Market Value Reduction (MVR)

smi32d75

Upon trying to withdraw or close my ISA, I have been told be Shepherds Friendly that a market value reduction (mvr) will be applied to help protect other investors. £130 withdraw turns into £116 withdraw.. this feels like daylight robbery and renders any profit I’ve made pointless. I have a need to withdraw money and am being penalised for it. 

Albermarle

smi32d75 said:

Upon trying to withdraw or close my ISA, I have been told be Shepherds Friendly that a market value reduction (mvr) will be applied to help protect other investors. £130 withdraw turns into £116 withdraw.. this feels like daylight robbery and renders any profit I’ve made pointless. I have a need to withdraw money and am being penalised for it. 

If you read the small print no doubt it will say they have the right to do this . Normally it happens after markets have fallen and eventually will be removed when things improve.
In general though any Friendly society investments are pretty poor really.

Thrugelmir

All investors need to be treated equally.  MVR's reflect the uncertainty of valuing assets within the portfolio such property at ad-hoc points in time. 

bowlhead99

Generally the types of investments that have MVRs have certain maturity dates (e.g. 10 year anniversary of starting the investment and 5 year anniversaries thereafter) where they agree that an MVR won't be applied regardless of market conditions.

For other dates they protect the other investors in the fund by not allowing you to pull money out at a high theoretical value which is not supported by the current market valuation of the underlying assets.

dunstonh

this feels like daylight robbery 

Its not.

 and renders any profit I’ve made pointless.

It doesnt.

I have a need to withdraw money and am being penalised for it. 

You are.

Basically with profits funds use a smoothing technique to stop the "current value" from fluctuating too much.   However, when markets fall, the underlying assets used are worth less than the current value.     For those remaining invested, that is not an issue as the MVR is only charged on early surrenders.  Those that remain will not suffer the MVR and willl see the value zig zag as they would if they had been in convential unit linked funds.  However, those wanting to draw their money effectively get the true value of the underlying assets.   

If they were to pay you the higher value then it would be unfair on the remaining investors.  It would also bankrupt the fund if everyone did it as the underlying assets would be worth less than amount being paid out.

This is all explained in the documentation you were able to read before you chose to invest in that product.

zagfles

Is it some "with profits" or endowment type investment? These used to be sold with large commissions to the adviser (or their organisation) who sold it, investments were in assets which can go up and down but the declared value is "smoothed" to make it appear it only ever goes up. However if you want to cash it in early you get the real value, ie the market value, not the paper value. This sort of investment has pretty much been discredited these days, and with the ban on commission to advisers there's no longer the incentive to push them.

dunstonh

These used to be sold with large commissions to the adviser (or their organisation) who sold it, 

The commission on WP funds or UL funds was the same.

 and with the ban on commission to advisers there's no longer the incentive to push them.

WP funds had gone long before the ban on commission.

Plus, the OP bought a direct to customer product. 

LHW99

I suspect if you had a 10 year fixed rate savings product there would be a penalty if you wanted to close / withdraw early too. Its why you have to try to plan your cash flow a bit, and accept that if plans change at short notice you may have to pay for that, be it loss of "interest" or paying your credit card co. if you need to run a debit for a while.

Albermarle

zagfles said:

Is it some "with profits" or endowment type investment? These used to be sold with large commissions to the adviser (or their organisation) who sold it, investments were in assets which can go up and down but the declared value is "smoothed" to make it appear it only ever goes up. However if you want to cash it in early you get the real value, ie the market value, not the paper value. This sort of investment has pretty much been discredited these days, and with the ban on commission to advisers there's no longer the incentive to push them.

I am not an expert on WP funds,  but not sure you can tar all WP funds with the same brush . Until recently I had  an old WP pension fund ( Scottish Widows) and its performance was not bad , similar to a pension default fund . I transferred it a month ago before the final retirement date with no problem , no MVR applied and with final bonus intact .

Old_Lifer

The MVR has been applied to stop you receiving more than your fair share .

Did you not read the documentation ?

Malthusian

zagfles said:

This sort of investment has pretty much been discredited these days, and with the ban on commission to advisers there's no longer the incentive to push them.

You must have missed how much advised money goes into PruFund. (Not sure what Dunstonh means by "WP funds had gone long before [2012]", they're very much alive and well.) He is definitively correct that it was never about commission, as WP v unit-linked investments paid the same.

This is of course an off-topic tangent - the OP advised themselves.