What constitutes mis-selling of stock market investments to someone old and naive?

[Deleted User]

Thrugelmir said:

ZingPowZing said:

GeordieGeorge said:

ZingPowZing said:

GeordieGeorge said:

ZingPowZing said:

When you say "no evidence" NeilCr, I have said upthread there will be no evidence of wrongdoing without resort to a Subject Access Request. 

The evidence of 2.2% compound over the last thirteen years on a mid-risk portfolio suggests either the IFA couldn't find the couch in your living room or doesn't give a fig.

What return would you expect given the pace of withdrawals and the client’s risk appetite?

The investment ran alongside QE, and given the clear and predictable effect of QE on markets for over a decade; double the return seems a reasonable expectation. Five year performance of VLS40 and VLS60 is 40% and 50%, and that seems a good benchmark.
For someone invested 100% in stocks over this period, where the winners have been front and centre of attention, you'd expect up to a million.

You’ve ignored the timing of withdrawals, and why the five year horizon?

Why five years? Laziness. The VLS charts I looked at only go back five years but are remarkably consistent with the story of the five years before that -  VLS40 and VLS60 appear to be up c 95% and 125% since inception in 2011.

FTSE All Share peaked in May 2007 and didn't recover to the same level until May 2013. S&P 500 followed a similar trend.  The recent longest bull market in history is making people feel complacent. Hardly surprising that VLS looks attractive. As it's yet to face a true bear market. 

Well, that's what I'm saying, Thrugelmir. If a portfolio comes out of the longest bull market in history with next to nothing in gains, what does that say about the professional paid to manage it?

Thrugelmir

ZingPowZing said:

Thrugelmir said:

ZingPowZing said:

GeordieGeorge said:

ZingPowZing said:

GeordieGeorge said:

ZingPowZing said:

When you say "no evidence" NeilCr, I have said upthread there will be no evidence of wrongdoing without resort to a Subject Access Request. 

The evidence of 2.2% compound over the last thirteen years on a mid-risk portfolio suggests either the IFA couldn't find the couch in your living room or doesn't give a fig.

What return would you expect given the pace of withdrawals and the client’s risk appetite?

The investment ran alongside QE, and given the clear and predictable effect of QE on markets for over a decade; double the return seems a reasonable expectation. Five year performance of VLS40 and VLS60 is 40% and 50%, and that seems a good benchmark.
For someone invested 100% in stocks over this period, where the winners have been front and centre of attention, you'd expect up to a million.

You’ve ignored the timing of withdrawals, and why the five year horizon?

Why five years? Laziness. The VLS charts I looked at only go back five years but are remarkably consistent with the story of the five years before that -  VLS40 and VLS60 appear to be up c 95% and 125% since inception in 2011.

FTSE All Share peaked in May 2007 and didn't recover to the same level until May 2013. S&P 500 followed a similar trend.  The recent longest bull market in history is making people feel complacent. Hardly surprising that VLS looks attractive. As it's yet to face a true bear market. 

Well, that's what I'm saying, Thrugelmir. If a portfolio comes out of the longest bull market in history with next to nothing in gains, what does that say about the professional paid to manage it?

Better to discuss on the basis of facts than personal bias. The first six years of activity will impact considerably the overall performance of the full 13/14 period. That's mathematically unavoidable.  More than likely explains why with drawls ceased. As capital would have been rapidly depleted. 

dunstonh

Thrugelmir said:

ZingPowZing said:

Thrugelmir said:

ZingPowZing said:

GeordieGeorge said:

ZingPowZing said:

GeordieGeorge said:

ZingPowZing said:

When you say "no evidence" NeilCr, I have said upthread there will be no evidence of wrongdoing without resort to a Subject Access Request. 

The evidence of 2.2% compound over the last thirteen years on a mid-risk portfolio suggests either the IFA couldn't find the couch in your living room or doesn't give a fig.

What return would you expect given the pace of withdrawals and the client’s risk appetite?

The investment ran alongside QE, and given the clear and predictable effect of QE on markets for over a decade; double the return seems a reasonable expectation. Five year performance of VLS40 and VLS60 is 40% and 50%, and that seems a good benchmark.
For someone invested 100% in stocks over this period, where the winners have been front and centre of attention, you'd expect up to a million.

You’ve ignored the timing of withdrawals, and why the five year horizon?

Why five years? Laziness. The VLS charts I looked at only go back five years but are remarkably consistent with the story of the five years before that -  VLS40 and VLS60 appear to be up c 95% and 125% since inception in 2011.

FTSE All Share peaked in May 2007 and didn't recover to the same level until May 2013. S&P 500 followed a similar trend.  The recent longest bull market in history is making people feel complacent. Hardly surprising that VLS looks attractive. As it's yet to face a true bear market. 

Well, that's what I'm saying, Thrugelmir. If a portfolio comes out of the longest bull market in history with next to nothing in gains, what does that say about the professional paid to manage it?

Better to discuss on the basis of facts than personal bias. The first six years of activity will impact considerably the overall performance of the full 13/14 period. That's mathematically unavoidable.  More than likely explains why with drawls ceased. As capital would have been rapidly depleted. 

And later, taking the natural yield would severely reduce the chance for the capital to recover.  Especially if the investments were yield focused.

Malthusian

ZingPowZing said:

Thrugelmir said:

ZingPowZing said:

GeordieGeorge said:

ZingPowZing said:

GeordieGeorge said:

ZingPowZing said:

When you say "no evidence" NeilCr, I have said upthread there will be no evidence of wrongdoing without resort to a Subject Access Request. 

The evidence of 2.2% compound over the last thirteen years on a mid-risk portfolio suggests either the IFA couldn't find the couch in your living room or doesn't give a fig.

What return would you expect given the pace of withdrawals and the client’s risk appetite?

The investment ran alongside QE, and given the clear and predictable effect of QE on markets for over a decade; double the return seems a reasonable expectation. Five year performance of VLS40 and VLS60 is 40% and 50%, and that seems a good benchmark.
For someone invested 100% in stocks over this period, where the winners have been front and centre of attention, you'd expect up to a million.

You’ve ignored the timing of withdrawals, and why the five year horizon?

Why five years? Laziness. The VLS charts I looked at only go back five years but are remarkably consistent with the story of the five years before that -  VLS40 and VLS60 appear to be up c 95% and 125% since inception in 2011.

FTSE All Share peaked in May 2007 and didn't recover to the same level until May 2013. S&P 500 followed a similar trend.  The recent longest bull market in history is making people feel complacent. Hardly surprising that VLS looks attractive. As it's yet to face a true bear market. 

Well, that's what I'm saying, Thrugelmir. If a portfolio comes out of the longest bull market in history with next to nothing in gains, what does that say about the professional paid to manage it?

In the absence of a detailed breakdown on all amounts invested / paid out as yield / withdrawn, the evidence so far suggests it says "they followed their client's instruction to have natural yield paid out and withdraw some of the capital on top".

[Deleted User]

Malthusian said:

ZingPowZing said:

Thrugelmir said:

ZingPowZing said:

GeordieGeorge said:

ZingPowZing said:

GeordieGeorge said:

ZingPowZing said:

When you say "no evidence" NeilCr, I have said upthread there will be no evidence of wrongdoing without resort to a Subject Access Request. 

The evidence of 2.2% compound over the last thirteen years on a mid-risk portfolio suggests either the IFA couldn't find the couch in your living room or doesn't give a fig.

What return would you expect given the pace of withdrawals and the client’s risk appetite?

The investment ran alongside QE, and given the clear and predictable effect of QE on markets for over a decade; double the return seems a reasonable expectation. Five year performance of VLS40 and VLS60 is 40% and 50%, and that seems a good benchmark.
For someone invested 100% in stocks over this period, where the winners have been front and centre of attention, you'd expect up to a million.

You’ve ignored the timing of withdrawals, and why the five year horizon?

Why five years? Laziness. The VLS charts I looked at only go back five years but are remarkably consistent with the story of the five years before that -  VLS40 and VLS60 appear to be up c 95% and 125% since inception in 2011.

FTSE All Share peaked in May 2007 and didn't recover to the same level until May 2013. S&P 500 followed a similar trend.  The recent longest bull market in history is making people feel complacent. Hardly surprising that VLS looks attractive. As it's yet to face a true bear market. 

Well, that's what I'm saying, Thrugelmir. If a portfolio comes out of the longest bull market in history with next to nothing in gains, what does that say about the professional paid to manage it?

In the absence of a detailed breakdown on all amounts invested / paid out as yield / withdrawn, the evidence so far suggests it says "they followed their client's instruction to have natural yield paid out and withdraw some of the capital on top".

Seriously? You'd have thought the IFA did enough damage with the initial allocations - for which he charged £9,000 -  but then to charge a further £26,000 in ongoing fees for "following the client's instructions" (ie doing nothing)  adds insult to injury. 

This is a case where there has probably been a misunderstanding:- the client likely thought that the adviser had her back. 

Dulce-ridentem

@Thrugelmir re 'she'd have been better off in NS&I' -- of course hindsight is great :-)  I mention it because before she had an IFA, this was all she did. So as a result of having the IFA, she is worse off than if she'd carried on doing as she always had, plus she had a lot of anxiety and was unable to sell funds when she wanted to buy a house. I'm not saying 'better funds would have given her more' but 'not having this advice and doing the low risk thing she always did would have given her more'.

PS- the reason the withdrawals stopped was because she downsized her house and used the extra capital to supplement her pension instead.

You've made good points. I think the main issue for me now comes down to the lack of a cash float to provide the earliest income. So

Month 1: pay in a lump sum in Month 1. Buy 300K of funds and pay 4.9% commission.

3 weeks later, still month 1:  sell 1000 of funds to provide income.

Month 2: sell 1000 of funds to provide income.

Month 3: sell 1000 of funds.

Month 4 - start to pay annual charge on a monthly basis. Sell 1000 of funds.

And so on. The idea of a reasonable cash float makes much more sense than selling 1K per month, regardless of the market.

underground99

Dulce-ridentem said:

You've made good points. I think the main issue for me now comes down to the lack of a cash float to provide the earliest income. So

Month 1: pay in a lump sum in Month 1. Buy 300K of funds and pay 4.9% commission.

3 weeks later, still month 1:  sell 1000 of funds to provide income.

Month 2: sell 1000 of funds to provide income.

Month 3: sell 1000 of funds.

Month 4 - start to pay annual charge on a monthly basis. Sell 1000 of funds.

And so on. The idea of a reasonable cash float makes much more sense than selling 1K per month, regardless of the market.

You seem to be upset that she made an investment only to start taking money out of it early on, so she should have not have invested so much in the first place.

I would agree if for example she was going to put in £300k, pay commission on the whole £300k and then take £100k out the next month. It would have been better to have just invested £200k and kept the £100k back as cash and not paid commission on it, as it would be unlikely that the £100k invested for a short amount of time would have generated enough return to pay the commission on the £100k.

However, it wouldn't be unreasonable to have assumed that fourteen years ago, a portfolio of high income equity and bond funds of the types you named could generate 4% of income (and or capital growth) a year over the long term. Which on £300k is £1k a month.

So, if you invest £300k and start generating £1k a month in income or capital, it wouldn't be completely crazy to draw out £1k of cash at the end of the first month and £1k of cash at the end of the second month etc. As you are just drawing out the investment return that's being generated.

In practice, if you want to take a specific amount of pounds each month (rather than the natural amount of fund distributions received in dribs and drabs over the course of the year) it would be simpler to have a cash float topped up by the income that was generated, to avoid having to manually sell units some months and reinvest cash in other months. But that's mostly an admin point.

But the concept of making income-generating investments and then immediately starting to withdraw the expected level of average monthly income they generate, is quite different from making a £300k investment and then immediately withdrawing £100k leaving you in a situation where you paid unnecessary commission on a huge slice of your investment because you only wanted to keep £200k invested. In the scenario you describe, she invests £300k and takes out £1k each month as the £1k is generated, so the £300k mostly stays invested apart from some timing differences where the income isn't generated evenly.

If you're saying she was withdrawing £1k a month of capital *plus* all the natural income being generated (maybe another £1k a month) because she really wanted something like £24k of cash in the first year rather than just taking out £12k at £1k/ month... then it does seem wasteful to have invested some of that capital which was going to be withdrawn in the first year or so; she could have just invested less and kept back a few thousand of cash instead for her day to day spending habits.

It's difficult to speculate, given she did not tell you or other family members what she was doing, and you don't know what she told the adviser she wanted to do and when, and have not really given us all the figures and transaction dates for us to check the maths on what sounds like a low overall annualised return which you think would have been beaten by NS&I.

The fact that other investments might have been better with hindsight isn't really anything to support a complaint if the idea of investing in a portfolio of equity income funds was not an inappropriate one for her needs. The anecdotes, that she told you she thought the service was expensive or that liquidity wasn't good enough are just anecdotes, if she didn't actually want to pursue a complaint during her lifetime. 

You found her difficult to work with because of her opinions and not wanting to accept your help. Perhaps she was also difficult or 'quirky' to work with from the adviser's perspective as well. So she may have ended up with a sub optimal service due to her own character or what she told (or didn't tell) the adviser. It seems the adviser wasn't allowed to manage her whole portfolio, if she had £600k of savings and investments in the end but the adviser was only looking after £300k and she had various other cash from downsizing etc.

Dulce-ridentem

The advisor has agreed that it was not usual practice to create a fund for income with zero cash float - he says he cannot imagine how that happened - and he has made a small compensation.

Thanks everyone for comments - it has been hard to explain clearly without being too personal and detailed, and I appreciate your input.

[Deleted User]

Dulce-ridentem said:

The advisor has agreed that it was not usual practice to create a fund for income with zero cash float - he says he cannot imagine how that happened - and he has made a small compensation.

Thanks everyone for comments - it has been hard to explain clearly without being too personal and detailed, and I appreciate your input.

Good news. 

Snakes_Belly

I have not read the thread all the way through but I have got the gist.  It sounds as it the advisor placed all the funds into an investment bond type of product linked to the stock market. There were advantages to this type of investment depending on the client's circumstances.

 Advisors should not be advising stripping out capital for use as income until there has been an element of growth. It should be viewed as a medium to long term investment.

At the time of the investment the advisor should have taken down detailed information about your relative and their requirements including what income they already received and their expenditure.

I hope that the reimbursment from the advisor has compensated you in some way.