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Zurich chooses comfort factor

Zurich Financial Services

Protected Capital Account

Type: Guaranteed equity bond

Aim: Growth linked to the performance of the 15 biggest companies on the FTSE 100 index as at April 8, 2009

Minimum-maximum investment: £2,500-£1m, Isa £3,600

Term: Five years

Return: Up to 60% growth at end of term based on sum of rises and falls in share basket each year

Guarantee: Original capital returned in full regardless of the performance
of the share basket

Closing date: July 20, 2009, June 12, 2009 for Isa transfers

Commission: Initial 3.25%

Tel: 0500 546546

Zurich’s protected capital account is linked to the performance of the biggest 15 companies in the FTSE 100 index as at April 8, 2009 over a five-year term. These include BP, HSBC, GlaxoSmithKline, Tesco and Royal Dutch Shell.

Discussing how this product is good for advisers and their clients Baronworth Investments director Colin Jackson says: “The Zurich name should give comfort to a prospective investor as well as the fact that this is a deposit type investment. This means investors are covered up to £50,000 under the Financial Services Compensation Scheme. The returns are dependent upon the performance of 15 of the companies listed in the FTSE 100 Index, but investors will receive a full return of capital at the end of the term irrespective of the performance of the companies.”

He feels the literature is well produced and extremely easy to understand. “The commission at initial 3.25 per cent is slightly better than the competition for a five-year product, but there is no renewal commission.”

Considering the potential drawbacks of the product Jackson says: “The returns are not linked to the FTSE 100 index but, rather, 15 of the companies within the index. The companies selected are respectable and well thought of, but in the current economic climate, investors may be wary in investing where the returns are dependent upon the performance of a basket of shares.”

He observes that the returns are monitored on an annual basis. “After one year, the share price of each of the 15 companies is recorded. If the share price of any company at the end of one year is greater than its initial value then it is recorded as an increase of 12 per cent. Conversely, if the share price of any of the companies has fallen, then the actual percentage fall will be recorded and this will reduce the potential interest available for that year.”
Jackson points out that the result is recorded as a zero if the share price is exactly the same, but he feels this is unlikely to happen. “The amount of interest to be paid is then calculated by taking all the rises and falls and averaging them. If the averaged share price of the 15 companies has fallen then the interest for that year is zero.”

In Jackson’s view, investors may not want to take what could be perceived as quite a risk with the returns in the current market uncertainty, even though the capital is always safe.

“If the market turns and the share prices across all 15 companies perform exceptionally well, the maximum potential interest is capped at 12 per cent in any one year. The investments can be within an Isa wrapper and Isa transfers are accepted and direct investments are taxed as income but this is a growth product,” he says

Scanning the market for potential competitors, Jackson says: “There have, in the past, been products where the income or return of capital is linked to a basket of shares. We cannot currently locate any other products constructed in this way.”

Jackson concludes: “The return of capital and cover under the Financial Services Compensation Scheme would be attractive to prospective investors, but the way that the income is calculated is unattractive particularly in the current economic climate, as is the way it is taxed.”


Suitability to market: Average
Investment strategy: Average
Adviser remuneration: Good

Overall 5/10


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