Type: Guaranteed equity bond
Aim: Growth linked to the performance of the FTSE 100 index
Minimum-maximum investment: £10,000-£1m, Isa £3,600
Term: Six years
Return: 50% growth at the end of the term provided the index is at or above its initial value
Guarantee: Original capital returned in full at the end of the term regardless of the performance of the index
Closing date: July 30, 2009, July 16, 2009 for Isa transfers
Commission: Initial 3%
Tel: 01727 734 315
NDFA has developed this capital-protected deposit that will provide 50 per cent growth at the end of its six-year term provided the index is at or above its initial value. Capital will be returned in full at maturity regardless of the performance of the index, but is dependent on the ongoing solvency of RBS, the deposit taker.
Chartwell Group investment research manager James Davies observes that this plan is a deposit based structured product that has the advantage of being covered by the Financial Services Compensation Scheme.
“It is useful indeed if your deposit taker is RBS. For me, this product needs to be viewed relative to cash investments. Clearly, the return profile is potentially more attractive than most deposits, but the cost is a whopping six-year lock in. There is no guarantee that your investment will deliver more than a regular deposit account anyway; all of this in addition to the issue of transparency issues that affect all structured products.
Discussing the less appealing aspects in more detail, Davies says: “ As mentioned earlier, I don’t like the lock-in period of six years. Deposit type plans are ultimately marketed at low risk, cautious savers and investors and I believe a six- year tie-in is often unsuitable.” He adds that this plan is subject to income tax if not held within a cash Isa, so investors need to be mindful of this.
Scanning the market for potential competitors Davies says:
I really think that these types of plans try to seduce individuals who are essentially looking at capital protection and cash deposits, into a product that’s aiming for market-like returns. I do not see counterparty backed structured products, or direct market linked investments as providing competition for this type of plan.
Summing up Davies says: “It was interesting to see that the most prominent feature on the product literature was the words 50 per centiInterest and that the commentator on the press release was NDFA’s Marketing Manager, as opposed to someone from a product development or investment background. I think it says a good deal about the marketing lead nature of the product.”
Suitability to market: Average
Investment strategy: Poor
Adviser remuneration: Average