Prudential Investment Bond- advice please

Newly_retired

My first post so bear with me please.
Just retired from teaching and have around £30,000 lump sum coming in soon. My IFA has suggested a Prudential Investment bond. I already have ISAs, high interest savings etc. so I don't expect to need this money for a while. I am a cautious investor but after recent stock market turbulence am not even sure I want to invest at all. Is this a good product - or has his up front commission influenced the advice?

alared

Is a a with profit bond?

Whatever type of bond it is,it will cetainly be tied to stock market performance and yearly charges.
If it were me I`d keep the cash and if you don`t need it for a while stick it in a fixed rate savings account (some are currently paying 6.7% gross)

Of course your IFA is after commission!!!!!!!!!!!!!!!!!!!!!!!!!!

Newly_retired

Thanks alared. Would N, S & I index linked certificates be better as no tax to pay? ( I expect to be a basic rate tax payer )

dunstonh

or has his up front commission influenced the advice?

I think you should sack the IFA. Not because the advice is wrong but just because you are making disparaging comments about him and obviously don't trust him. How can you expect to have any decent business relationship with someone you don't trust.

As it happens, assuming he is taking full commission as you haven't said what commission levels you have agreed, Pru are one of the lower payers. If he wanted to be influenced by commission, he wouldn't have chosen Pru.

I am a cautious investor but after recent stock market turbulence am not even sure I want to invest at all.

How much of the investment is going into the stockmarket? Pru have a couple of funds which have limited exposure to the stockmarket and have some elements of capital security.

If it were me I`d keep the cash and if you don`t need it for a while stick it in a fixed rate savings account (some are currently paying 6.7% gross)

It is worth noting that the Pru with profits fund has been performing in excess of 10% a year net for the last 5 years. Its one of the few WP that is still worth considering. I wouldnt put my money there but if capital security is a concern it could fit the need.

Other observations here is the amount is just £30k. For small investments, the investment bond is not normally the best option. Although if you are retiring and will be on low income, there could be advantages if you are likely to be in receipt of pension credit.

Newly_retired

I don't know whether I trust him or not to be honest. Obviously as he works on commission he is going to recommend funds with fees, though in the past he has given me various bits of advice which gained him nothing as well as setting me up with ISA funds and a NU Bond with 5 yr capital guarantee.
As you say £30 000 is a small amount would I be better to add it to that?
Yes I do know Pru WP is one of the best of its type. Capital security is a concern at retirement.
I won't be in receipt of pension credit though.

Newly_retired

If I did "sack him" by not going ahead on this investment would he still look after my previous investments and review ISA funds?
Would he charge for advice if I decided not to take him up on it?

dunstonh

Obviously as he works on commission

Why obviously? That is your choice. All IFAs have to offer a fee based option.

If I did "sack him" by not going ahead on this investment would he still look after my previous investments and review ISA funds?

You sound like you have been using him for some time. Yet you dont appear to have much faith in him. That is not healthy for the adviser or you.

If you sack the adviser, he will no longer offer advice going forward. Rejecting the recommendation is not the same as you sacking him.

Would he charge for advice if I decided not to take him up on it?

Depends on what his charges are published at. For you to be liable for any costs, the adviser is meant to tell you in advance you are going to incur fees if you go beyond a certain point. So, its unlikely if that is the case.

Before you do anything though, I suggest you ask more about the investment because you could be rejecting something for the wrong reason. It may be the prufund and capital security is stronger with that than the with profits fund or their unit linked options. Make an informed choice knowing the facts.

Newly_retired

Ok thanks dunstonh, I think I ought to ask him for more information.

alared

If you do decide to put it into a bond,you should look for an "execution only" broker,who will actually rebate you a proportion of the set-up charges,unlike the IFA who will pocket the lot.

Personally I would keep it in cash the way things are looking.
These bonds are all very well but there`s too many fingers in the pie, taking their cut,of your money.

A few years back with-profits were all the rage and nearly all of them boasted "no MVA has ever been applied".
After the crash of 2000 all the providers applied a MVA (market value adjustment).
In other words if you wanted to cash in your bond,even after 5 years,they would cut the value up to 20% and beyond.

Cash is king.

dunstonh

If you do decide to put it into a bond,you should look for an "execution only" broker,who will actually rebate you a proportion of the set-up charges,unlike the IFA who will pocket the lot.

You would have to consider your morals here. If you are comfortable employing someone to give advice and then telling them not to do it and then doing it yourself, then that is your choice. You also need to be aware you will lose FOS protection as you need to complete the transaction through the adviser to qualify for it.

Also, execution only brokers are IFAs offering a discount. Most IFAs will transact on execution only basis if requested and will offer improved terms for doing so. A certain company mentioned on this website quite often isnt very good for pricing on bonds and can be better by IFAs even if they take a higher commission.

Personally I would keep it in cash the way things are looking.
These bonds are all very well but there`s too many fingers in the pie, taking their cut,of your money.

If you are talking bonds in general then there a some bond providers that charge nothing on the wrapper. You get a choice of how you want these set up to suit your circumstances and if you want a "clean" contract, then they are available.

A few years back with-profits were all the rage and nearly all of them boasted "no MVA has ever been applied".
After the crash of 2000 all the providers applied a MVA (market value adjustment).

The providers that charged no MVR didnt.

In other words if you wanted to cash in your bond,even after 5 years,they would cut the value up to 20% and beyond.

Some of them have guaranteed exit points and allowable withdrawals without penatly/MVR. Pru allowed withdrawals of upto £10k a year without MVR even through the rough periods.

WP is not what it used to be but under the right circumstances they can still be valid. Although personally, only Pru and NU offer good enough examples.

Cash is king.

Pru WP fund has been returning double figures for the last 5 years. Has cash being doing that?

We dont know if it is the Pru WP being recommended here. If could be the Pru fund.

I will repeat, that I am not a fan of with profits. I am just giving it a bit of balance. There are unit linked options that exist with guarantees on capital value which may be more appropriate if you want to consider investments for the long term. Some of these may just be guarantee on death. Others may have a fixed period when the guarantee applies. Plans with any form of guarantee cost more. That needs to be taken into account as well. A 2% a year cost for example is 10% over 5 years (in simple terms). So, why not invest in a low risk portfolio where the expected delcine in a negative period is no more than 10%.

alared

Just remember one thing

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an IFA, or anyone else for that matter, can only tell you how a fund or an invested bond has performed in the PAST

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not in the future!

If you know the name of the fund or bond you require,contact an execution only broker,who will not charge you any fee but will actually rebate you back a cash amount.
So a £30k initial investment could with a 5% cashback be turned into a £31,500 investment.
No brainer.