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Half and half from L&G

Legal & General

Guaranteed Income and Capital Bond 4

Type: Combination of guaranteed equity bond and high interest account

HIGH INTEREST ACCOUNT

Minimum-maximum investment: £250-no maximum

Interest rate: 5.5% gross a year or roll up option 30% of original investment at the end of the term

Term: Five years

Withdrawal penalties: No withdrawals allowed during the term

GUARANTEED EQUITY BOND

Aim: Growth linked to the performance of the FTSE 100 index

Minimum-maximum investment: £250-no maximum

Term: Five years

Return: 50% of the growth in the index at the end of the term

Guarantee: Original capital returned in full at the end of the term regardless of the performance of the index

Closing date: February 28, 2007

Commission: Initial 3%

Tel: 020 7335 5132

Investors in the Guaranteed Income and Capital Bond 4 will put half their capital in a fixed rate savings account and half in a guaranteed equity bond.

Baronworth director Colin Jackson does not consider this product to be particularly good for IFAs or their clients. “Half of the investment goes into the income part of the product that pays 5.5 per cent a year fixed for five years. This is not a particularly competitive rate,” he says.

Jackson’s view is that it is probably unwise to tie money up into a fixed rate product for more than three years, particularly when the rate is low at the outset.. “The other half of the investment goes into the growth part that pays 50 per cent of any capital growth in the FTSE at the end of five years using averaging. The participation rate is quite good.,” he says.

Jackson observes that the whole of the investment offers 100 per cent capital protection if held for the full five years – something that he likes to see in this type of product.

“Both the income and growth – if any – are taxed as income. I prefer to see any gains taxed as a capital gain. This means that anybody who has not used all or part of their CGT allowance can get all or part of their return tax free leaving their Isa allowance for something else.”

Jackson finds the product literature attractive and easy to understand, as expected from Legal & General. He considers the commission of 3 per cent across the whole of the investment as in line with the market.

Looking at the potential drawbacks of the product Jackson says: “The income side of the investment is too low.”

He cannot find any product that provides direct competition to this plan. “The nearest is the NDF Income & Growth Plan that offers a higher level of fixed income and slightly lower participation rate. However, the NDF product does not provide for capital protection,” he says.

Jackson concludes: “If investors can be bothered, they would be better off putting half of their money into a fixed rate bond and the other into a separate structured product. The overall returns would probably be better.”

BROKER RATINGS

Suitability to market: Poor
Investment strategy: Average
Adviser remuneration: Good

Overall 5/10

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