Type: Capital protected bond
Aim: Growth linked to the performance of the FTSE 100 and S&P 500 indices
Minimum-maximum investment: £10,000-no maximum, Isa £11,280
Term: Six years and two weeks
Return: 8.5% growth plus capital at the end of year one provided the indices are at or above their initial values, 17% growth plus capital at the end of year two provided the indices are at or above 90% of their initial values, 25.5% growth plus capital at the end of year three provided the indices are at or above 80% of their initial values, 34% growth plus capital at the end of year four provide the indices are at or above 70% of their initial values, 42.5% growth plus capital at the end of year five provided the indices are at or above 60% of their initial values, 51% growth plus capital at the end of year six provided the indices are at or above 50% of their initial values
Protection: Original capital returned in full at the end of the term provided the indices do not fall by more than 50% by the final day of the term
Closing date: July 11, 2012 for bank transfers, July 6, 2012 for cheques, June 30, 2012 for Isa transfers
Commission: Initial 3%
Tel: 020 7904 1010
This structured product is linked to the FTSE 100 and S&P 500 indices for six years and two weeks. As a kick-out plan, it has the potential to mature at any year during the term, depending on index performance. But the unusual feature is that the level the indices need to be to bring about a kick out reduces by 10 per cent each year.
Looking at the positive aspects of the plan, Informed Choice managing director Martin Bamford says: “This is a well considered structured product, with clear descriptions in the guide of the various scenarios and risks involved.
“Investors should have little difficulty understanding how this product should work and what could go wrong.”
Bamford notes that unlike many of the structured products we see, this one does not appear to average index levels over a number of weeks. Instead, it uses the index level at the close of business on predetermined dates in the future.
Turning to the less appealing features of the plan, Bamford says: “A kick-out product that could last for between one and six years makes it very difficult to plan for the future. Investors face all of the usual risks associated with investing in a structured product such as counterparty risk, loss of dividends, inflation and risk to capital if each index is not at a high enough level on defined dates, to name but a few.”
Bamford also points out that the counterparty has an A- rating from Standard & Poor’s, which means that it might be lowered to BBB. “This reflects the poor financial strength of the global banking sector generally, and is one reason why we would not recommend a product with such counterparty risk in the current economic climate,” he says.
Considering the potential competition, Bamford points out that this is a fluid market, with new products appearing regularly and typically offering quite short subscription periods. “Before investing in any structured product investors should look carefully at all of the open subscriptions available and select the product which best suits their specific objectives,” he says.
Summing up, Bamford says: “Adviser remuneration options are unclear in the literature and certainly do not meet the new Retail Distribution Review standards for adviser charging.
“I’m yet to meet an investor who has financial objectives which are aligned with the specific terms of a structured kick-out product. Maybe there are individuals out there who need this style of returns and are prepared to accept the various risks involved, but they do not represent the mass market.”
Suitability to market: Poor
Investment strategy: Average
Adviser remuneration: Poor