HIGH INCOME & GROWTH PLAN V
Type: Closed ended investment company.
Aim: Growth and income linked to the Eurostoxx 50 index.
Minimum investment: £7,000.
Place of registration: Dublin.
Guarantee: Capital will be returned in full at end of term if the final level of the index is at or above the initial level, provided that the Eurostoxx 50 index has not fallen by more than 20 per cent at any point during the term.
Yield: Either annual 10.25 per cent, monthly 0.8 per cent or 33 per cent at end of term.
Isa link: Yes.
Commission: Initial 3 per cent.
Tel: 0800 1691111.
The panel: Robert Leonard, Director, Advisory & Brokerage Services,
David Divers, Principal, Sandringham Investments,
Ian Bird, Accounts executive, Adams Tingle,
Chamberlain Eke, Senior partner, Anthony Chambers,
Bob Vaughan, Partner, Ashley Vaughan Pensions.
Company's reputation 6.4
Past performance 4.7
Product literature 6.4
GE Life's high income and growth plan is a closed-ended investment company that is linked to the Eurostoxx 50 index.
Assessing the plan's suitability to the market, Eke says: “In the current unpredictable market, a product such as this fits quite nicely. The risks and rewards are to a great extent known.”
Bird says: “It is one of four launched at this time, all offering similar terms. It is nothing unusual, special or unique.”
Vaughan says: “This product and similar offerings from other companies fills a gap in the investment market between security and direct equity exposure. The different investment options make the product appealing to most investor groups in terms of attitude to risk, age group and income requirements.”
Divers says: “I had difficulty working out what kind of investment this was. The key features document is so complicated that even as an IFA, I struggled to work out the tax position.”
Identifying the type of client the plan would suit, Leonard says: “These type of products often appeal to people of a lower-risk nature.”
Bird says: “Those focused on income but not bothered about capital retention so much. For example, those in retirement with capital biased investments elsewhere. Sophisticated investors only as it is a complicated product.”
Eke says: “It is ideal for clients who are looking for an income, particularly in retirement. It is also suitable for cautious individuals who want security for their investments and limited exposure to equities. It can also be used as a balance for a large portfolio.”
Discussing the marketing opportunities for the product, Divers says: “Someone with a degree in taxation and law who could disseminate the over complicated key features document. It is definitely not for the average Joe.
Leonard says: “Utilisation of Isa allowance for the income version or by using capital gains tax allowance, plus direct holdings for growth.”
Eke says: “It should be used for retired clients in circumstances that purchased life annuities are considered. It is suitable for clients requiring high income and for Isa investors who want tax efficiency and lower risks. Income can be drawn from a sizeable Pep or Isa fund, making use of the tax efficiency.”
Vaughan says: “It will appeal to those clients desperate for high income but who are also prepared to accept some capital risk. It is also attractive to investors who would normally consider equity exposure. There is an element of capital protection and in the present investment climate, anyone would be pleased to see capital growing at over 10 per cent a year.”
Turning to the strong points of the product, Bird points to: “The guarantee for income and growth, the way it can be used via an Isa or Pep transfer, the stylish literature.” He adds that the markets are presently at a low point, which provides good starting level for investors and that the fixed rates of income and growth are affected by the latest cut in interest rates.
Eke says: “The income and capital growth guarantees are the mainstay of the plan. The dual capital protection of more than 20 per cent fall in the Eurostoxx 50 and the fact that the closing index must be lower than the initial index are good points.”
Leonard says: “The income option is likely to be attractive to people suffering from falling interest rates.”
Moving onto the drawbacks, Vaughan says: “It has a fixed term with potential penalties for early encashment. There is an element of risk and the chance of capital loss. This should only form part of a balanced portfolio.”
Leonard points out that although high headline rates are offered, investors risk capital erosion if the Eurostoxx 50 index falls by 30 per cent or more during the investment term.
Bird thinks the risks are much greater than explained in the literature.
Divers says: “Ordinary people will be attracted to the high numbers quoted without really knowing what they are investing in. He also questions GE Life's positioning of the product as a medium risk investment.
Considering the plan's flexibility, Vaughan says: “The plan offers good flexibility in terms of choice of investment method and between growth or income. However, once a choice is made there is no flexibility to change one's mind and therefore carefully consideration as to choice of plan is reduced at the outset.”
Divers says: “You can have income, growth, Isa, Pep and direct investment so I guess you've got to say it's pretty flexible. But knowing what you are buying is more important.” Bird and Leonard think there is no flexibility.
Discussing GE Life's reputation, Eke says: “Its reputation is good, particularly because it is part of General Electric, one of the largest multinationals. It is not a company that I have used, so I have no direct experience of it.”
Vaughan says: “The company has an excellent reputation for marketing this type of product.”
Bird thinks the company's reputation is very good indeed. Leonard says: “GE Life is a quality company with a good reputation.” But Divers is sceptical. He says: “GE Life is hardly a household name in Britain.”
Turning to past performance, Eke and Bird both feel that it is irrelevant as the plan is linked to an index rather than requiring active management.
Vaughan says: “Historically, these types of plans have been very successful. However, the recent volatile equity markets, Government legislation and lower interest rates have had an effect on the terms being offered. Any new plans are far less attractive than those offered up to four or five years ago.”
Identifying the likely competitors for the plan, Bird mentions Scottish Widows. Leonard suggests Merrill Lynch and Vaughan goes for Eurolife and NDF Administration.
Looking at the charges, Divers says: “You cannot readily identify any charges and where you can there is no indication of what reduction in yield is caused by it. but it is making a specific return forecast. The company will get its fee whether investors get their money back or not. There is no risk at all for GE Life.”
Vaughan says: “The charges are difficult to judge as charges are taken before the terms are offered. However, the product and terms would appear o be similar to other products and therefore competitive.”
The majority of the panel think the commission is fair and reasonable, but Divers is not impressed.
Looking at the product literature, Leonard says: “The product literature stresses the attractive upside more than the downside, although the potential loss is clearly demonstrated within the key features.”
Bird thinks it is typically biased towards the headline rates available with only a small section about capital but thinks this is to be expected. He adds that it is very stylish and has a good use of colour.
Divers finds it confusing, but Vaughan says: “All the information required to make an investment decision is included and although very detailed, it is reasonably understandable to the lay man. The nature of the product and Financial Services Association regulation preclude the literature from being simple.”
Eke found the information clear and concise, but suggests that binoculars are needed for some of the small print.
Summing up, Leonard says: “The high yield could attract interest from the very people who should not be risking capital.”