Type: Guaranteed equity bond
Aim: Growth linked to the performance of the FTSE 100 index
Minimum-maximum investment: £10,000-£1m, Isa £10,200 for five years and six month term only
Term: Three years and nine months or five years and six months
Return: Three years and nine month term – 15% of the original investment provided index is at or above its initial value or 0.25% of the original investment if the index has fallen, five years and six month term – 27% of the original investment provided index is at or above its initial value or 0.5% of the original investment if the index has fallen
Protection: Original capital returned in full at the end of the term along with 0.25% growth regardless of the performance of the index for three years and nine months term or 0.5% for five years and six month term
Closing date: September 3, 2010
Commission: Initial 3% for five years and nine month term, initial 2.5% for five years and six month term
Tel: 0800 092 5500
This structured product from Cater Allen is linked to the performance of the FTSE 100 for a term of three years and nine months or five years and six months. It provides a full capital return at maturity for both investment terms, along with a minimum return of 0.25% growth and 0.5 per cent growth for the three year and nine month term and five years and six month term respectively.
Discussing the useful features of the plan, Baronworth Investments director Colin Jackson highlights the fact that investors have a choice of investment term. He says: “ There is a guaranteed return of capital at the end of the term plus a further return based upon the performance of the FTSE 100 Index. In the case of the three and three quarter year product, investors will receive 15 per cent of their original investment if the Index has stayed the same or increased by any amount at maturity. They will receive 0.25 per cent of their original investment if the index has gone down at maturity.”
Jackson points out that the same terms apply in respect of the five and a half year term, except the maximum return is 2 per cen tand the minimum return is 0.5 per cent.
“The levels are taken at the beginning and at the end of the term, with the last six months being averaged,” says Jackson.
He notes that Santander Guarantee Company provides the guarantee for the return of capital. “It is rated AA by Standard and Poor’s but, so far as we could see, this fact was not stated in the literature,” says Jackson.
Looking at the IFA commission payable, Jackson says: “The literature states up to 3 per cent initial commission, but 2.5 per cent is payable in respect of the shorter term. This is not ungenerous, but the different levels of commission should have been stated in the literature.”
He feels that the literature is not too clear and is lacking in places. “What was worrying is that when I telephoned Cater Allen I was originally given the wrong information,” he says.
As this is a growth product, returns will be subject to capital gains tax. Jackson sees this as a positive, as says most people will receive all or part of the return free of tax, enabling them to use their Isa allowance for something else.
Turning to the potential drawbacks of the plan Jackson says: “As there is no facility for income, it is only suitable for investors looking for growth. There is no risk as to capital, but the potential returns are too low to make the product attractive.
“Taking the three and three quarter year product, the maximum return at maturity is 15 per cent and the minimum is 0.25 per cent. So far as the five and a half year term is concerned, the returns are 27% and 0.5%. Investors could well be better off with alternative products that pay a fixed return together with return of capital at maturity.”
Jackson can find no products currently on the market in direct competition. However, he thinks the Royal Deposit Plan 5 from RBS would heavily compete, subject to the investor’s tax position. “There are also various fixed term deposits available from banks and building societies,” he says.
Suitability to market: Average
Investment strategy: Average
Adviser remuneration: Good