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Product matters

We are seeing an abundance of structured contracts, which is no surprise, given the uncertainty of markets and a rising interest rate environment.

I firmly believe these arrangements are not investments but simply products for the customer who does not understand risk. Despite the fact that the UK investor loses out on the advantage of dividends, there are a range of other reasons to be wary of them.

Advisers should note that participation in the market upside should be higher due to swap rates increasing. Protection becomes cheaper so less money is needed to protect the capital and more can be used to buy growth options.

It is welcoming to see the 105 per cent uncapped participation in the Nikkei 225 by Abbey and the 112 per cent uncapped participation in the FTSE 100 by Barclays’ five-year protected FTSE plan K2.

It is also nice to see that Barclays’ plan, outside an Isa, is assessed against CGT as opposed to the similar contract with Morgan Stanley, which is assessed against income tax. Abbey’s capital guaranteed equity plan gets the serious thumbs down as the cap at 150 per cent does little to allow for the current market and the loss of dividends.

More than slightly disappointing is Barclays’ irresponsible offering of the early kick-out option (marketed as an early maturity option) within the above plan. It is little more than the market-makers dumping their customer out into an expensive market. Do not take that option.

Barclays’ plans normally pass the key selection criteria of term, index, period of averaging, risk to capital, counter-party risk and taxation and this plan does that too – apart from the ridiculous kick-out option. Take it out.

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