Type: Capital-protected bond
Aim: Growth linked to the performance of the FTSE 100 index
Minimum-maximum investment: £3,600-£500,000, Isa £7,200, £10,200 for the over 50s
Term: Five years
Return: 50% of the original capital
Guarantee: Original capital returned in full provided the index does not fall by more than 50% by the final day of the term. If it breaches this barrier, capital is returned in full provided index has closed at or above 130% of its initial value on any day during the term
Closing date: December 21, 2009
Tel: 0800 234 6021
This structured product from Barclays Wealth provides a return of 50 per cent of the original capital after five years. Investors’ original capital will be returned in full at the end of the term provided the index does not fall by more than 50 per cent by the final day of the term or has closed at or above 130 per cent of its initial value on any day during the term.
Considering how this product could be useful to IFAs and their clients, Baronworth Investment Services director Colin Jackson says: “This is an extremely good product for both IFAs and their clients. There are a number of useful features. Firstly, the counterparty is Barclays Bank. Although the credit rating of the counterparty is only one of the considerations, in this case it is rated as AA- by Standard and Poor’s. Also, its level of counterparty credit default swap rate is attractive.”
Jackson notes that the product offers an attractive potential return of 50 per cent at the end of the term. “The return will be subject to capital gains tax. This is of particular importance as it means that most people should be able to get all or part of their return free of tax. They are then able to use their Isa allowances for something else.”
Jackson adds that even if the investor has used all of part of their capital gains tax exemption, the tax liability is reduced to 18 per cent, as opposed to 20 per cent for a basic rate taxpayer and 40 per cent for a higher-rate taxpayer if the product were taxed as an income product.
Discussing the capital protection on offer through this product Jackson says: “Capital is at risk, with this particular product, but there is an additional layer of protection. Return of capital is dependent upon the final index level measured against the initial index level. If the final index level is equal to or higher than the initial index level, then investors will receive the maximum return of 50 per cent and full repayment of capital.
“If, at maturity, the final index level closes below the initial index level but at or above 50 per cent of the initial index level, then there will be no return other than full return of capital. If, at maturity, the final index level closes at a level below 50 per cent of the initial index level no return will be made and investors will also lose capital. But if the index has closed at or above 130 per cent of the initial index level on any day during the term, then investors will receive full return of capital. This is the capital protection lock-in.”
Jackson finds the potential return of 50 per cent over five years extremely attractive, particularly taking into account how the growth is taxed. He says: “Apart from the potentially excellent return, there is the double protection of the 50 per cent buffer level and 130 per cent lock-in feature.”
Jackson regards the product literature as well written and easy to understand. “One of the things that both product providers and advisers have to consider is whether the literature is suitable particularly in the light of the FSA’s Review of Structured Products. In my opinion, this literature does satisfy the FSA guidelines,” he says.
The adviser remuneration of initial 3 per cent is viewed by Jackson as in line with the market, but he points to the lack of renewal commission.
Discussing the potential drawbacks of the product, Jackson says: “ It is obvious from the title of the product that there is no income option, so it is only suitable for those investors looking for growth.”
He points out that there are plenty of other products on the market where the return is linked to the FTSE 100, but the Barclays offering is the only one that offers a lock-in feature.
Jackson concludes: “It is more or less certain that the literature was prepared well in advance of the FSA Review of Structured Products, but it seems as though the product provider has got it right. If it had not, its compliance department would have pulled the product. I cannot see the FSA levying any criticism at this particular product in terms of literature. Of course, however good the literature is, it is still up to the adviser to make sure that it meets the client’s requirements in all respects and that the client fully understands the product including the risk as to capital.”
Suitability to market: Good
Investment strategy: Good
Adviser remuneration: Good