified are you to make this sweeping statement that best advice is to surrender?

JoeK

EdInvestor

Shambler wrote: »

Provider was Woolwich Life, now Barclays Life and premium is £61 a month.

I assume this is a unit linked endowment, not WP? If so, 6% growth ought to be achievable.Unfortunately few WP will reach this target nowadays as the investment mix in most cases will be very different.Though unit linked and WP endowments were not that different 10 years ago, the two types are only barely comparable now.

EdInvestor

JoeK wrote: »

A good example of this is the number of miss-sold endowments claims being awarded to the client just after the stock market crash. Look at what's happening now since the stock markets have improved.

I think you're timing is a little inaccurate here. The smoothing effect of With profits means that the majority of big shortfalls didn't start to appear (and thus start to generate major waves of misselling complaints) until around 2003, which was when the stockmarket bottomed out and started to recover (having crashed in 2000).

The reduction in complaints now would have more to do with time-barring (which comes in 3 years after the "red light" projection letters, which mostly went out 3-4 years ago, as above). Plus of course many people have already complained.

As you know stockmarket performance is only one reason why endowments are not performing.The more serious reason in many cases is the new reserving requirement for guarantees, which means that a lot of companies (the so called "zombie funds") can't invest in the stockmarket at all any more.

So it doesn't matter how well shares perform, these endowments will never improve.

EdInvestor

JoeK wrote: »

When you look into it, most of the mass claims have come from the banks, building societies and direct sales forces, with us IFA's having to pick up the thread of giving advice.

But surely that's the explanation why it's so difficult to get any advice from an IFA about an endowment?They didn't sell them in the first place, they aren't very well informed about them and the changes that have happened to them, the product is obsolete, and no longer being sold.

For the average IFA this shouts "Avoid" - it's just as likely that having anything to do with endowments will eventually just generate a complaint, rather than a profit.

JoeK_3

EdInvestor wrote: »

But surely that's the explanation why it's so difficult to get any advice from an IFA about an endowment?They didn't sell them in the first place, they aren't very well informed about them and the changes that have happened to them, the product is obsolete, and no longer being sold.

For the average IFA this shouts "Avoid" - it's just as likely that having anything to do with endowments will eventually just generate a complaint, rather than a profit.

Sorry Ed, I think that you're basing this on posts in here and silly worthless newspaper articles. As IFA's we are asked our opinion about endowments all the time but the british have sadly been brought up on advisers working on a commission only basis and as a consequence are rather loathed to pay £100 per hour going rate for advice.

JoeK

Lipstick_2

RainbowsInTheSpray wrote: »

I've received dunstonh's opinion that I should consider surrendering my endowment policy with Winterthur which has five years to run.

They have added no bonuses to it for the last few years.

I had thought that the usual advice given was to hang on if you were approaching the end of the policy.

Any other thoughts out there on this?

You're asking this because someone tried to help you??

Tut, tut

Lipstick

jamesd

Shambler, that 31000 on 16000 now with 61 a month invested for 7 years is exactly what 6% growth will produce wherever you put the money to get 6% growth. Actually takes 6190 starting amount but I assume you're rounding the value and monthly amounts a llittle.

You need to:

1. find out if it's a with profits plan with a terminal bonus that's not included in the projection. It probably isn't, but you should check since this can make a big difference.

2. decide whether you're happy to use medium or higher risk investments. Investing the money in a range of funds inside a stocks and shares ISA is expected to do significantly better than 6% a year on average - nearer 10%.

3. If insurance is included and you need the insurance, find out what it costs to replace it and factor that into your calculations about whether you can expect to be better off.

Personally, if I had the stocks and shares ISA option available and there was no terminal bonus, I'd end it now and go with the investments because achieving 9% ends up with a 37500 final value.

Same if your capital gains tax allowance isn't likely to be used for other things, using funds outside an ISA.

As EdInvestor said, the 6% isn't any form of guarantee, just a projection. It's not an unreasonable projection for the investments many endowments now have. Just something you can beat by not using one, if your risk tolerance is suitable.