Help! Have I made a mistake with OEIC ISA

Dopey_Di_2

Hi,

I'm new to the boards although I have been an avid reader of the forums for some months.

Hope you can help me as I am rather worried that I have made a big mistake with investing my money (havent got a lot so cant afford to lose it).

I am with Lloyds Bank and the Financial Advisor there has arranged for me to put £3000 lump & £100 per month in Scottish Widows OEIC ISA. For this privilege I see I am being charged of 3.5% of each payment that I make then management & expense charges totalling 1.43% a year of the value of the fund. There is also an amount of £193.20 being taken out straight away for setting it up?

Now I know nothing about investing money and am absolutely useless (or thick lol). But the Advisor told me I should get 7-8% return on this but looking at the paperwork now this doesnt seem right.

Have I made a big boob and should I use the 30 day Cancellation Notice?

Please help.

Ian_W

Hi Di,
One of the most often stated pieces of advice on this forum is NEVER buy investment products from a bank or building society - the "financial advisor" isn't, they're a sales person and the products being sold are often expensive compared to what's available elsewhere.
It might help others with more expertise than me if you were to name the actual Scottish Widows Fund or Funds you've signed up to paying into. Theres a list of them at:
http://webfund5.financialexpress.net/scottishwidows2/pricetable.wsp?selCat1=OEICs

SWIP do have some good funds but I'm not sure they're all available via LTSB and the charges you quote do seem quite expensive. I've picked a SWIP fund at random on Hargreaves Lansdowne and they show an initial charge of 5% which is rebated to you in full and 0.2% of the annual charges is also rebated - see
https://www.h-l.co.uk/fund_research/security_details/sedol/3214682.hl

I'm sure someone will be along shortly who can answer more specifically but it doesn't look good to me.

dunstonh

Its an expensive way to invest and bank advisers typically have limited investment knowledge and dont have a good range. For example, the Scottish Widows funds are not great but Scottish Widows Investment Partners (SWIP) do have some very good funds.

Your idea is good. You have just chosen an expensive way of doing it.

As for what you may get, that depends on where you have invested. Which funds did he recommend?

Dopey_Di_2

Thanks for the replies - I have been so worried about this now I have looked at some of the paperwork.

All that I can make out is that my payment will be invested in accumulation shares of Scottish Widows Momentum Income Portfolio - cautious.

I feel that the Advisor has definately misled me and I wont get good interest back on this.

Would I be wiser to use the 30 day cancelletion notice (I presume I would be charged an amount for this as well!!) now or just hang in and hope everything goes ok??

Just dont know what to do for the best.

Ian_W

This is the fund performance you're signed up to I think:
https://www.trustnet.com/ut/funds/?fund=5353

3.7% over 12 months and 5.7% 12-24 month performance don't suggest the advisor's estimate of a 7-8% return is at all likely particularly as you'll have hefty charges before you see a penny.

I feel that the Advisor has definately misled me and I wont get good interest back on this.

You don't get interest on investments, nothing is guaranteed but in most years you can get better returns [often far better] than on deposit but it doesn't look likely with this fund as it's returned a measly amount in a period that has been excellent for investments.

Personally I would cancel but don't give up on investments, either learn about them yourself or consider a proper IFA for advice.

jamesd

I suggest canceling. I'm assuming that the money isn't in the ISA already, so you can cancel without using this year's allowance.

Then I suggest that you tell us how long you expect to keep the money invested and how much of a percentage drop you'll accept over the course of a year when the stock markets take one of their periodic downturns and then take a few years to recover before going ahead of savings accounts. If you can accept it I suggest 30% at least. That doesn't mean you'll end up with 30% less, just that at some points it will be 30% below it's immediately preceding higher value. In the early years that may be enough to take it below the starting value, in later years it probably won't do that - adding say 10% a year for five years then falling 30% means you're still up overall. None of this is guaranteed. The need to allow for time to recover after a low period is part of why five years is suggested as a minimum time to invest for.

Then to buy more efficiently I suggest that you sign up with Hargreaves Lansdown or one of the other fund supermarkets and in the case of H-L you sign up for their Vantage ISA.

Next you'd need to select which funds to buy. To get started without a lot of work I suggest that you use a mixture of these two initially:

• INVESCO PERPETUAL Income (h-l)
• Jupiter Fund of Inv Trusts (h-l)

The first is one of the "defensive" funds in the UK Equity Income sector, the second a fund of funds in the Global Growth sector that may get more growth, with more up and down movement. You can expect to see drops of 20% or more with the first and perhaps 30-40% or more with the second in some years. You can adjust the amount of money you put in each to decide what average percentage of downward movement you'll accept, at the cost of limiting the upwards potential.

This is not a full selection well customised to your desired risk. Just a way to get started without having to learn too much on the first day. There are may other sectors to choose from and it would be good to have one selection from each as you do the work to pick more funds over time. You can find much discussion of how to allocate different percentages of your money to different sectors and some funds that some people think are interesting at "OK then - How do I choose a S&S ISA".

Dopey_Di_2

Thank you all for your replies I am such a novice in this area.

James D - I went to see the Advisor on 21/5/07 and have already had a Contract Note for a Purchased of Shares in a Scottish Widows ISA letter sent to me confirming that I have bought the shares "Shareclass A Accumulation" - Value £2895 Charge £104. The initial charge for this fund is 3.50% of your payment!

They have also sent me a Cancellation Notice for Contract which says that if I cancel I may not get my full investment amount back due to fluctuation in the stock market.

Do you think I will still get the charge taken out of my money etc if I cancel now. I have 30 days from 21st May to cancel.

I really think I have made a muck up of this by taking this advisors advice - my account manager was the one who got him to speak to me in the first place and I wish I hadnt bothered now. I initially went in to put the money in a regular savers account lol.

So even if I lost money now cancelling would it be preferable to keeping it in this fund?

Thank you all for this wonderful help - this site is great.

Di

dunstonh

So even if I lost money now cancelling would it be preferable to keeping it in this fund?

It's not a good fund. There are better options. It is an in-house fund of funds. This means it only invests in Scottish Widows, SWIP and old Lloyds TSB funds. It has been bottom quartile since launch. Quartile is where the funds in it's sector are listed by performance. The list is split into 4 quarters and this fund is in the bottom quarter.

The fund hasnt been running long so it hasnt got a long history but over the last 12 months, the sector average grew by 6.46%. So, thats the mid point you look at least to achieve. This fund made 3.64%.

I really think I have made a muck up of this by taking this advisors advice - my account manager was the one who got him to speak to me in the first place and I wish I hadnt bothered now.

Investing it is not a bad thing. You have just gone to a bank and bank products are low quality, expensive and the advisers are low skilled. So, dont let it put you off. There are plenty of better options available to you. Just not from the bank.

If you cancel, you will not pay any of the fees. However, if the price of the units has gone down, then you will lose money on that.

The price of the units on 21st was 1.0940. On the 24th it was 1.0920. I havent downloaded Fridays prices into my software yet but it is likely to be similar (the unit price was 1.0910 on 4th May so its not a big mover).

So, mutliple the number of units by 0.001 and that will be your loss.

Dopey_Di_2

Thank you so much for your help Dunstonh - I will definately be cancelling this straight away and hope to be more careful in the future (and not listen to Bank Managers lol).

This is a great site glad I took the plunge and joined!!

jamesd

Do ask them how you can cancel and not lose your ISA allowance for this year.