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HSBC goes for performance

HSBC – Performance Plus Isa

Type: Capital protected Tessa only Isa

Aim: Growth linked to the FTSE 100 index

Minimum-maximum investment: £3,000-£9,000

Investment choice: 100 per cent linked to FTSE 100 index

Term: Five years

Guarantee: Capital returned in full at end of term

Return: Up to 50% at end of term

Catmarked: No

Closing date: Until further notice

Charges: Implicit

Commission: Initial 2%

Tel: 0800 181890

Broker Panel:-

Ian Bird – Account executive, Adam Tingle (Financial Services)

Martyn Page – Senior investment researcher, Misys IFA Services

Peter Pickup – Principal, Peter Pickup IFA

Tim Storer – Financial services director, Luker Rowe

Broker Ratings:-

Suitability to market: 7.0

Investment strategy: 5.5

Past performance: 7.3

Company&#39s reputation: 7.5

Charges: 7.0

Commission: 6.5

Product literature: 5.3

HSBC has introduced its performance plus Isa, a capital protected
Tessa only Isa, which is linked to the FTSE 100 index.

Looking at how the Isa fits into the market, Pickup says: “It provides
potential tax free growth for investors.”

Storer says: “There always seems to be a market for index driven
investments with a guarantee, so this will find a niche. The fact that it
is geared at matured and maturing Tessas means that it has got a
very large captive market to go at.”

Page says: “There aren&#39t too many of these roll-over vehicles around,
so it&#39s a useful product for those who are prepared to take their
interest rolled up a the end and dependent on the stockmarket, as
opposed to being dependent on interest rates.”

Bird thinks that it fits into the market very well indeed, he says: “I can&#39t
think of any other comparable product. It provides an opportunity for
those that want to get into the stockmarket.”

Identifying the type of investor the Isa is likely to attract, Bird thinks it
could appeal to those prepared to accept the risk of equities but with
a good safety net.

Pickup believes it is suitable for those with the funds available from a
maturing Tessa and also for clients that are looking for tax free
growth with capital security. “This Isa is likely to attract investors with
a low attitude to risk,” he says.

Page says: “It represents an alternative to the typical variable rate
Tessa in that the capped return on the capital is dependant on a
stockmarket bet. As such, it ought not to be recommended to those
investors who believe that all Tessas are interest bearing deposit
accounts, since return of capital is merely safeguarded.”

Storer says: “Apart from the obvious requirement that they have a
maturing Tessa, the client must be familiar with index driven
investment products and how they work. The client will also be a low
risk investor or at least want to maintain a nil or very low risk position
on his Tessa capital.”

Turning to the marketing opportunities the Isa will provide, Page
says: “Short term ones. As with all tranche products the window of
opportunity is only open for a brief moment.”

Storer says: “It provides an excellent opportunity for mailshot
campaigns and for reopening doors that might have shut firmly after
last September.” Bird says: “For Adams Tingle very little but for others
a good deal of mileage could be gained.”

Discussing the main useful features and strong points of the Isa,
Pickup says: “The strong points would be the tax free growth and the
security of the capital.” Bird thinks it has a good safety net and good
averaging of FTSE 100 over the last 12 months.

Storer says: “The guarantee of a full capital return on maturity is the
key attraction. It might also be argued that the point for point link
between index performance and the interest credited on maturity is
quite generous. The ceiling of 50 per cent interest after five years is
not likely to be exceeded by index performance so it looks good for a
low risk product.”

Analysing the investment strategy Page says: “Can be a good
strategy or an ineffective one. It all depends on the costs of the
options, interest rates, the volatility of the index chosen. Low volatility
and high interest rates make for attractive packaged products, this is
why these protected cash and call structures were so popular five
years ago.”

Pickup thinks the strategy is limited as it linked to the FTSE. Storer
says: “There isn&#39t a lot of strategy involved. Basically, after five years,
the investor gets interest on his capital at exactly the same rate that
the FTSE 100 has moved over the same period. As advisers, we
either like it or we don&#39t.”

Turning to the Isa&#39s disadvantages, Bird says: “The client is locked on
for five years, but this good for an equity investor. The risks are higher
than most perceive.”

Pickup also mentions the tying up of the capital, he adds: “There is
limited growth and no income available.”

Storer says: “It does not pay income and, unlike the original Tessa,
early closure may result in a capital loss, thanks to the presence of a
market value reduction clause. There is no accumulation of interest,
so last minute fluctuations could reduce the final payment very

Page says: “What&#39s so wonderful about the FTSE 100? HSBC only
uses this index because unsophisticated investors are unlikely to
have heard of anything else. The modesty of the potential upside
might be the result of the cost of the derivatives for this well know
index. Derivatives based on any other indices are cheaper, thus
allowing a potentially higher return to go to the investor.”

Commenting on HSBC&#39s reputation Bird describes it as: “Fine for this
sort of thing, passive investment management.” Pickup thinks it&#39s
very good and improving.

Page says: “It is growing steadily. HSBC&#39s funds are probably under
used by IFAs.” Storer says: “I don&#39t know if it has widespread support
from the IFA sector but my perception is that it prefers this type of
product, with potential for bulky tranches of business, rather than
promoting its fund management skills, which it has undoubtedly

Turning to HSBC&#39s past performance Pickup thinks it is above
average. The rest of the panel say that it is irrelevant to this product.

Looking at the Isa&#39s main competition the panel mention Yorkshire
building society&#39s Equity linked Privilege Isa, Merrill Lynch&#39s Global
Titans Toisa and Legal & General&#39s protected portfolio II.

Pickup thinks the charges are fair and reasonable. But Page believes
people should focus on total costs as opposed to the stated charges.
Bird says: “They are implicit within the terms offered, therefore the
client feels that there are no charges.”

Storer mentions that investors might think the market value reduction
factor is a little unfair, but it is a gentle reminder that this is not a
deposit account.

Commenting on the commission, Page says: “2 per cent initial is a
fair commission for a commodity product where it is difficult for a
general IFA to add much value via advice.”

Pickup says: “It is fair and reasonable, but on reflection it is a bit low.”

Examining the product literature Bird says: “It does contain all the
information in a handy A5 size but is very bland, dull and in small
print. Therefore it is not overly impressive.” Pickup thinks that the
literature is adequate, whereas Storer believes it is very thorough and
comprehensive although a little long-winded at times.

Page says: “It&#39s acceptable. The devil is in the detail. Advisers ought
to read the full prospectus and not just the brochure.”


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