Thursday, 17 November 2011

Mr Drew Takes a Haircut

Being a big believer in diversification, and having no great faith in the FTSE, four years ago I invested one of those structured products: Protected Capital and Growth, meaning a guaranteed minimum 21% return - or more, if the FTSE over-performs - and my original investment is secure. Note how I didn't use inverted commas there, trusting soul that I am. You know what's coming.

So. Today Legal and General write to me. It starts innocently enough.

"We'd like to let you know ... oh? that's kind ... about an important change we've made to your investment ... and how it will affect what you get back when your plan ends ... but isn't that, err, 'secure', to use your word ? ... Your investment works by investing in a fund, which in turn invests in a number of financial institutions ... go on, I am beginning to get the picture ... These provide the return of your original investment plus growth potential."

OK, so by now I am guessing that the next bit will effectively read: "Or not, as the case may be." Right?

"The institutions invested in were: A, B, C, D, E, F, and ... wait for it ... Irish Life & Permanent plc."

Bastards !

"As you can see, one of the institutions was Irish Life & Permanent... Irish financial institutions are less likely to be able to pay back what they owe. We've sold this investment earlier than intended and received less than the original value ..."

16% less, in fact, resulting in a net haircut of 2.63%. AND it is not covered by the Financial Services Compo Scheme, it seems, because Legal & General itself has not failed to meet its obligations. Or so they tell me.

And this, I suspect, is
increasingly what we will all be confronting as the postman makes his daily deliveries.

Still, good old A, B, C, D, E & F; and praise the Lord for diversification, eh? Until the next letter hits the mat...

ND

11 comments:

CityUnslicker said...

Rubbsih - never take financial advice myself or invest in an yfunds or fund managers. the whole industry is there to fleece fees.

I invest my own money, SIPP, cash whatever. Clearly I make terrible mistakes with great frequency, but still at least they are mine!

Electro-Kevin said...

What can you do about it, Nick ?

Elby the Beserk said...

Ah yes, that wonderful word, "guaranteed".

Still, it could be worse. Lilith's dad had a pension pot of £1,000,000 in a certain company called Equitable Life.

Ed said...

Did they highlight the part in the original documentation which allowed for these circumstances? Surely otherwise they should have assumed the risk rather than their investors?

Anonymous said...

Just made a £4000 profit for a 3 yr investment of £30,000 in NS&I index link bonds!

Richard Elliot said...

I got all excited about structured products a couple of months ago when I read about them in the FT and a couple of other places.

I was just about to be all gung ho and invest in one and then I suddenly remembered I used to sit near a structuring desk at Barclays. They always made money, which would mean me losing cash.

I feel sorry for your loss, but it justifies the decision as to why I didn't invest.

Jan said...

I used to work in said company and wouldn't touch them with a barge pole.....it's all smoke and mirrors!

Blue Eyes said...

CU out of interest do you invest your SIPP money in individual stocks or through a fund?

Nick Drew said...

EK - indeed: take it on the chin, I suspect

Elby - that reminds me ... both bits of the Coalition promised some compo on EL but I ain't seen a penny yet

Ed - haven't dug out the original paperwork yet ...

anon, Richard - as discussed here several times before, I have plenty of the old NS&I tax-free indexed ...

BTW I have nothing conceptually against structured deals at all, I have done a few myself ...

Jan - now you tell me !

Anonymous said...

So, a guarenteed 21% return in an 0% interest rate environment. I thought you city types were supposed to be bright?

Nick Drew said...

Anon - call again in Jan & we'll see what it finally pays out, eh ?