Investments, advisers, and commission

bostonerimus

dunstonh wrote: »

Wouldnt it be better to actually understand it first before you make comments that they could have done better?

I think I have a general understanding, hence my comments, but I always like to learn more from other perspectives. My opinion of life insurance investment products is that they are generally complex and expensive.

It is fairly obvious that the OP could have done better in terms of investment return, but maybe the level of risk and the tax advantages back in 2001 made the policy a good buy. The OP is still exposed to the markets, but maybe the policy smooths or mitigates the risk. Or was this really just a way to invest in a multi-asset fund in the days before they were widely available or known about?

br1anstorm

dunstonh wrote: »

I just checked an illustration issued in that period of the same product and the commission disclosure was on page 3 of the 4 page illustration.

I thought I had kept pretty full records, but I can't find a commission disclosure in any of the Pru documentation. Much of the discussion with the adviser who sold us the policy was by fax or email as i recall, and those exchanges are long gone!

its a yesteryear product but one that has done exactly what you want. i cannot recall anyone being unhappy with one of these from that period. Most other bonds we have moved people off but the Pru ones we leave where they are as they do the job.

Quite so. Hindsight is all very well, but in this case I agree that the product has done pretty well. I have no regrets and plan to keep this Pru Bond investment in place. We have a range of other savings and investments and no pressing need to cash this in. I only launched this discussion because I was concerned that an adviser/agent might be collecting money-for-nothing and that this was to my disadvantage.

A sudden afterthought. Since I have no loyalty, obligation or relationship to the company Y who the Pru thinks is my adviser, is there any reason why I shouldn't tell the Pru who our actual current adviser is (a well-known platform/fund supermarket through whom we manage most of our other investments - ISAs, SIPPs etc). Would that make any difference to anyone?

dunstonh

My opinion of life insurance investment products is that they are generally complex and expensive.

Not necessarily. Many life contracts use the same UT/OEICs as ISAs.

Or was this really just a way to invest in a multi-asset fund in the days before they were widely available or known about?

Multi-asset funds have been available for generations in the UK. They are not new here. This though is not a multi-asset fund as you would class it (although its make up is multi-asset). it has capital security and the guaranteed bonuses cannot be taken away once added. The final bonuses are separated as they are not guaranteed. Effectively, that is the bit that is used to smooth out the volatility.

A sudden afterthought. Since I have no loyalty, obligation or relationship to the company Y who the Pru thinks is my adviser, is there any reason why I shouldn't tell the Pru who our actual current adviser is (a well-known platform/fund supermarket through whom we manage most of our other investments - ISAs, SIPPs etc). Would that make any difference to anyone?

It would need them to initiate the agency transfer. However, if It is who I think you are referring to then dont mix up their platform offering with their restricted advice offering.

If you had a current servicing adviser, then it could make a difference. For example, the IFA portals show valuations and investment data from multiple providers. So, having it on their agency would allow daily valuations to the portal. If it was not on their agency, they could not do that. However, that doesnt happen on that platform.

Linton

bostonerimus wrote: »

If we include the "non-guaranteed" bonus your bond has risen by about 5% every year. You could probably have fairly easily got a couple of percent more by investing yourself. Going with these insurance company products does often give a measure of protection from market volatility, but at a significant cost in added expenses. My rule of thumb is that you buy insurance from insurance companies and not investments.

I have held the Pru WP bond since 2001. In that time its value, including the non-guaranteed bonus, has risen every year except 2008 when it dropped by 4.6% and 2015 when it dropped by less than 1%. So "a measure of protection" seems a bit of an understatement. What other investment can you suggest that can give this level of return with the same degree of asset protection. VLS20? I dont think so.

bostonerimus

Linton wrote: »

I have held the Pru WP bond since 2001. In that time its value, including the non-guaranteed bonus, has risen every year except 2008 when it dropped by 4.6% and 2015 when it dropped by less than 1%. So "a measure of protection" seems a bit of an understatement. What other investment can you suggest that can give this level of return with the same degree of asset protection. VLS20? I dont think so.

I hope you see that my comments have not totally trashed investing through an insurance company, as someone who believes that annuities will make a come back I'd be silly to be entirely negative about insurance companies. However, if I want a low risk investment I'd probably look at high quality bonds and hold until maturity. I can name a US insurance product that is "better" than the Pru Bond.....it's the TIAA-Traditional deferred annuity that I mentioned before. I deposited $8k from 1987 to 1991 and today it's worth $55k. That's 6.5% annual return and it's guaranteed to go up by a minimum of 3% every year so there's zero risk.

The Pru Bond does seem to have done ok and would have been a good compliment to other riskier investments. But there are plenty of insurance company bond products that failed miserably which seems strange to me because many people go to an insurance company to reduce risk and to buy a bit of security.

br1anstorm

This is almost a post-script or footnote to the original discussion, as dunstonh has explained that the commission(s) paid to advisers by the Pru aren't directly deducted from our policy/investment and so can't be recouped.

But I have just had a letter from the Pru in response to my request for information and explanation about the advisers. It confirms what I now know about the merger or takeover of the adviser-companies.

Interestingly it also gives the commission figures: "Initial commission of £1614.63 and a total amount of £2006.16 trail commission was paid to company X...... and trail commission of £1366.85 has been paid to company Y to date....".

It doesn't say, but I assume, that the change of advisers took place in 2012. What intrigues me is that company Y is indeed still getting trail commission ("...to date....") and so will no doubt continue to do so for as long as the policies remain in place.

I have no problem with financial advisers getting paid - one way or another - but I still can't escape the feeling that company Y is now getting money-for-nothing. In a way I would rather any such trail commission went to an adviser/agent/platform that IS providing me with a service, rather than to a firm with which I have no relationship at all.

dunstonh

I have no problem with financial advisers getting paid - one way or another - but I still can't escape the feeling that company Y is now getting money-for-nothing.

They are and they are not.

They possibly bought the old business and paid an outlay on that on that. The original adviser made a business decision right back at the start to give up some of the initial commission in return for an ongoing commission. A decision that had no impact on the product pricing (what you pay). it is a decision that, given the length of time, has cost Pru more money than had upfront only been paid. The old adviser then sold/merged his business and that income was part of the value of that company.

So, whilst new company are doing nothing for you by your choice they would have to offset the commission against their fee if you were using them for ongoing advice. For you, as you have realised, its not about cost to you but choice.

Under rules that have come into effect since the agency transfer occurred, any agency transfer now would have to see the commission offset against fees. This is why your platform provider is unlikely to accept it. Unless they do exactly the same as the previous company and keep the money and do nothing.

br1anstorm

Thanks again, dunstonh, for those pragmatic comments.

As there's nothing much to be gained or lost by changing the present arrangements, I'm inclined to take the path of least resistance and leave things as they are for now.

The only important decision remaining is how or when we might cash in. Right now we have no pressing need to do so. And even if the final bonus is not guaranteed and the future is unpredictable, it seems reasonable to hope, on the basis of evidence so far, that the value of the Pru bond may rise further - or won't decline too dramatically - in the next few years.

dunstonh

The final bonus is valued daily (although tends to be smoothed and often can jump in stages based on internal decisions reflecting the smoothing). So, think of that bit just as you would a unit linked fund.

The future is unknown. During any crash, the final bonus will be reduced or a market value reduction will be put on the plan. During the credit crunch, the ones on our books saw small MVRs but they were less than the final bonus. So, things would probably have to be pretty bad for a large loss on that final bonus.

If you know you are going to need cash in the next two years, then consider taking a partial surrender as early as that (and work that on a rolling basis). Most crashes need upto 2 years to recover. So, that buys you a crash and recover covering most crashes.

bostonerimus

I don't see the issue with the new company getting the commission if it bought/merged etc with the original adviser that sold you the bond. If the commissions were and are being paid as per the contract you signed then that seems just fine. It seems to me that in the financial services industry it's pretty common to charge fees for doing basically nothing so your situation isn't strange.

I'd like to know how the MRVs/bonuses etc are calculated, but I imagine even the explanation would be pretty dense and hard to understand. What level of risk mitigation does this (and similar) products actually provide?