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Investors may regret switching

I have just read the letter from Ian Thomas from Skandia regarding its new high-charge bond, which it euphemistically calls its enhanced allocation bond (Money Marketing, May 6).

When I saw Danny Cox&#39s review at the back of Money Marketing the week before, I could have thought it was me rather than Danny. However, if Danny (who has incidentally been IFA of the Year a couple of times) is critical, you can rest assured the product has its shortcomings.

Let me recap what the Skandia product does. It takes somebody out of with-profits and substitutes a temporary market value adjuster for a permanent MVA (at least permanent for 10 years) and moves from a low-risk albeit low-potential product into a high-risk unit-linked product.

If you were to read Thomas&#39s letter, you would believe that there is such a thing as a free lunch. I do not think anyone in this industry is naive enough to believe that Skandia is not going to get its 20 per cent back one way or another.

I wonder how many investors would rue the day they made this move when, in a couple of years time, the MVA is removed from their with-profits bonds?

I cannot argue that the asset mix of with-profits bonds is as advantageous for recovering their reserves but who says the stockmarket is going up from here? It would be a very brave IFA who switched someone from with-profits, incurred the MVA and put them in a unit-linked product with very high charges, when actually the market might be going south rather than north.

Peter Hargreaves

Hargreaves Lansdown,

Bristol

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