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Skipton Guernsey brings in guaranteed bond

SKIPTON GUERNSEY
5 Year Guaranteed Growth Bond
Type: Offshore guaranteed growth bond.
Aim: Growth linked to FTSE 100 index.
Minimum investment: Lump sum £5,000.
Place of registration: Guernsey.
Investment split: 100 per cent in growth bond.
Guarantee: Capital returned in full at end of term along with 26 per
cent growth regardless of movement in index.
Isa link: No.
Charges: None.
Commission: None.
Tel: 01481 727374.
Flexibility 1.3
Company&#39s reputation 4.8
Past performance 5.3
Product literature 4.8
Skipton Guernsey has introduced the five-year guaranteed growth
bond, an offshore bond which is linked to the FTSE 100 index and
guarantees up to 26 per cent of any growth in the index over the term.

Looking at how the plan fits into the market, Milne says: “There are
very few five-year investments which tie your money up for the full
period, which means that it is hard to gauge exactly where this
product fits into the market, except perhaps for long-term trust
planning.”

Usher says: “There are concerns in the current market over similar
bonds which do not appear to offer levels of protection. As this
investment does offer a specific guarantee, it should fit the market
well.”

Jarman says: “This is yet another derivative bond plan offering high
headline rates of return. It also offers a guaranteed return, unlike
some of its competitors, but this comes at a price on the overall
return. It is a useful alternative.”

Moving on to the type of client that the plan is suitable for, Selby points
to the expatriate client along with basic or medium rate taxpayers.

Usher says: “The guaranteed growth plan would be most suitable for
clients who are risk-averse as they would not be exposed to any
potential fall in the value of the capital invested. For onshore investors
the bond offers tax-planning advantages, as gains will not be taxable
until the end of the five-year period. This could prove advantageous
for clients who are planning to retire without the next five years as
lower rate taxpayers.

Milne says: “This is for anyone prepared to tie up their money for a full
five years with the benefit of very unexciting returns at best. Perhaps
this might suit the retired, risk-averse investor.”

Jarman says: “This would be suitable for the long term investor with
medium risk profiles, for those concerned over client equity holdings
or collectives and for higher rate tax payers who will become basic
rate taxpayers in four to five years, in other words those approaching
retirement.”

Evaluating the marketing opportunities that the plan would provide,
Usher says: “This bond would be marketed primarily towards
offshore clients who are interested in equity markets but who require
a minimum capital guarantee. These clients would be happy to
sacrifice potentially greater returns available through direct equity
investments, in favour of the security of knowing that they will not lose
money.”

Milne thinks that there are no marketing opportunities, while Selby
says: “There are no great marketing opportunities, as this would only
be used as part of a portfolio.”

Looking at the flexibility of the plan, the panel is dismissive. Jarman
says: “This is poor, in fact there isn&#39t any. It is a strict five-year plan.”
Selby points out that no flexibility is offered and Milne says: “What
flexibility?”

Usher says: “No flexibility is offered. After the 14-day cooling off period
capital is locked in for the full five-year period. It would be preferable
to see a formula based exit on, say, each anniversary of
commencement in order to provide investor access in case of
emergency.”

Moving on to the strong points of the plan, Jarman says: “There is the
timing of the launch – there is a good chance that the FTSE will do
what is necessary for the plan to work. Other strong points are the
guarantee of 26 per cent growth, the five-year FTSE bonus and the
apparent nil charge structure.”

Usher says: “There is the gross roll-up of interest within the fund to
maturity as well as the minimum capital guarantee.”

Selby agrees. He says: “There is the minimum guarantee, the
potential for capital growth and the fact that there are no charges or
management fees.”

Milne says: “There are two advantages. It gives tax planning
opportunities with regard to the tax free status and it has the security
of known interest rates to be added to the investment.”

Turning to the other side of the coin and assessing what the
drawbacks are, Usher says: “The main disadvantage is that the
investment returns will be limited in a rising market. Maximum
returns are also dependent on a rising market in each of the five
yearly periods; consequently there is no mechanism for locking in
gains along the way. Potential investors also need to be certain that
they will not need access to capital during the five-year period as
closure or withdrawals after the 14-day cooling off period will not be
allowed. Projected returns have been calculated on a gross basis.
These returns need to be adjusted for UK tax payers who will be
liable to pay income tax on the gross gain on encashment.”

Selby thinks that the main drawback is the lack of access to the
capital for five years, while Milne says: “The product is very inflexible
and the money is locked in until the maturity date. Also the interest is
credited at the end of the five-year term.”

Moving on to the reputation of Skipton Guernsey, the panel is not
impressed. Usher says: “Skipton Guernsey is a subsidiary of Skipton
Building Society in the UK. Skipton Building Society has given a legal
undertaking to meet all the liabilities of Skipton Guernsey.”

Milne says: “It is not given a high enough profile within the Skipton
group to make a judgement,” while Jarman is not familiar with the
company.

Identifying the competition that the product will face, Selby says: “This
depends on ones view of market performance over the next five years
and the degree of flexibility required. The guaranteed return from
bonds look competitive in actual guarantee returns.”

Jarman points at the Scottish Life International income/growth bond,
while Milne says: “Competition will come from with-profits bonds,
both onshore and offshore.”

The panel also has mixed opinions about the product literature. Milne
thinks that it is easy to understand but is very uninspiring, while
Usher says: “The literature is limited. If Skipton intends to market this
type of investment to UK based taxpayers then calculators showing
returns net of higher and lower rate tax would be helpful.”

Jarman says: “This contains basic, limited information. What
happens on the death of the investor? I had to ring the company and
the people I talked to didn&#39t know! It took a management committee to
confirm that you can either let it run once probate is granted in the
hands of the beneficiaries, or cash it in and get an instant access
rate from the investment date to the death of the investor and then a
fixed rate until the date of release.”

Selby concludes: “It is very informative as far as information is
concerned, but the production is of average quality.”

Peter Selby, Partner, Brookridge Services Associates, Elaine Milne,
Associate, Redcliffe Associates, Keith Jarman, Director, Hughes
Carne IFAs, Michael Usher, Director, Brooks Macdonald Gayer Asset
Management.

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