Scottish Widows Property Fund

dunstonh

This is a good example of one major reason why I regularly warn about investment bonds.. These risky products

There is no risk in a tax wrapper. The risk is in the investments within it and the very same investments in a bond are available on ISAs and Pensions. I dont see you saying ISAs, pensions and unit trusts are risky.

These [STRIKE]risky [/STRIKE]products are frequently sold to people who don't have the first clue about investing and think the bonds are really much the same as a fixed rate savings bond with virtually no additional risk.

Not a fault of the bond. Knives can kill but anyone can buy them.

I repeat: investment bonds are NOT suitable for people who have no experience of risk-based investment.

There is no logic in that statement at all. The risk is not in the product. the risk is in the investments within it. Buy a FTSE tracker on an ISA and its far riskier than buying an investment bond with a cash fund and fixed interest funds.

If you have made losses from an IB and have no investment experiece and were not properly warned of the risk, don't just whinge on websites, make a misselling complaint.

Dont expect to get it upheld though. You may do and I have have suceeded in one recently against Norwich & Peterborough. However, they employ pretend IFAs (not really IFAs but ex tied agents working for a salesforce who have suddenly been given a panel of products to choose from and can call themselves IFAs). Its easier to get a mis-sale against an IFA on this because they should know better and dont have the get out clauses that tied agents have. Tied agents often get away with it because their unit trust product is poor. It may not offer regular withdrawals (thats a popular one) or they document that you chose the product. IFAs cannot use the "you chose" excuse. Tied agents can.

All that said, a decent investment spread in a bond will perform in the same way as the same spread in the unit trust. Its just the charges and tax that are different. So, the risk comes back down to the investments within it.

If Wurz had done a unit trust through Lloyds he would have suffered an initial charge of 5% straight away. If he panics at the money going down a year or two in the investment, then how would he feel on day 1?

His problem was not understanding the level of volatility of his investments. not the tax wrapper.

Fergie73

Can someone explain something about bonds to me please?

You put the money in a fund, such as property, or cash, or cautious managed or whatever. The value of the fund can rise or fall, and also the bid price for those funds can rise or fall.

How does the bid price relate to the value? Presumably your money grows and shrink because of the performance of the fund - it's shares performing well, dividends etc? But the bid price must be what people are paying to get in and out. So is this calculated on the perforance, or simply market driven? In other words, could something like commercial property or ethical funds become a bubble simply because so many people were buying in and pushing up the bid price?

This is, imo, one big problem with these bonds. They're just not explained well. IFAs tend to assume they're good for everyone when in fact, I'm not sure. Even cautious funds may not be as cautious as you'd like - there's no way of telling what they're in, or what the fund managers views of the future are.

dunstonh

IFAs tend to assume they're good for everyone when in fact, I'm not sure.

What experience of the 30,000 or so advisers out there do you have to make that judgement?

Even cautious funds may not be as cautious as you'd like

Cautious means different things to different people. This is why you should never impose your own risk profile on others.

there's no way of telling what they're in, or what the fund managers views of the future are.

The information is available on holdings. The funds have specified aims and objectives which are published.

Fergie73

What experience of the 30,000 or so advisers out there do you have to make that judgement?

Are you really saying I need to have experience all 30,000 or so advisers before I can ask a question about whether investment bonds are the correct product to sell to anyone and everyone?

I have experience of both myself and my mother - different generatios, different risk profiles, different needs - being advised by two separate advisers that these were the best products (and one of them recommending 50% commercial properrty and 20% high yield bond for both of us, despite both asking for cautious).

Now I realise (thankfully I can read myself) that this latter one was a twit of the higherst order, and put us into the wrong funds. From readin these boards, unless everyone on here happens to be a client of his, he isn't the only one.

The question, however, was about how the bond itself works, and whether the bond - with a different set of funds - is necessarily best for us. I happen to think things will get a lot worse over the next couple of years, and we're both in this product that wasn't properly explained and that I don't understand entirely. The main question related to bid prices and what exactly that means. If I, for example, decided to ride out the storm and keep the investmnet, but everyone else panicked and withdrew, would that have a terrible effect on the fund? Or does it go by how the shares perform, or are the two connected.

As for the rest of the IFAs, no doubt some are good, some are bad and many indifferent, like any walk of life. But you make your judgment on whether or not to use them again based on the ones you've had experience of and whether that worked out good or bad. I'd be very reluctant to use one again.

dunstonh

Are you really saying I need to have experience all 30,000 or so advisers before I can ask a question about whether investment bonds are the correct product to sell to anyone and everyone?

You said you have experienced two. That is hardly a decent sample to judge all IFAs on. You were judging IFAs and not the product.

and one of them recommending 50% commercial properrty and 20% high yield bond for both of us, despite both asking for cautious)

That is cautious. You may have noticed on the forums that when someone asks what investments for their risk profile that we dont take that risk profile as gospel but ask further questions. Such as how much of a loss in a single year would you accept before pulling out? That can tell you more about a person than using the term cautious. One persons cautious is another persons adventurous.

From readin these boards, unless everyone on here happens to be a client of his, he isn't the only one.

The forums in their nature focus on negatives and not the positives. The fact you see so few complaints against IFAs compared to others indicates there are no widespread problems. There will be bad apples who are either greedy or lazy but every profession has those and I doubt you could ever rule them out 100%.

I happen to think things will get a lot worse over the next couple of years, and we're both in this product that wasn't properly explained and that I don't understand entirely.

You say you dont understand it entirely but you are making judgements on what will happen over the next few years. Even those that do understand it fully cannot make those judgements. That aside, that has nothing to do with the tax wrapper. These would be exactly the same concerns had he used ISAs, unit trusts or pensions.

If I, for example, decided to ride out the storm and keep the investmnet, but everyone else panicked and withdrew, would that have a terrible effect on the fund? Or does it go by how the shares perform, or are the two connected.

Supply and demand does have an impact on the prices. However, the prices more or less reflect the value of the assets. Sentiment towards the companies can mean future profits or losses can swing the prices to be above or below the true value. Once a price is seen as value, you tend to find investors will buy again. The markets traditionally tend to overeact in both directions. When things are good, the prices will be inflated and when things are bad they will go down assuming worse case scenario. You invest for the long term because you more or less know that in a 5 year period you are going to get 1 bad year, 1 year that does nothing and 3 good years. Those that have invested in the last 18 months have seen either a bad year or a nothing year depending on when they went in. Had they been in the three years before that they would have seen significant gains and would be able to place last year in context. Those newer investors got it at the start and it is harder for them to understand it even when they are told it can happen.

But you make your judgment on whether or not to use them again based on the ones you've had experience of and whether that worked out good or bad. I'd be very reluctant to use one again.

So, if you get a bad plumber, you will never call another one out again if you get a leak? Harold Shipman was a murderer. So, you better not use doctors again. You shouldnt judge a profession on a minority.

Wurz

"in a 5 year period you are going to get 1 bad year, 1 year that does nothing and 3 good years. Those that have invested in the last 18 months have seen either a bad year or a nothing year depending on when they went in. Had they been in the three years before that they would have seen significant gains and would be able to place last year in context. Those newer investors got it at the start and it is harder for them to understand it even when they are told it can happen."

Trouble is, is all goes full circle back to the original actions of the would be investor. Most of us who have lost out in the past few years (I had four with SWid's-none performed) originally went to our banks for advice, probably, as we did having seen the TV ads...(Roger Moores daughter was doing them at the time...nice girl) As has now been more than proven, one should not use a banks fixed FA, go to an independent. Again though, when first dipping toes in the water most don't even know what an IFA is! One post said that most in this predicament are retired and Bonds are not really the wisest product, but again, in the first instance people are using the banks where perhaps they have been dealing with them for decades. I am not retired but still went to Lloyds 'cos my wife has banked there for decades.

As dunstonh has said, (in my case) the Website for SWids will say "use an IFA" It was almost three and a half years before I even knew that I could go online to check my bonds! By which time of course the bond was on it's way out having peaked at 106k the previous year. Mind you, as several have said, it depends how much you are prepared to lose in any year and I had set my target loss as £10k (ie; 10% on the original investment) once I could keep an on-line watch on performance.

I certainly didn't expect to drop most of the £10k in a matter of a few weeks between December '07 and January'08 and it actually dropped nearly £3k more in the next two days before the listings on my bonds stopped showing on the website after I wrote cancelling the bond. When I first contacted my IFA when the first £4.5k dropped off the value in early Jan, his advice was don't panic. When on the 16th Jan it lost £1400 overnight he agreed that "there is something serious going on In Scottish Widows" By the time my cancellation letter reached SWid's it had slid more. The only consolation is that it slid £3k more in the next two days after receipt so they had to honour the previous figure.

Like others, I suspect, all I wanted was the original advisor (oh hindsight...) to sell me a product that would be better than the High Street ones. If I had taken that course I would still have £100k and would have earned more income/interest than was the case with the SWids investment. On the other hand an IFA would have given me a different spread and quite possibly I would have ridden out the current storm having grown the investment in the first place.

I'll certainly read the small print more carefully, especially as was mentioned earlier, tied FA's can be cute in saying "the funds YOU chose" etc.

Fergie73

You say you dont understand it entirely but you are making judgements on what will happen over the next few years. Even those that do understand it fully cannot make those judgements.

Well quite, no one knows. Which is why if you have a low appetite for risk and, in your own judgement, you suspect things will get worse, an IFAs job should surely be to advise you on which products are best for you to go into, given your own fears, rather than given their often over-optimistic expectations?

If you think there will be a major stock market crash and put it all in cash, then that doesn't happen, you don't lose anything and you have your peace of mind. If you think there will be a major crash but allow an IFA to talk you into keeping it in equities because they're low now but they'll bounce, for sure then it crashes, you kick yourself forever.

My experience with both IFAs has been that it's been a fight against uber-bulls who don't believe anything bad can happen and tend to spout the same line over and over about if you're in it for the long term, you'll gain. I don't see this. If you had money in equities in 1998, you'd likely be down now on then, and that's in ten years of boom! The fact was that I was perfectly happy with my money stuck in a high interest account, but both IFAs (and the banks tied ones, naturally) made me feel like I was either completely stupid or a tin-foil hatted lunatic.

Looking at the figures over the past ten years of miracle boom, I just don't see where they get that certainty from. All I can conclude is that they're paid commission, so if you're happy enough with your money in a bank account and don't want risk, talking to an IFA is like talking to a used car salesman if you don't want to buy a car.

Fergie73

Commercial property, btw, is not - or should not - be considered cautious. It's perhaps a wise enough decision to have 5-10% in it as part of a balanced portfolio, but it's a specialist fund. It's higher risk. And, what the IFA failed to notice at all, was that it had become a bubble. Everyone and his uncle was being sold into these things (mostly by IFAs) because they'd been rising well in the past. That buy in created a bubble.

Buying into something because it did well last year is the mistake of a very amateur investor. I was getting cold feet about commercial property and could see it was a bubble and not good news. The IFA was obliviously bullish, asking why on earth I'd want to come out of something doing so well. I ignored him and came out. From then on, I've managed my own money - 3/4 in a bank account, 1/4 in a much better spead of funds. If my fund choice is wrong and loses money, I don't mind so much because it's my choice, based on my guess about where things might go.

My Mum has a hell of a lot still tied up in a bond which is tanking and would cost a lot to come out of.

Wurz

Fergie73 wrote: »

My Mum has a hell of a lot still tied up in a bond which is tanking and would cost a lot to come out of.

Deep sympathy Fergie73, having just got out of a Bond that only cost me one-years penalty. Couldn't take any more losses after 4 years of a bond that obviously suited the tied Lloyd's FA more than me.

However, I'm sure that on an earlier post someone mentioned about switching funds, possibly into cash, where it would halt the decline in value and effectively put it on hold whilst the market sorts itself out.

No doubt when I post this I will find the entry about this subject! Mind you, I have only just discovered how to do "quotes" so finding other entries quickly may take further tuition!

Wurz

dunstonh wrote: »

Could have even put it in the cash fund until the 5 years were up to save that money. It wouldnt have gone down but it would have paid close to an average savings account and not paid an exit charge.

Fergie73, found it, any use?