Scottish Widows Flexible Option Bond-good for 2%!

Wurz

Thank god for this site! probably saved me thousands. 4 years ago I was persuaded by a Lloyds rep to invest £100k in this bond. My initial question was, I've got £100k, what monthly income could I get with low risk. Oh, say's he, you can get (this was in Jan '04) £375 per month and any other growth will add to capital. Good say's I, go for it. 4 years later & the bond is worth £91k. Ok, so I've had £18k income, but lost £9k in capital. SWid's will say "you haven't lost money-you made £9k.." Ok, £9k over 4 years from £100k? thats £thousands less than National Savings, which is possibly the lowest, but safest provider. Oh, currently 5.2%. Not about 2.2% that Lloyds/SWid's have made over 4 years. If you look at the post "Norwich Union Step-Down" you will see close on 4000 hits where the question was about investing £100k. Many regular contributors like dunstonh. jamesd, jem 16, have contributed. Suffice it to say, banks and institutions get a hammering. Now, if I can just stop a few being duped by Lloyds & Scottish Widows and cost them money, I'll be happy. Just cashed in, taken the penalty due after 4 years of useless investment, and will get an off the shelf, risk free fixed interest bond from any number of high street vendors. Interestingly, I can get about £379 monthly (Bradford & Bingley and others of similar ilk) from £90k where I only got £375 from £100k with Scottish Widows/Lloyds. Oh, and I had to lose £9k of my own money to get that. Oh Joy.

cheerfulcat

Hi, Wurz,

I guess you're intending to put the money into a fixed term deposit account with a bank or building society? Bear in mind that if you take the interest as income you are guaranteed to lose money - it won't look that way, because you'll still have £90,000 in nominal terms, but 5 or 10 years down the line it will be worth a lot less.

If you need income and capital preservation it'll have to be equities ( or index-linked gilts but the yield is very low on those ). You don't need the investment bond wrapper, which was part of the problem ( selling units to provide the income ). There are various investment trusts and unit trusts which will do the job if you are prepared to DIY, or find a decent IFA and tell him you don't want an investment bond.

jem16

cheerfulcat wrote: »

Hi, Wurz,

You don't need the investment bond wrapper, which was part of the problem ( selling units to provide the income ).

I can't agree with you on this. The wrapper doesn't make or lose money, it's the funds inside that matter. Wurz's problem was all to do with going to a bank for investment advice and being put into a single fund that did not make enough growth in the first 3.5 years to compensate for the recent losses in the markets. It would not have mattered whether you were taking the natural yield income or selling units.

There are various investment trusts and unit trusts which will do the job if you are prepared to DIY, or find a decent IFA and tell him you don't want an investment bond.

I agree that unit trusts may well be better but there are still occasions when the investment bond may be best and we don't know enough to say that for sure.

cheerfulcat

The wrapper doesn't make or lose money, it's the funds inside that matter

As a matter of fact, the wrapper costs money.

In any case, the main point is that Wurz should be at least partly in equities, or s/he will lose capital in real terms.

dunstonh

As a matter of fact, the wrapper costs money.

It doesn't need to cost any money. You can get the life fund wrapper at identical cost to unit trusts and have unit trusts in it (rather than life fund versions). However, some of the better providers can actually lower the cost and make the life funds versions better.

There are of course some bad examples where the life funds cost more.

The life fund tax wrapper had nothing to do with the losses in Wurz's case.

Investment bonds can have income units as well as acc units now. However, capital withdrawal with income reinvested can be efficient providing you don't go silly and go for a withdrawal amount that the investment cannot realistically provide.

RammieD

We are in possibly in a more worrying situation than Wurz with our Scottish Widows Balanced (Discovery) Solution.
Having invested £150K in April 2006, we were advised by the tied FA to let funds develop for 12 months, so we have drawn just 10 months since April 2007 at £625 per month.
The fund value did peak at around £154K last May, but has since been on a continuing downward trend.
Todays fund value is showing as £140,391 with a cash-in value of £135,821. This will mean that if we pull out now we would be nearly £8K worse off than if we had stuffed a wad of notes under the pillow. If we do not pull the plug now, the fund value is still nearly £3.5K less than the pillow option.
We would be interested to know if the tied FA dealing with Wurz advised against cashing-in. We are meeting our tied FA next week, but his comments on the telephone were that we would be unwise to cash-in. Do these tied FA's get a one off commission, or do they get regular payments whilst the bond is still ongoing?
I suppose our dilemma is, are we are panicking too early reacting to the current financial situation. We know the investment is intended to see results over years rather than months, but it is extremely worrying when the figure has dropped so low behind our original investment. Reading forums and quotes from other sources, it would seem that the fund managers at SW are not well rated and also restricted in product choice, therefore we would be concerned that they could recover our fund to a 'reasonable' level. This is even more of a concern when looking at their performance on Wurz's case over a four year period.
The option is to pull out from SW take the loss and use an Independent Financial Adviser to try and make some form of recovery.
Dunstonh did respond to our case on another thread (thank you) and picked up on our lack of knowledge on investments. We now know we were wrong to go with a tied FA and are regretting our decision.

jamesd

RammieD, is this just the bare fund or is it in some sort of investment trust or other tax wrapper?

If it's the bare fund with no wrapper you can sell it and buy something else instead. You'll lose the iniital commission but a good inexpensive IFA should be able to put together a decent and better performing mixture for you. Subject to the chance of the poor market performance that we've seen recently - that's just the risk that you take with investments in exchange for the better long term potential.

The Scottish Widows FA will just blame the market, not the poor performance of the individual funds held inside this fund. And will correctly say that selling at the bottom is a bad idea... but you won't be selling, you'll be switching to better products.

Being on a declining trend since last May isn't surprising for this fund or any other with commercial property. And then there have been the general troubles to push it more generally downwards. You started at a time that turned out to be bad for the areas where this fund is mostly invested but that's OK, time will see things recover. But better with a mixture of better quality funds.

RammieD

Jamesd,
Thanks for your interest, apologies if the answer is not exactly what you require. I cannot find the any 'specific' references in the SW documentation regarding your query.

Quoting from the Flexible Options Bond Technical Guide
'The Flexible Options Bond is an investment vehicle made up of 20 identical policies which provides a way of investing a cash sum over the medium to long term, usually for at least five to ten years'.

The bond is structured on a joint life basis.

We have been told by the tied FA that we can switch funds from the 'balanced' (appx. 50% equities, 15% property) solution towards a more 'cautious' (>70% fixed interest) approach, which he will talk to us about next week, but the damage may already have been done to switch and recover from this route?

Wurz

Well, good job I registered my letter and contacted customer services yesterday and confirmed the cash-in value of the £100k bond as quoted Monday 21/01/08 at £91618.03.

We already know from another thread that it had plummeted thousands over previous days, which prompted my cancellation last Friday 18/01/08 but for some reason the bond values are still being shown on line and guess what, value dropped to £89249.84 on 22/01/08 and again today 23/01/08 to just £88946.96 -

That's a further £2671.07 in two days!

RamieD, can you get online to check your values? if not telephone customer services tomorrow for an update and also for an online pin-code so you can monitor the situation. It is getting rather desperate at Scottish Widows and my waiting that few extra days last week cost me about £4.5k in cash-in-value.

RammieD

Wurz,

Yes, we check the fund value every day online.

Ours was £142,251 on 21.1.08 and £140,391 on 22.1.08! Just tried to get on for today's figure but get the 'experiencing difficulties' banner. I don't think I dare look at the figure tomorrow.

Did you pick up my question asking if your tied FA tried to put you off cashing-in? I am wondering if they continue to get commission during the life of the investment.

jem16

RammieD wrote: »

We have been told by the tied FA that we can switch funds from the 'balanced' (appx. 50% equities, 15% property) solution towards a more 'cautious' (>70% fixed interest) approach, which he will talk to us about next week, but the damage may already have been done to switch and recover from this route?

I would strongly suggest that you speak to an IFA rather than a tied FA with regards to fund switching.

As you are less than two years into your bond there will be early encashment fees - could be around 8/10% - so switching to better funds will help recover the situation in the longer term. It's not going to happen overnight.

Your tied rep will probably have received all his commission upfront. Go and see an IFA who has your interest at heart and will be able to recommend the funds to switch to. A tied rep cannot do that.