I was sold the EXACT same product.
Take a look at this caluclations sheet that I made for the Royal London 360 product: https://docs.google.com/spreadsheet/ccc?key=0AlZ4DevKDH_AdDdLQlozM1JKa3V4Wl9Yei11VkxLTUE&usp=drive_web#gid=0
Danclarkie, your spreadsheet is extremely useful. I myself have been a client of RL360 for 28 months now, and just sent the paperwork to cancel the policy.
Some questions about your spreadsheet though:
- Your spreadsheet only goes up to 25 years. My RL360 plan was 30 years.
Why do you care about Isle of Man's inflation? Shouldn't you be putting in there the inflation of the country you live in? At the end of the day, it's what will matter for your lifestyle, so not sure why you put the Isle Of Man there. For example, I live in Japan, and inflation is more or less 0 here, meaning any investment with some sort of interest can beat it.
[Update: I figured it out. this is because the policy specifies that the fixed monthly fees for the contract will go up according to IoM inflation]
In your example, your Financial advisor's commission fee is 4.92%. In my case, this was 0.5%. Did you get scammed even more than me, or am I not looking at the right numbers?
[Update: I was not looking at the right numbers. It seems in some cases the financial advisor is getting a "lump sum". In my case, the 0.5% is an annual rate, that is added to the other fees. It's actually a worse scenario in the long term, it just literally adds 0.5% to the already terribly high average. I had to modify the spreadsheet accordingly]
- In your example, your actual growth rate was -2.9%. Wow, what happened here? If I play with my current values, I think so far my growth rate was about 10% over the past 2 years and a half. I'm not saying it would stay that high forever, but at that level my advisor is actually beating the market...
On a related note: many people who are in this scheme are asking themselves if it is worth cancelling everything and taking the loss now (the answer is yes in all scenarios I've tried), or keep investing in that plan. It is easy to extend Dan's spreadsheet to estimate this.
The idea is that you compare starting the "alternate" plan from scratch, while your RL360 policy is already fairly advanced.
Add a new column "V". It starts at "whatever money you got back (that's the surrender value, or column Q in Dan's spreadsheet)" on the month of your cancellation. In my case, I am cancelling on the 28th month of my policy, so I'll write
in V28: =Q27
in V29: =((V28+$B$8)*$B$41)*$B$47
(that's (value so far [V28] + monthly premium [B8]) multiplied by growth rate, multiplied by calculated inverse fee)
Then drag V29 to the bottom so that the same logic applies to V30, etc...
You can be conservative and have your first value be "0", if you assume you won't see any money back (if you're in your first 2 years, or if you think RL360 will never send you the money back)
You can create a column W, that will contain V - Q, and then you'll easily see when it reaches a positive amount.
From there you can play with the Growth rate to see how it impacts the result. Basically a high growth rate of the market overall will relatively make the RL360 fees appear smaller, meaning it will take more time to catch up with the alternate plan in a "good" market. On the other hand, if the market tanks, the fees of RL360 will be relatively much bigger.
All of the above (and Dan's spreadsheet) assumes that your RL360 advisor cannot beat the market in the long run (a very safe assumption). Although in my case they have been significantly above the market for the past 2 years, as it's been stated several times, it is safe to assume that over the course of 15, 25 (or, in my case, 30) years, they will be very close to the market returns. As such, it is safe to assume you can find a better plan with lower fees, that will have the same growth rate.
In my example, I have found that it will take me from 2 to 6 years (depending on growth rate) to get back to a level where my alternate plan will beat "staying with RL360". Keep in mind that I am retiring from the plan on month 28, so I am losing everything from the first 24 months. Depending on how you look at it I am losing somewhere from 80% to 90% of my investment, yet it will take only a few years to beat RL360.
All of this depends on all the fees, what your "other plan" is (in my case, an ETF from Schwab with a fee lower than 0.1%), how long you were scheduled to be in the RL360 thing, etc... So, it's difficult for anyone to help you in your specific scenario, but I found that even tweaking all the variables (growth rate, fees for your other plan, etc...) to exaggerated values, it is still better to get out of the RL360 scheme and invest in another location.
On the same line of thoughts don't fall for their "tax" argument. I can't think of a world where my tax on investment benefits + my alternate plan would end up costing me more than the atrocious fees this plan ends up being. And that's assuming I end up paying 0 taxes on their stuff, which, I have already confirmed, is not going to happen.
Again: take the 30 minutes it takes to understand Dan's spreadsheet, and start playing with the numbers, your own plan, etc. It's enlightening.
After playing with it a bit, I concluded that it is safe to get out of RL360 as soon as you possibly can, independently of how much you've invested in it, and how long you've been with them. Independently of where you live, there *HAS* to be a better option out there.