View more on these topics

Straightforward approach from Morgan Stanley IQ

Morgan Stanley IQ – Simple Growth Deposit Plan

Type: Capital-protected bond

Aim: Growth linked to the performance of the FTSE 100 index

Minimum-maximum investment: £3,000-no maximum, Isa £5,100

Term: Six years

Return: 120% of the growth in the index at the end of the term

Protection: Original capital returned in full at the end of the term regardless of the performance of the index

Closing date: March 23, 2011, March 16, 2011 for Isa transfers

Commission: Initial 3%

Tel: 020 7425 9000

This plan is one of two products that mark Morgan Stanley IQ’s debut in the structured deposit market.

Discussing the product’s suitability to the market, Julie Smith says: “With uncertainty in the market, the protection of hard-earned capital is often at the forefront of investors’ minds. Consequently, many investors will be looking for somewhere to put their money with a similar risk profile to that of a bank or building society account but with the possibility of a higher return.

“This six year structured deposit plan benefits from capital protection if held to maturity and offers a return of 1.2 times any growth in the FTSE 100 index” She adds that the plan benefits from no upper limit to growth potential.

Smith points out that the final index level is averaged on a monthly basis over the last year of the plan. “This will protect the investor from any sudden falls in the level of the FTSE 100 near the end of the term. Conversely, in a rising market any growth will be constricted due to this averaging,” she says.

Another positive highlighted by Smith is the potential to diversify counterparty exposure. “The deposit taker is Lloyds TSB Bank, which is relatively new to the structured product market and has an S&P rating of A+ with a stable outlook,” she says

Smith notes there are several ways to invest, either directly, through a cash Isa or cash Isa transfer as well as a self-invested personal pension, small self-administered scheme, and a company or charity investment. She feels that Morgan Stanley’s literature is clear and easy to understand, as usual.

Discussing the less attractive features of the plan, Smith says: “To gauge whether this type of plan is competitive, a general rule of thumb would be to look at fixed rate bonds to determine the risk reward ratio.” She concedes that fixed rate bonds are not a direct comparison, but finds them a useful way to put the returns from the Morgan Stanley IQ plan in to context.

“Currently, there are a number of fixed-rate bonds in the market offering rates in excess of 4.5 per cent AER over a five year period. Therefore, for this plan to beat these fixed rates, the FTSE 100 Index would need to rise by over 20 per cent by the end of the term.”

Smith points out that if the index falls or stays the same, no growth payments will be received. Capital will be repaid in full, but this will have been eroded by inflation and Smith feels this is something to consider at a time when inflation is increasing.

Smith says: “The comparison with fixed-rate bonds is not exact as timelines are not exactly matched and no account has been taken of the tax efficient wrapper available with the Morgan Stanley plan.  That said, by considering returns available from fixed-rate bonds which give a defined return not linked to any index, you can make an informed decision of whether the extra risk by linking any returns to an index is worthwhile.

“In this case, you may be better off in cash if you are unsure if markets will grow in excess of 20 per cent over the six-year term.”

Smith feels that fixed rate bonds such as Coventry Building Society’s 4.75 per cent five-year fixed rate bond could provide the Morgan Stanley plan with competition. She also suggests capital protected deposit structured products such as the Investec FTSE 100 five-year deposit plan 24, which offers a fixed return of up to 35 per cent if the final level of the FTSE 100 index is higher than the starting level.

Summing up Smith says: “Morgan Stanley’s plan has a straightforward deposit structure and is easy to understand. This plan benefits from uncapped growth potential and may appeal to those who believe the market is going to rise over the six-year period but who are not confident enough invest directly into equities.


Suitability to market:          Average

Investment strategy:          Average

Adviser remuneration:          Good

Overall 6/10



MM Leader: Is the Govt making the same old pension mistakes?

In this week’s Money Marketing, former Conservative Shadow pensions minister Nigel Waterson makes an eye-catching comparison between the Government’s RPI to CPI move and Gordon Brown’s infamous raid on pensions in 1997. Waterson, who shadowed the pension brief for the Tories from 2005 until the general election when he lost his seat, says the move […]


Eviction notice

The total number of repossessions has remained low throughout the financial crisis and the numbers have been falling over the last 12 months. Recent figures from the Council of Mortgage Lenders show repossessions for the whole of 2010 were 24 per cent lower than in 2009. A total of 36,300 homes were repossessed last year, […]

Return to sector

Time and time again, I find myself return ing to the thorny topic of IMA sectors – and not because we find them so but because the trade and national press (including this esteemed publication) are so exercised about them. They, in turn, are partly fuelled by the strident views of IFAs, of course. This […]

ScotEq payout sees Aegon make Q4 loss

Aegon UK made a loss of £6m in the final quarter of last year as it had to pay consumer redress of £25m. The compensation figure relates to Scottish Equitable, which was fined £2.8m by the FSA in December and ordered to pay customers £60m after administrative failings. The list of failings included not issuing […]

Investment Forum

Position Portfolios for a Changing China, Accelerating Disruption and More Political Discourse Is China an asset class? Why Investors’ Understanding of China is Changing How is disruption changing the way we invest? Established Ways of Doing Business Are Being Challenged What to Watch: Why politics matters more than ever in 2017 Key takeaways: Despite volatile […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm