|
One and a half million people have put their savings into bonds over the last four years.
But due to poor stock market conditions, returns have been falling and many investors now face hefty exit penalties to withdraw their money.
Have you invested in with-profits bonds?
Have they worked out as you had hoped or are you concerned about their performance?
Will you have to pay a penalty to withdraw your money?
If you would like to comment on any of the issues our programme has raised please send us an e-mail using the form below.
Click here for the e-mail form
I speak as a retired IFA aged 65,who owns a with-profit bond with AXA Sun Life. They have imposed a MVR of 26% no less, on this bond which I have held for 5 years 5 months, so now beyond any normal exit charge period.
I have myself recommended a number of these with-profits bonds to my clients none of whom have suffered as I have myself. I am pleased for their sakes as much of it is down to timing. As an adviser I was always aware of the facility to charge an MVR in adverse market conditions but no need had arisen over the past 20 years and when it did I thought 5% or even 10% might be inflicted but 29% out of the blue, smack on top of my retirement was some shock.
Naturally I am unhappy with this company who have underperformed the market and furthermore most offices are under from the FSA to sell equities to buy bonds, strengthening reserves but in my view they are abdicating their responsibility to to maintain a suitable spread in equities allowing their funds the chance to recover.
It is often easy for the public to blame advisers for these problems, and question the commission paid etc, but I see the product as very easy to understand.
Advisers are not in the business of crystal ball gazing. They cannot forecast future performance. As you can see I am as open to these recent disasters as anyone else.
Derek Pepperell, ACII (Life Branch)
The programme highlighted a misnomer in personal finance - the term “independent financial adviser” (IFA). It is hard to believe that an IFA can give truly objective advice when they are paid a hefty commission if they successfully recommend an investment fund, and nothing if their client chooses a bank account or premium bonds instead.
In most other business, the mere existence of such sweeteners would be regarded as unethical at least, with or without evidence that it had affected an agent’s advice.
Tim Young
Doesn’t the “independent” financial adviser have any responsibility for the quality of the advice he gives? I am told I should have read the small print, but surely he was paid to do that. I don’t go to a doctor and finish up diagnosing my own illness, or to a solicitor and have to offer an explanation of the law to him. I pay the lawyer to know the law and the doctor to understand my illness and deal with it.
It seems to me that IFAs only take the money and none of the responsibility for the quality of the advice they offer. Some of it isn’t even accurate. I was told that the term of the bond, without penalty, would be five years. Now, at the end of that time, I am told it is ten. No doubt, at the end of that period, I will be told it has gone up again.
I wonder who the IFAs work for. Certainly not for me. It seems I pay them to work for the opposition. I wonder about the reaction of the company if I asked them for a loan and felt justified in paying back only 80%, on the grounds that my investments had not done very well. No doubt I would be shown the door!
Malcolm Jack
My elderly parents invested their savings in with-profits bonds. They have given me the paperwork to look at and what I find frustrating is the lack of transparency. I have no idea where the bonds’ funds are invested, how much is paid out in management fees to the insurance companies and their advisers, the degree of shortfall in the fund as a whole and the calculation of MVAs.
The money invested represents most of my parents’ capital and they are locked in. Neither fund is currently producing a bonus, so any withdrawals are purely capital. This was supposed to be a low risk investment.
There seems to be a web of secrecy enshrouding the investment of with-profits bond funds and such information never has been, and never will be, available to investors.
Margaret Peers
I listened with interest to your programme. One of the biggest problems an IFA has is interpreting product risk profile. One of the main reasons for this is that, within the industry, there is no formal benchmark to enable an adviser to label any particular product. I have mentioned this to the FSA on several occasions, suggesting it should force product providers to label their products with a risk category. This would enable advisers to match a product with a client more closely. (At present, in most cases, assessing a product’s risk profile is almost impossible.)
The mortgage industry becomes regulated in October this year and already the proposed documentation that we must give to clients (key facts document) is improving client understanding of what they are getting themselves into. Perhaps a similar procedure should be undertaken for investment products.
In short, by having a standard risk label on products, products providers would be accountable if, say, the low risk product turns into a high risk product and the public would have some redress when things go wrong. The FSA also has a lot to answer for when it comes to their rule book - most small companies just don’t understand it.
Graham Carver
I bought two with-profits investments in 2001 with perfect timing. The problem with them is that their operation is not transparent. Reports and accounts are not issued and it is not clear how bonuses and MVR are calculated.
Furthermore, they were marketed as low risk, as were zeroes (zero dividend preference shares), which they patently are not.
Mike Gildersleeve
A balanced view and fair research shows that with-profits funds have provided very good returns for investors when compared with open investment in equities.
There has been considerable protection for investors’ monies over the past 20/30 years against falling markets. It is not the financial services industry or the with-profits product that have caused the current difficulties - it is market forces (ie. the capitalist system where human nature acts by fear and greed) beyond anyone’s control.
When will consumers recognise there can be no ultimate protection against loss in any walk of life, let alone the world of money and finance? All anyone can do, whether financial adviser, regulator, butcher, baker or candle-stick maker is make a balanced judgement to invest, in the awareness that there can be no guarantee or certainty of anything in this life except death and taxes? Meanwhile spend your money and have fun!
Robert Harris
Investors (and IFAs) have been attracted to with-profits bonds because they offered attractive bonus rates that were slightly better than the interest paid by building societies, and offered the potential of capital growth (in the form of terminal bonuses) as a hedge against inflation. This of course is without the volatility that investing directly in equities offers.
The bear market of 2000-2003 has had a negative effect on nearly every equity fund, and because with-profits funds had a bias towards equities they suffered accordingly. Stringent financial strength regulations made all insurance companies reduce their exposure to equities in 2002/03. But the government should have been more flexible and allowed insurance companies more exposure to equities so that, when the improvement in markets came, with-profits funds would have benefited. After all, with-profit funds are long term, totally different to bank deposit accounts which are short term.
Because they had reduced their exposure to equities they suffered twice. And recent bonus reductions have had to be implemented to maintain the government regulations on financial strength of with-profit funds.
Don’t forget that investors only suffer huge losses if they sell through the Market Value Reduction factor. This MVR was explained to them when they invested both by the adviser and by the literature. no one expected such a severe bear market. At least investors did not lose capital during that time period, if they remained invested.
Jeremy Newbegin
I have two with-profits bonds with Scottish Mutual. I invested in the first bond in 1996 and the second bond in 2001. Following Scottish Mutual’s recent correspondence about switching into a Smoothed Investment or Multi Manager fund, I contacted my financial adviser. He thinks I should consider leaving Scottish Mutual and invest in a Commercial Property bond. He will be sending me further details this week.
My brother has recently spoken to his financial adviser who said that today FAs are advising people to invest in property bonds.
I wonder how many of us are cashing in our with-profits and buying up property bonds. It feels just like jumping on the band wagon. And, in another five years, will we all be looking back and saying we weren’t properly advised?
Valerie Eden
The statement by a contributor to the programme that all investments have seen values fall is pure rubbish.
The stock market is made up of a group of companies whose share prices rise and fall regularly. Taking the current FTSE 100 companies, 45 of the 100 now have a share price higher than on 4 January 2000.
Investment “Managers” shouldn’t have had too difficult a job buying companies where the price had fallen and selling those where the share price was high.
The problem is they don’t manage… they copy the market. They track the market, holding all the stocks, rising or falling, and they charge the earth for doing so.
My advice to anyone with their life savings to invest is: do it yourself. Read the papers, listen to financial programmes, get on the internet. All the information is out there… go and use it.
After all, you wouldn’t hand the purchase of any other item to a complete stranger, so don’t with your investments.
John Calvert
The problem is with these kinds of products is that there are too many get-out clauses for the company and no chances for the customer to get fair
play.
Alan Edwards
Disclaimer: The BBC may edit your comments and cannot guarantee that all e-mails will be published.
The comments we publish are not necessarily the views of the BBC but will reflect the balance of views we have received. It is helpful if contributors state if they work for any organisation relevant to an issue discussed. Readers should form their own views on whether messages published represent undeclared interests, or views prompted by a common source.
| 
