Eleven years after the near-collapse of Equitable Life, investors have started to receive their compensation cheques, reminding us that the legacy of financial scandals is long-lasting. Although the payouts - which will come in dribs and drabs over the next three years rather than upfront - are far from adequate, they do mean that Equitable investors can finally see something of an end to the whole sorry episode.
The highlights the disastrous, long-term results of failure in financial services regulation. Over the years there has been plenty said about the . But what can investors learn from the sorry saga?
Don’t think any company, however reputable, cannot suffer problems. Equitable was a highly respected and successful insurance company. Its customers were mostly highly respected and successful professional people, from politicians to lawyers, accountants, doctors and teachers (read one story ). Just because 'professionals' invest in something doesn't mean that it is a good bet.
There are no absolute guarantees in investing. The promise of guaranteed annuity rates that Equitable made to some policyholders, a key reason why people bought the policies, turned out to be an illusion. The insurer simply didn't have enough money in the coffers to pay them.
Never put everything with one company. Many Equitable customers made precisely this mistake, putting all their life savings in the one company, creating agonising problems when the company nearly collapsed and the value of their policies plummeted. While too much diversification can make a portfolio of investments difficult to manage, you should perhaps have more than one retirement pot and more than one savings account. Plus, make sure that you hold a collection of funds with different managers or shares in different sectors.
Never invest in something you don't understand fully, or that is not fully transparent. Equitable made a highly successful business out of selling with-profits policies which have by investors for their lack of transparency. With-profits may have largely but there are plenty of other financial products around that have complex structures and are difficult for investors to fully understand. Some types of and , for example, could fall into this category. If you don't understand the more complicated products, there is no harm in keeping your investments simple.
Don’t be scared to leave a company nursing a loss. in the hope that things might get better. Just as share investors have to learn when to sell, customers of financial companies have to learn to move on if there are signs of poor service, poor investment performance or poor advice. If you don't leave now, it could get worse later on.
Always know who is earning money from your investment. Equitable's compelling selling point was that it didn't pay commission to advisers or middlemen. But many intelligent people who liked this point seemed to forget that Equitable had a very large internal sales force and didn't bother to question how they were paid. Commission is just one of the many forms of remuneration. All charges should be explained upfront before you invest in a product. If you suspect hidden charges then don't invest.
Always know what your protection is under the eyes of the law if a company or an investment goes bust. This applies to your bank accounts, your pension provider, your funds, your shares and your financial adviser. Check that they are Financial Services Authority regulated (not that this helped much in the case of Equitable, but it is the only recourse an investor has) Aby the Financial Services Compensation Scheme (FSCS) in the event of a company going bust? Some financial products fall outside the remit of the FSCS, so it is always best to check.
If you don't trust the professionals, do it yourself. Construct a pension portfolio using a and hold other investments in an . These two tax wrappers will ensure that you avoid paying tax on income and gains within your portfolio. By doing your own research you can select the yourself.
