Concern is gathering in the offshore community that inv-estors may be
about to lose out because of purchases of some geared investment products.
Fears emerged after analysis of Channel Island merchant bank NM
Rothschild's Loan and Guarantee Scheme which was withdrawn in December
after 14 months on the market. The scheme uses gearing in the hope of
pushing for higher returns from the investment.
But life offices and IFAs are concerned the returns used as examples in
Rothschild's literature are based on investment returns of 12 and 15 per
cent despite the PIA's UK projection rates for offshore products of 7 to 9
The interest rate on the loan facility is based on Libor rates plus an
additional percentage of between 1.25 per cent and 2.25 per cent depending
on the loan size.
With interest rates expected to increase over coming months and equity
returns falling, it raises the possibil ity of investors receiving very
little, if any, return once inter est payments have been accounted for.
There are several similar schemes on the market which have added to concerns.
NM Rothschild & Son Channel Islands managing director Peter Rose says: “We
did not promote this product directly to the public. The scheme's guide for
professionals was clearly targeted at the offshore professional adviser
Rose declined to say how many of the policies had been sold or how much
revenue was generated by their sale. NM Rothschild's total lending to
customers last year was £168m.
Hambro Fraser Smith regional manager financial planning Patrick Murphy
says: “This type of scheme is not something we would be involved with at
all because of the excessive assumptions, the gearing levels and the risk
attached to the scheme.”
Scottish Equitable International personal investment development manager
Richard Leeson says: “We accept that this appeals to a small sector of the
market but it is not something we would ever get involved in.”