Type: Guaranteed Income Bond.
Minimum-maximum investment: Lump sum £10,000-£1m.
Term: Six years and two months.
Return: 6 per cent income in first year, thereafter income is linked to the dividends paid by the FTSE 100.
Guarantee: 100 per cent capital return.
Commission: Initial 3 per cent.
Tel: 01727 734315.
Company's reputation 6.3
Past performance 5.7
Product literature 4.7
NDF's income plan is a guaranteed income bond that aims to provide income from dividends paid by companies in the FTSE 100 index, with 100 per cent of the original capital guaranteed.
Looking at how the plan fits into the market, Greening says: “It fits very well, it has unique features which should ensure a successful sale. It combines security with an expected increase in income over and above deposit rates.”
Marsh says: “It fits in well for a capital guaranteed fund.”
Meers says: “The plan fits in as a reasonable attempt to achieve better than average income yield.”
Moving on to the type of client that the product is suitable for, Marsh says: “This is for the older client who can stand a very variable income.”
Greening says: “The plan is for the risk-averse client who is in the grey market, the elderly or someone who is approaching retirement and who is looking for an income from an investment like this.”
Meers says: “This is for higher rate taxpayers who may not have taken out any Isas this year and who are seeking additional income from an investment. To be frank this is a very limited category of client.”
Examining the marketing opportunities that the plan will provide, Greening is positive. He says: “For the first time I have felt comfortable in offering an investment product like this to our no risk clients. We will mailshot our investment clients with it.”
Marsh thinks that it could be marketed to clients who do not want to risk their capital, while Meers says: “This plan will have a very limited appeal to most clients.”
Casting an eye over the main useful features of the plan, Marsh focuses on the capital guarantee as being the only strong point.
Greening says: “The main useful feature is the security offered. There is also an innovative income stream which is likely to increase over the term, given corporate profits increases and hence the dividend yield.”
Meers agrees. He says: “There are two strong points. The capital is guaranteed and there is also the potential for increasing the amount of income.”
The panel point to different areas when addressing the disadvantages of the product. Greening says: “The drawbacks include the six-year term and possible penalties of early encashment. Some older clients may find six years to be too long a period to invest.”
Meers says: “One disadvantage is that the link to the dividend yield may prove to be a fatal flaw if a mini – or a major – recession turns up after the first year. It also ties up capital for too long. Other opportunities may occur during the term for more stable sources of income, which could be lost because capital is tied up in this plan.”
Marsh says: “The product is complex. Its vague use of derivatives may fall foul of the FSA need for client understanding.”
Referring to the flexibility that the plan offers, Marsh says: “NDF needs to add a quarterly income option to the plan to make it more flexible.”
Greening says: “There is very little flexibility, although from the outset you can choose monthly, annually or accumulative income.”
Meers says: “The only real flexibility is the investment choices. Otherwise this is a very inflexible product.”
Looking at the reputation of NDF, Meers says: “NDF has a good reputation, generally as a company that packages together innovative sources of capital and income.”
Greening says: “It has established a very good reputation in arranging investment products in a relatively short period of time.” Marsh thinks that its reputation is fair.
Viewing NDF's past performance record, Marsh again thinks that this is fair. Greening says: “It has a good record. It has historically leant to the side of caution in these types of investment, relative to other providers. This should enhance the company's reputation over the years.”
Meers says: “My only experience of this is the NDF golden future product, which started very well in its early years. However returns are now falling away badly due to a combination of low interest rates and the poor stockmarket performance that we have seen over the past year. NDF however is not a fund manager itself.”
Identifying the main competition that the plan will face, Marsh thinks that this will come from utility performance shares and corporate bond funds. Greening says: “This will face competition from guaranteed income bonds, deposit accounts and potentially investments linked to the various indices. Also from investments which are derivative based, although there is obviously a chance of loss of capital.”
The panel does think that the charges are fair and reasonable, and is positive on the amount of commission given. Greening says: “Yes, commission is fair and reasonable, and is particularly good in view of the competition.”
Marsh says: “Given that the return is similar to cash, 3 per cent commission is very high.”
Looking at the product literature, Marsh regards this as being poor. He says: “There is no real explanation of the mechanism of obtaining the interest rate. Also, putting eight point type on a key features document will not help many of the intended target market to read it – the older the client the larger the type should be a rule of thumb.”
Meers says: “The literature is very average indeed. Frankly it does not contain enough information to enable a potential client to make a decision based on all the facts and figures.”
Greening however regards it as being clear and concise.
Summing up, Meers says: “The plan offers unacceptable degrees of risk to most people who are seeking income from products like this. There are safer alternatives for the more risk averse client. However if the client finds the risk acceptable and is happy with the product, then a limited amount of capital might be worth a punt into this plan.”
Barry Greening, Partner, Greenridge Financial Partners, Jeremy Marsh, Managing director, Zero.uk.com, Colin Meers, Partner, Russell Meers & Co.