Should we dump Widows funds?

By THIS IS MONEY
Updated:

 

We are both retired. After receiving a small legacy, we both invested £7,000 in a Scottish Widows Isa last October. Since then I have been concerned that we should have looked around more before taking our bank's advice and investing in Scottish Widows.

Needless to say, the bank is Lloyds - which, of course, owns SW. We have invested in the same funds - American Acount, Environmental, High Reserve and UK Growth. I am becoming increasingly worried about their performance and an article in Money Mail convinced me we had to do something. Will we incur high charges in transferring to another fund and where should we look for a better investment? Could you help us find a reliable IFA if necessary? BS, Langford, Beds.

Justin Modray, independent financial adviser at Funds Direct says: These funds were all run by Lloyds Bank prior to its purchase of Scottish Widows last year. Although the funds are now held under the Scottish Widows name, they are still generally suffering from Lloyds' fund management capabilities (weak, compared to its peer groups).

Over the last year, all your funds (bar the Environmental fund) have been sitting in the bottom quarter of their respective sectors in terms of performance. The Environmental fund is perhaps the gem in a bad bunch, as this has mostly performed consistently well over the past few years.

Given the general poor performance of your funds you are right to consider switching but consider the costs, too. Although you should not incur any charges from Scottish Widows for moving to other ISA fund managers, you potentially face another set of initial charges with a new fund manager.

One way of reducing these would be to transfer through a 'discount broker'. They will not provide you with any advice about which funds to choose, but will rebate most of their commissions received, which should help reduce the initial charges that you might have to pay. If you seek advice through an IFA, on the other hand, you will not have to select the funds yourself, but the IFA will normally keep these commissions as payment for the advice and service that provided to you.

One option is to perhaps switch the holdings in one of the ISAs entirely to the Environmental fund - there'll be an admin charge for doing so but this should be less than switching to another fund manager. You could then switch the other ISA to another fund management group. Choose one which has shown consistently reasonable performance across its range of funds, such as Britannic, Fidelity, Gartmore, Invesco, Newton and Threadneedle.

You could also consider buying through a “fund supermarket' which allows you mix and match funds from different fund managers within a single ISA allowance. Shop around - you can get fairly decent discounts.

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