A question for, and about, IFA's

dunstonh

Don't knock quality advice. I could decorate my own house cheaper than a decorator but it would be of lower standard and quite probably a bodge job. I would rather pay for a decent job done.

Also, the cost of advice is not that great nowadays. The FSA recorded average shows initial commission at 1.8%. Average of course means some pay more, some pay less but you can get that sort of movement in a week on an investment so its not a big deal.

Grey_Squirrel

dunstonh wrote:

Sorry, I know we have posted in threads before and I assumed you had spotted the GEB threads. GEB = Guaranteed Equity Bond. These are awful investment products which are easily sold. Typically by banks, building societies and post office. They track the FTSE100 (most commonly) but have a guarantee of capital. That makes them attractive to some but the high implicit charges (implicit means hidden charges) means that they are often sold on the basis that you get "stockmarket potential with no risk to your capital and no charges". That is all SPIN. You get no dividends so are missing out on around 3% a year, you get averaging in the last year and sometimes the first and currently most have a cap on the amount they can grow by (i.e. you get 70% of the FTSE growth). In other words, you dont get 30% of it and you dont get dividends. So, there are your hidden charges.

I invested a £9000 TOISA ( Tessa Only ISA ) in a GEB for five years in 2001 which matured in February2006. It was related to the growth in the FTSE 100 index in that period. Stockmarkets actually fell during that period, but I did at least get my £9000 back. If I had invested directly in the stockmarket I would have lost money, so, with hindsight, I would have been better, as we all would have been, in a savings account.

However, I was quite happy to reinvest the £9000 in a similar GEB which will repay the £9000 plus interest based on 110% of any rise in the FTSE 100 from February 2006 to Feb 2011. The extra 10% goes a long way to compensate for the loss in growth by not having dividends included. Considering that the capital is protected and any interest is tax-free within an ISA wrapper, I think that this is quite a good deal. At the moment it's 'worth' about £10,100 ( an increase of 12.3% ).

cheerfulcat

Grey_Squirrel wrote: »

If I had invested directly in the stockmarket I would have lost money, so, with hindsight, I would have been better, as we all would have been, in a savings account.

But you have lost money. £9000 now is worth less than £9000 in 2001.

However, I was quite happy to reinvest the £9000 in a similar GEB which will repay the £9000 plus interest based on 110% of any rise in the FTSE 100 from February 2006 to Feb 2011. The extra 10% goes a long way to compensate for the loss in growth by not having dividends included. Considering that the capital is protected and any interest is tax-free within an ISA wrapper, I think that this is quite a good deal. At the moment it's 'worth' about £10,100 ( an increase of 12.3% ).

The capital is not protected in real terms. And I'm afraid that the effect of the " extra " 10% does not compare to the compounding effect of dividend re-investment...GEBs are dreadful products, cynically marketed to nervous punters.

dunstonh

Stockmarkets actually fell during that period, but I did at least get my £9000 back. If I had invested directly in the stockmarket I would have lost money, so, with hindsight, I would have been better, as we all would have been, in a savings account.

You wouldnt have lost money had you used equites. Even a FTSE 100 tracker would have given you a small profit. Lower risk UK equity income, UK UK Equity and Bond or UK Other bond would have come close to doubling your money.

masonic

Grey_Squirrel wrote: »

At the moment it's 'worth' about £10,100 ( an increase of 12.3% ).

Had you put the original £9000 in a simple cash ISA paying 5% in 2001, it would now be worth just over £12,000 (an increase of 34%). In 2011, it would be worth over £14,500 (a 63% increase). So, I guess your banking on the FTSE 100 growing by 10% or more year on year for you to catch up with cash savings.

Grey_Squirrel

dunstonh wrote:

You wouldnt have lost money had you used equites. Even a FTSE 100 tracker would have given you a small profit. Lower risk UK equity income, UK UK Equity and Bond or UK Other bond would have come close to doubling your money.

I totally agree with you. The FTSE 100 fell by 7% between Feb 2001 and Feb 2006. The effect of dividends would at have probably turned this into a gain of 8% or so.

So what price should you be willing to pay for a guarantee of a minimum return of your initial capital? At one point in this period the FTSE was down by more than 30%.

Grey_Squirrel

masonic wrote:

Had you put the original £9000 in a simple cash ISA paying 5% in 2001, it would now be worth just over £12,000 (an increase of 34%). In 2011, it would be worth over £14,500 (a 63% increase). So, I guess your banking on the FTSE 100 growing by 10% or more year on year for you to catch up with cash savings

With hindsight ( a wonderful thing) , I guess so. But I can't do much about the past, except to try and learn from it.

dunstonh

So what price should you be willing to pay for a guarantee of a minimum return of your initial capital? At one point in this period the FTSE was down by more than 30%.

You build your own GEB. Check this thread out for an example:
http://forums.moneysavingexpert.com/showthread.html?p=2728519#post2728519

Grey_Squirrel

dunstonh wrote: »

You build your own GEB. Check this thread out for an example:
http://forums.moneysavingexpert.com/showthread.html?p=2728519#post2728519

Thanks, that's roughly where we are now, ( 50% cash, 35% equities, 15% bonds). No investments specifically in property ( other than the house ), unless some of the funds may have a bit. The Britannia GEB is only there because there is little other choice with a cash ISA, other than cash, of course. I believe that next year it will be possible to transfer out of a cash ISA into equity ISA, but not back again.