Investec Structured Products is aiming to transform the way advisers think about Structured Income Plans. This is a bold statement to make however one that has true substance.
Clients of all ages and types continue to search for income from their investments, even more so now given the historically low interest rate environment. The UK base rate, at 50bps, is at it's lowest ever level and has been for some time with no immediate signs of recovery to more "palatable" levels, especially for savers. Therefore the traditional solution for short term income needs, i.e. short term savings accounts, is not a viable option. In turn, client's are looking to their short and long term savings for income and regular payments however, not all are prepared to take risks with their capital to get these payments.
Traditionally Structured Income Plans have always employed a capital-at-risk element to their structure; this is how providers have been able to derive the higher income/annual payments. By structuring plans in this way clients receive regular annual or monthly payments that are guaranteed which means that their income needs are met. The downside however is that should the equity index that the plan is linked to fall by more than 50% throughout the investment term and finish below where it started, then the client's capital is eroded on a one for one basis.
At Investec Structured Products we believe in offering a range of sensible products in an efficient way and across as many different risk profiles as possible. It is for these reasons that we launched the Capital Guaranteed FTSE100 Income Plans. Advisers and clients are heavily focussed on protection and capital guarantees at the moment, so we developed these additional Income Plans with a twist in the structure to meet this demand.
Our Capital Guaranteed FTSE100 Income Plans guarantee the client's initial capital at maturity with the income payments put at risk, again using a 50% barrier on the FTSE100. The 5 year plan delivers 6% gross annual income provided that the FTSE100 does not fall by more than 50% from its Initial Index Level during the 5 year investment term. If the 50% barrier is breached, all future income payments will cease. There is also a monthly income option paying 0.47% gross per month. Irrespective of what happens to the FTSE100 over the 5 year term, the investor's initial investment is guaranteed, as long as the Plan is held until maturity. We also offer a 3 year version of this Plan which delivers 4.75% annual income or 0.38% monthly income.
In addition, as these plans have been developed as structured deposits, they benefit from the security of the Financial Services Compensation Scheme (FSCS), which covers up to a maximum of £50,000 per eligible claimant per authorised institution. Given the exponential growth in the structured deposit sector over the last 12 months or so and, given the current uncertainties across the banking sector as a whole, investors clearly value this additional security and the peace of mind it delivers.
We have also replaced our FTSE100 and RPI Combination Plan with our new FTSE100 Bonus Income Plan. We have kept the same innovative structure as before but we have simplified the pay-off profile. The Plan is again linked to the FTSE100 and delivers annual payments equivalent to 7% of the initial investment. In addition, if the Bonus Index Level (BIL) is higher than the Initial Index level an additional 1% of the initial investment is also made. The BIL is defined as the average of the closing levels of the FTSE100 for the 5 business days up to, and including, the relevant payment date. The Plan also offers monthly payments of 0.55% of the initial investment. The Plan is capital at risk as the initial Plan investment will be reduced if the FTSE100 falls below 50% of the Initial Index Level at any point between the barrier start date and the barrier end date and fails to fully recover and also may be subject to Capital Gains Tax on maturity.
Whether clients are looking for monthly or annual payments, capital guarantees or soft protection or certainty of income over certainty of capital, the wide range of Plans offered by Investec Structured Products may offer the solution. More choice and more solutions deliver more options for the client.
Gary Dale is Head of Intermediary Sales at Investec Structured Products.
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