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Closing in on property

Turning to the type of client the product is most suitable for, Cooke says: “A client who believes in the residential property market and has a long-term view without income needs.” Cowell says: “A sophisticated investor – this type of scheme does not readily lend itself to the mass market.”

Vaughn thinks it is difficult to identify any particular type of client. He says: “The investment would need to be treated as long-term and is unlikely to appeal to older clients. Larger investors are unlikely to be interested and there is no great advantage for higher-rate tax payers.”

Assessing the useful features and strong points of the produce, Vaughn says: “If the future returns achieve the plan’s hopes and projections, there is a possibility for a reasonable return in the long term within the capital gains allowance.”

Cooke says: “It is useful to plan for capital gains in the future and for those wary of the equity market. It utilises the strong support in the UK for residential property and capitalising on a growth area – the aged.”

Beddows thinks that no yield, capital gain and the gearing of the property value returns are attractive.

Moving onto the disadvantages of the product, Beddows thinks if the property market slows down, the losses will be magnified.

Cooke says: “The return to the leaseholder or occupier is not good. There is no income opportunity, it is not for the shot term and it is only available once a month.”

Vaughn says: “The future is too variable. If the plan attracts large amounts of investment, there could be a sizeable uninvested element. Once invested, realisation can only be achieved on any large scale by selling and this may reduce discounts to be offered, reducing turnaround and returns. And it is not covered by any compensation scheme.”

Cowell thinks the costs are too high. He also complains that there is no investors protection or compensation and that the investment is not readily realisable.

The panel agree that the company’s reputation is good. Beddows says: ” It has a history of launching innovative products. The smaller company expertise is excellent. It was also the first to launch a unit trust to track the FTSE Techmark Index.” Vaughn thinks its good reputation for similar products will help the capital appreciation trust to succeed.

Turning to the company’s past performance record, Cowell says: “This is an entirely new avenue for the company so past performance is not relevant. Although the brochure states it has been managing property for three years, no returns are given.” Vaughn thinks it has generally good performance from investments which are quite innovative.” Beddows says: “Their UK smaller companies funds and venture capital trusts have performed superbly. However, its escalator funds have performed poorly – mainly due to high volatility resulting in expensive option costs and low interest rates.”

Considering what competition the product is likely to face, Cowell says: “The nearest competition would appear to be McCarthy and Stone, which is a share not a product, so it is not directly comparable.”

Beddows suggests lower-risk funds such as Norwich union property. He also suggests TR property and Aberdeen property shares.

On the issue of whether the charges are fair and reasonable, Beddows stands alone in saying they are. Vaughn says: “The charges are very high but this is the result of having a very management intensive investment.”

Cowell thinks the initial charge is similar to other collective investments and that the annual charge is high. Cooke says: “Three per cent seems very heavy; together with five per cent initial but the individual fees seem reasonable.”

The panel agree that the commission is too low. Vaughn says: “Bearing in mind the overall charges and complicated nature of this investment, the commission is on the low side.” Cowell supports this view and complains that there is no renewal commission.


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