The product is called Riley – as in the life of Riley – and provides flexibility not only to level of capital protection available, but also the term of the product. It is up to IFA and client to decide the length of the term and the level of capital protection. The term can vary from five years to 10 years but does not have to be whole years – it can, for example, be six years and two months or eight years and five months.
At the outset investors can choose capital protection up to 100% over a five-year term, 102 per cent protection from five years and one month to six years, 104 per cent from six years and one month to seven years, 106 per cent from seven years and one month to eight years, up to 108 per cent from eight years and one month to nine years or up to 110 per cent from nine years and one month to 10 years. If investors want to change the level of protection or term later on, they can. This flexibility can be used to lock in gains as the capital protection may be extended to protect the gains already made.
If investors opt for capital protection, part of the original capital will be invested in an insurance fund managed by Goldman Sachs while the remainder will go into the Schroders FTSE 350 managed fund, Royal London Asset Management FTSE 350 Tracker Fund or a combination of both if investors want exposure to passive and active management.
The insurance fund is made up of derivatives known as put options, which will be sold to increase the value of the portfolio if the Schroders or RLAM funds are low in value. Goldman Sachs will monitor how these funds are performing to work out how much is needed in the insurance fund to ensure investors’ money is protected.
Although Riley’s objective is similar to structured products using constant proportion portfolio insurance, Royal London says it does not switch between cash and other assets so there is no risk of ending up in cash while not being able to get back into the stockmarket.
Investors and advisers may be put off by this product’s complexity but Royal London feels this is inevitable when providing such flexibility.