With news from financial services watchdog, the Financial Conduct Authority (FCA), that it is continuing its investigations into the fair treatment of longstanding customers of Abbey Life, Countrywide Assured, Old Mutual, Prudential, and Scottish Widows (it’s no longer looking into the actions of the Police Mutual), Hargreaves Lansdown is warning investors to check their portfolios no longer contain products which may now have become bad investment vehicles.
Danny Cox, chartered financial planner, at the financial services firm comments that the FCA’s announcement is a 'timely reminder of how important it is to keep an eye on products you held for some time'. He adds that: 'What once seemed like a perfectly healthy choice might have turned nasty while your back was turned.'
Here are the products Cox recommends investors should avoid:
Child trust funds
Since the introduction of Junior Isas in November 2011, Child trust funds (CTFs) have fallen out of focus somewhat, but at one time there were more than 6.3 million children with one. The Treasury no longer publishes information on how many CTFs are out there, so it is not known how many have been transferred into Junior Isas since.
CTFs typically offer lower interest rates than Junior Isas, are more expensive, and have less of a variety than Junior Isas as many providers simply don’t offer them. Moreover, since the introduction of the Junior Isa there’s been a distinct lack of competition from CTF providers.
If you’ve got a CTF, consider transferring it to a Junior Isa promptly.
With-profits funds pool investors’ money and aim to give you a return linked to the stock market but with fewer ups and downs than investing directly in shares, according to the Money Advice Service.
But Cox says they have opaque charging structures, are tax-inefficient, and can experience market value reductions. They have little going for them these-days but it is important to consider the costs, tax and loss of guaranteed returns before you withdraw your money out of one.
Old personal pensions
Personal pensions, particularly ones from before the turn of the millennium tend to have higher charges for transferring out of the scheme compared to modern self-invested personal pensions (Sipps).
However, changes in have resulted in making transfers cheaper as if you are over the age of 55, the fee for personal pensions is capped at 1 per cent. This came into effect on 31 March this year. The same rule will apply for workplace pensions from 1 October 2017.
But before you transfer your money, check if you have benefit entitlements with the older pension, such as a guaranteed annuity rate – this may prove more beneficial than transferring as annuity rates are at historic lows at present.
Funds bought directly from a fund group
Hundreds of thousands of investors who opted to buy funds directly from a fund manager - in many cases 20 years ago or more - are being left languishing in old-style commission-paying share classes.
Typically these direct investors are paying an ongoing charges figure (OCF) of 1.7 per cent on the funds they own. The clean (commission-free) share class normally costs half as much, on average 0.85 per cent.
For investors who choose to use a broker or platform, a separate broker fee is applied, but as a rule of thumb that fee plus the OCF will typically add up to between 1.1 and 1.3 per cent. Going down the direct route is therefore typically around a third more expensive.
This article was originally written by our sister publication Moneywise.
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