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My Experience - How it startedNB. For some useful financial advice links skip directly to the middle and end of this page. However, if you want to find out more about the financial risk you face by seeing any one of Nationwide's financial advisors, then read on. You will learn that Nationwide's so called "financial advisors" are nothing more than salespeople who have to meet aggresive sales targets from a very restricted set of financial products. They are "tied agents" and Nationwide expects them to sell expensive and possibly unsuitable financial products. Now, my story in detail... Two years ago my parents died and I inherited a sum of £20,000. Initially, I kept this lump sum in my savings account. However, at the back of my mind I knew that inflation would gradually erode its value. When my local NATIONWIDE branch told me that they offered a financial advice service I arranged an appointment. The Consultation |
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The financial advisor started by taking details of my current situation. I had been medically retired a few years earlier and received a pension of just over £400 per month. This income covered all my outgoings with very little to spare. There was also the inherited lump sum of £20,000. One of the key parts of the consultation involved the showing of graphs comparing the change in value of a sum of money held in a savings account with the same sum of money invested in the stock market. The difference was striking. In order to protect the value of my lump sum over the longer term I would have to invest in the stock market. Although this principle is sound, such investment needs to be done carefully and with the clients interests foremost. The package of investments I chose consisted of the following...
This left £2,000 on deposit in my savings account. In summary, 90% of the lump sum was invested in equities. Nationwide's Commission-led Advice |
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In the previous section I explained that 90% of my lump sum was invested in equities. This fact is key to my critisism of Nationwide. When I look back at the "financial advice" I received, and especially the "90%" figure, I can only conclude that this "advice" was influenced by the amount of commission that would be due to the society. As if that were not enough, I will use the following two sections to describe two fundamental "mistakes" that the financial advisor made. I will then explain how these "mistakes" were to make a bad situation very much worse. If you continue to read further you will find yet more critisism of Nationwide. As an example, I allege that my situation is not an isolated case and that Nationwide trains its "advisors" to push its range of "commission-rich" financial products. Do What I Tell You |
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The previous section described the fundamental problem; the fact that an unbelievable 90% of the lump sum was invested in equities. This section describes how that situation was made very much worse by the way in which the money was "fed into" the first two Unit-Trust Funds. During the consultation I told the financial advisor that I wanted to "drip-feed" the £7000 and £6000 into these funds, a bit at a time. To me this was common sense. The value of shares could vary in an unpredictable way and I was in no hurry to invest. The advisor insisted that it was better to put all of the money in at once. I found this difficult to believe and explained my reasoning again. However, every time I explained what I wanted, I was met by the same insistence that the money should all go in in one "go" - the sooner it went in, the greater the long term gain. I eventually accepted this - after all I was a first time investor and had only a sketchy knowledge of the Stock Market. I didn't even know that the common sense technique that I had described is called "Pound Cost Averaging". I handed over my Pass-Book and all the money was withdrawn in order to be invested at 9:00am the next working day. Both these funds were actively managed by Schroders and there was to be a hefty commision for Nationwide. The date of my investment was 19th July 2000. From a Tax-saving perspective, the nearest ISA tax deadline was 9 months away. What was all the rush about ? Another point about that date is the fall in the market since July 2000. The loss in the value of my investment during the months that followed was significant. The outcome of the two investment senarios outlined above could not be more different. With the "everything-in-at-once" senario your fate is sealed on the day of investment. The "drip-feed" approach, however, allows you to vary the rate and amount of money you invest. You can withhold money in a falling market and accelerate input in a rising market. You retain full control as your investment progresses. Had I fed the money in gradually, as I had wanted to, I would have been able to minimise the loss in the value of these first two investments. To date (February 2003) this loss has been significant and amounts to (£3,268 + £2,502) off the initial (£7000 + £6000) ie. losses of 47% and 42%. The third (Bond) investment that I entered into with £5000, is a special case, I don't think that it can be "drip-fed". People often talk about "paper loss", I don't. To me this loss is very real. You may remember that I was medically retired and have to get by on just over £400 per month. The £20,000 lump-sum was inherited from my parents. In my circumstances, and with no prospect of future employment, I cannot afford the value of my savings to be eroded in this way. By the way, the follow up financial advice that Nationwide offers in the face of progressive loss of value is simply to state that such investments are long term and that "everything will work out in 10 years time". Talk about missing the point ! Pushing the Managed Funds |
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This is a more subtle point and concerns the way in which the various funds were described. In presenting me with the alternatives the financial advisor claimed that in the long run the extra costs of the (actively) managed funds would not have a significant effect on fund performance. This is simply not true. Over the long term the high initial charges and higher annual charges of the managed funds have a very significant effect on their performance. In fact a good part of the reason that the vast majority of managed funds will fail to beat the simpler tracker funds over the longer term can be attributed to higher charges. Unfortunately, I believed what the financial advisor said at the time and chose the UK Growth Fund and the Balanced Fund. Both of these funds are actively managed and there was to be a hefty commission for Nationwide. The following links will give you more information on this performance issue...
What I Have Learned |
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I have learned several things from this experience. Firstly, I now know that my interests were not paramount during the consultation. The fact that 90% of the lump sum was invested in equities could not have been in my interest. The compounding "mistakes", described in full above, just made a bad situation worse. Nationwide's financial advisor's repeated insistence that all the money should be invested the very next day despite my initial protests, is something that I can only understand in terms of the commission payable to the society. The second compounding "mistake", whereby the managed funds were "pushed", is also understandable in those terms. Another thing that was emphasised during the consultation was pension provision. I had to explain more than once that I was already in receipt of my own pension, having been retired on medical grounds. I sometimes wonder if Nationwide's financial advisors are caught in the middle; between the customer and their employer (with its expectations of them). I also wonder if their negotiated salary depends on them achieving certain goals. They are certainly all trained in the same way and they all operate within the same working environment. This leads me to conclude that my experience may not be unique. One thing that is clear is that Nationwide's financial advisors are there to sell you as many of their commission-rich financial products as they possibly can. It's up to you to protect yourself. The best way to do that is to stop thinking of them as financial advisors and just see them for the sales people they really are. They are only pretending to serve your interests. The only thing they care about are their sales targets and ulitimately their performance related pay. Oh, and remember, if their financial "advice" (sales talk) means that you end up losing up to 50% of your life savings, they will simply turn round and tell you that "its just the markets" and that "things will all work out in ten years time". What they will not do, however, is make any reference to the unbalanced commission-led financial "advice" (sales talk) that they gave you previously. Don't forget to use the Message Board that I've added to this site. It will give you the chance to share your experiences with others and also to offer your thoughts and opinions - whatever they may be. To start the ball rolling, I've posted a message of my own. It serves as a warning for others and can be found under the heading of Daylight Robbery. Further Information and Links |
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Since I bought my PC and started surfing the "web" I've accumulated a few important pieces of information which I'd like to share with you. For those of you who do wish to invest in an active (or managed) fund, I would recommend that you use a "Discount Broker". You will be able to get the same financial product from them and have most of the high initial charges refunded to you. You could save many hundreds of pound this way. Note that going directly to the named provider will not yield any discount. See part #9 of Ten Tips for Buying the Perfect ISA If like me your investment is a "one-off" affair please bear in mind that the main "tax-saving" advantage of a Share (equity) ISA is in the form of protection from Capital Gains Tax(CGT). In other words, they are ideal for people who continue to contribute year on year. However, there is very little benefit to those of us who don't have that level of disposable income. Beware: Share ISA investments are often sold under the woolly "tax-saving" flag, as the essential "must have". While there's no harm in using your full ISA allowance, and some people definitely should, please make sure that the underlying investment is right for you. See Will you save Tax with a Share ISA and Share ISAs and Tax for more information. Here are some more links for you to explore... General Information...
Additional Tracker links...
ISA Information...
Capital Protected Investments... Mis-selling...
Newspaper Articles... How to Complain... RemindersDon't forget to add this site to your favourites (bookmark) for future reference. If you've found this site useful why not recommend it to a friend. The following link will bring up your email application and help you by filling in some of the details - Email a friend Read about other people's experiences and offer your own by visiting the Message Board on the next page. |