Investec Structured Products has launched two auto-call structured product plans that have no commission built into the products alongside two identical plans with commission.
This gives advisers a glimpse of what commission-free structured products look like, as Investec is an early mover into creating RDR-ready products.
Investec has launched almost identical plans in their FTSE enhanced kick-out and FTSE kick-out deposit plans both with and without commission.
The removal of the commissions from the plans results in a higher coupon for investors.
The five-year FTSE 100 enhanced kick-out plan 29 kicks-out at the end of years one, two, three or four if the FTSE is higher with a return of 13 per cent for the traditional option and 16.2 per cent per annum for the new non-commission-based option. It is backed by Investec Bank.
If the plan does not mature early, it will pay 120 per cent of any FTSE 100 growth over the five years but if the FTSE 100 falls by more than 50 per cent at any point during the term, and finishes lower than the starting level, investors will lose an equivalent percentage.
There is an option for a plan backed by the five UK banks and the coupon is 10.5 per cent for the commission version and 13.5 per cent for the non-commission version.
The five-year FTSE 100 kick-out deposit plan 29 has the potential to mature at the end of years two, three, four or five if the FTSE 100 is above the starting level. The potential interest payment increases from 5.75 per cent to 7.2 per cent per annum between commission and non-commission versions.
If early maturity does not occur and the FTSE 100 is equal to or lower than its starting level after 5 years, investors will get back only their initial deposit. The minimum investment for both products is £3,000.
In the brochures for the products, Investec explains that adviser fees can be paid directly to the adviser or deducted from the amount invested.
Investec says that costs for administering and marketing the plan equate to 2 per cent and there is also a plan manager’s fee, but these costs are factored into returns. There are no annual management charges on the products, the firm says.
Structuredproductreview.com founder Ian Lowes says that commission-free products may result in a higher coupon for investors, but advice is not free and there are circumstances in which they may be worse off.
He says: “Whilst fee models do of course vary significantly, if a commission equivalent fee is applied to the no-commission option investors in the deposit plan would of course get less than their total costs back in adverse market conditions because the cost of advice is no longer factored into product terms.”