Investment & Insurance Blog

Currently browsing Latest Posts

What are Structured Deposits and Structured Investment Products?

Background

Structured Deposit and Structured Investment Products are ‘Packaged’ investment plans – sometimes referred to as ‘market-linked investments’ which, once purchased, sit until an inspection point – in the event of an ‘auto call’ product, which is often referred to as a ‘kick out’ plan or until the end term of the product. Structured Deposit plans generally range from 3-6 years and Structured Investment plans from 6-10 years in duration.

The ‘shape’ and terms of the contract are pre-defined or pre-packaged and cannot be changed, once the plan has commenced.

An investment made into a Structured Deposit Plan or a Structured Investment Plan – which places ‘capital at risk’ is placed/invested into a ‘contract’ which can hold a variety of investments or asset class variations, from single securities or stocks, a basket of securities, options, indices (often the majority of plans offered in the UK are FTSE 100 linked or combined with another index , such as the Euro Stoxx) commodities, debt issuances or foreign currencies and to a lesser extent bespoke (private placement) sometimes hold derivatives.

Retail products – the products that are listed publicly in the UK mostly link to an investment index or a combination of indices.

Private Placements are focused ‘contracts’ constructed for larger investment amounts (generally) and can be bespoke, using one or a combination of the above asset classes, regions and geographies. Private Placements are also sometime syndicated – split between an advisers group of investors.

Duration

Deposit Plans – which are capital protected and benefit from FSCS protection (up to £85000) generally have investment contract terms of between 3 and 6 years.

Structured Investment Products – which are capital at risk products are generally longer in duration of investment and generally have an investment term of 6-10 years. Recently, retail Structured Investment Products offered are more focused on the 8-10 year investment point.

A simple beginner’s guide to investing in the Stock Market and a background to investing in Structured Provided by reading the following links:

https://www.moneywise.co.uk/investing/first-time-investor/should-you-buy-structured-product-2017

Structured Deposits and Structured Investment Products

A recent article written by Investec identifies the benefits of Structured Deposits and Structured Investment Products, and the clearly defined ‘risks’ and potential headline rates of return and/or income.

Structured Deposit Plans

Structured Deposit Plans are capital protected products and have protection up to £85,000 by the Financial Services Compensation Scheme (FSCS). The headline ‘potential of return’ rates are not guaranteed, which is generally exposed to ‘market risk’ that an investor ‘buys’ into, as opposed to low returning deposit based savings products, that are also capital safe up to £85,000. Deposit rates are generally generating 1% or so with interest at present but are reducing the ‘buying power’ of capital against the effects of inflation.

Structed Investment Products (also commonly known as Structured Products)

Structured Investments are ‘capital at risk’ investment contracts. It is imperative that investors understand the risk of the counterparty/issuer – which are generally Banks or leading Insurance Operations, along with the ‘market risk’ which they are entering, in order that a product may meet the needs of the investor.

Read our link:

BPFS – Best Price Financial Services Structured Deposits and Structured Investment Products cost  https://www.bestpricefs.co.uk/structured-products/

 

Non-Advised (sometimes called Execution Only) Structured Deposit/Structured Investment Service

Our service, where an investor self selects and confirms their knowledge, risk acceptance and experience via an Appropriate Assessment Questionnaire (AAQ) –https://www.bestpricefs.co.uk/assets/plan/appropriate-assessment-questionnaire.pdf is provided can be accessed at a service cost of 0.5% (minimum £75, £100 corporate or Pension application).

This service does not provide a ‘suitability report conclusion’. The investor will not benefit from the regulatory protection available via The Financial Ombudsman Service (FOS) in the event of the investment not being suitable to meet the needs of the investor. Upon receipt of the application from the investor we at BPFS confirm via email that ‘no advice’ has been provided.

Advised Services for investment into Structured Deposits/Structured Investment Products

A number of counterparties/issuers and plan managers require the distribution of their products or plans to be purchased taking in ‘regulatory advice’ which means that an adviser is required to carry out a ‘Know your Customer’ review, generally including a risk profiler to assess the investor’s overall risk views, involving risk tolerance, risk capacity and goals & aims and objectives so a product can be assessed and concluded as ‘suitable’ to meet the needs of the investor.

This sounds straightforward but the process requires that a large amount of data is gathered, which is a requirement of the regulated adviser.

This service is secured by Regulatory control by the Financial Conduct Authority (FCA), in terms of governance, process and good practice and requires all advisers to carry Professional Indemnity Insurance cover,  should any failings arise to the advice process and the suitability of the solution to meet the needs of the investor.

At Best Price Financial Services (BPFS) we are proud to say that we have never had a complaint or suitability failing, which is not a claim that many advisers can make – fact!

We ensure that our investment clients understand the ‘risks’ clearly prior to making an investment, considering the ‘worst case scenarios’ so the investment decision is always ‘suitable’, so that unexpected investment outcomes do not create complete destruction to our investors’ circumstances.

If we see a grey area, we advise accordingly, sometimes this means that the advice is that the product selected is NOT suitable to meet the needs of the investor. (Please note that our advice service is a paid for service, regardless of the transaction of the investment being completed – this is not a contingent charge service!).

Best Price FS advice services for investment into Structured Deposit and Structured Investment Products is 1.5% of the capital invested, subject to a minimum fee of £300 and a maximum fee of £3,000 per advice point; which equates to 1.5% @ £200,000 of capital invested.

Most advisers charge 3-5% for the same service with no limit on fees and take ongoing charges of 0.5% to deliver statements and enjoy a cup of tea/coffee and a biscuit with the investor. (This cost is a general cost based upon our understanding of how advisers charge. We know of one non-advised distributor who charges 3% for non-advised transactions).

At Best Price FS we very much know that reducing access costs and ongoing costs improve outcomes for consumers (putting more money in the hands of the investor, ultimately), so we require communication to be electronic, in order to keep costs low and be time effective, the benefit is very much with our investors, on both an advised and non-advised basis.

 

We recommend that investors study our ‘journey’ on our Structured Product page which explains how to self select a product on a non-advised basis, along with the process of investing, where ‘advice’ is required – https://www.bestpricefs.co.uk/structured-products/

 

Investec Structured Product Statistics – provided by Investec directly

Investec just hit GBP 4BN of maturities to date for our ISP Products.
1004 Matured Products composed of 200,823 accounts, have generated GBP 668M of wealth for our customers, with an average return of 7.77% per Annum. (5.59% per Annum for Deposits, 9.29% per Annum for Notes)

Of those 1004 Matured Products, only 4 plans (All of which were 3 year Deposit Plans) had no Investment return but still had full return of Capital. Everything else has paid a positive return.
This is a testament to our holistic and conservative approach to product design, whereby probability of return is deemed more important than the product headline rate – this approach is more important than ever as the post Global Financial Crisis Bull Market comes to a close and a more unpredictable market cycle begins.

Investec Article

Structured Deposits and Investments – Why we believe they can no longer be ignored

 

In a time of uncertain markets when many traditional asset classes are not delivering projected returns, Investec Structured Products offer continuously available Investment and Deposit Plans, which provide clients with a variety of structured risk and return profiles with a clearly defined risk/reward scenario at the outset.

Investec Structured Products recently hit a milestone of £4 billion worth of maturities generated for clients to date. Comprising 1,024 matured products, 200,823 accounts and GBP668m of wealth generated for our customers with an average return of 7.64% per annum (5.39% p.a. for structured deposits, 9.28% p.a. for structured investments.)* Of the 1,024 matured products, only 19 plans (all of which were deposit plans) delivered no investment return, but still returned the clients’ capital in full. All other products provided an investment return.

This is testament to the holistic and conservative approach to product design where the probability of an attractive return is deemed more important than a product’s headline rate. This approach is more important than ever as the post-GFC bull market comes to a close and an unpredictable market cycle begins.

We would like to encourage all advisers to peruse our latest launch of Structured Deposit Plans (potential returns of up to 7.5% p.a.) and our improved rates on our Structured Investment Plans (potential returns of up to 10.5% per annum)**. All plans have a multitude of payoff profiles with bullish, neutral and defensive outlooks. https://www.bestpricefs.co.uk/investec-structured-products/

Our structured deposits benefit from the protection of FSCS coverage for investments up to £85,000 per individual (subject to eligibility). Clients can enjoy the potential upside of equity linked returns safe in the knowledge that their capital is held on deposit with Investec Bank, with the added coverage of FSCS protection in the unlikely event that Investec should default.

On the structured investment options, there are a multitude of pay-off profiles ranging from positive to negative outlooks for the markets, along with income generating deposit and investment plans. On the growth options, we have an Enhanced Kick-Out Plan offering a potential 10% per annum snowballing coupon, along with defensive strategies that can pay snowballing coupons of up to 7.5% per annum even if the FTSE falls to 80% of start value. There are other defensive options available allowing the FTSE to fall to 65% whilst generating a potential 6.5% per annum.

These statistics and the current product suite really do beg the question, how much longer can structured products be ignored?

*Past performance is not a guide to future performance, some of our plans will place capital at risk and returns are in no way guaranteed. Figures correct as at 19/10/18. ** Current range available until 16 January 2019

This article is not to be taken as ‘advice’. ‘Advice’ is always specific to the individual or entities needs and requires a specific recommendation and conclusion that a product is suitable to meet the investor’s needs.

Risks

Always refer to our ‘Don’t forget the risks’ section of our web page – https://www.bestpricefs.co.uk/structured-products/#risks

Flat or falling investment markets – Structured Deposits/Investments may be the answer?

During uncertain times, when investment markets are volatile, pre-defined products that have the potential to deliver strong returns regardless of flat or falling investment markets may offer a diversifying alternative.

Never place ‘all your eggs in one basket’. Consider your investments holistically. The rule of thumb is not to place more than 20% of an investors capital in a specific ‘market risk’ and no more than 10% of invested capital exposed to a specific counterparty.

Diversity and balance is key to best investment outcomes.

Blending Best of Breed long only funds in a risk adjusted portfolio, alongside a balance of Structured Deposit and Structured Investment Products and tax efficient products, such as VCTs and EIS solutions is what investment utopia looks like for the best constructed investment programmes.

Risk Managed – 
Low Cost – 
Flexible approach – 
Income and Growth Plans – 
Great/best investment outcomes – 
Great support and service – 

If you require advice, simply get in touch.

Compliments of the Season.

Best Price Team

Please follow and like us:

Comments are closed.


Breakdown Cover (11)

Learn all about breakdown cover on the Best Price Financial Services blog. Get all the latest information and insights on breakdown cover.

Home Emergency (23)

Blog posts about home emergency cover from Best Price Financial Services. Learn about home emergency cover and how it works.

Income Protection (17)

News and updates about income, employment and protecting you.

Investments (41)

Information and updates regarding UK Investment Plans.

Landlord Resources (8)

Helpful tips and advice about landlord cover from Best Price Financial Services. Find out about landlord home emergency cover and how it could help you.

Life Insurance (33)

Hints and tips about insurance and protecting your family.

Money Saving Tips (34)

Frugal tips to help you make the most of your money.

Motor Legal Protection (40)

All about Motor Legal Protection and how it can help you.

Press Room (38)

Latest news and views from discount broker Best Price FS

Savings (9)

All the information you'll need to find the best UK savings plans.

Structured Products (43)

News and updates about Structured Investment Products.

Travel Insurance (8)

Travel tips for holiday-goers, backpackers and skiers.