IFAs should be targeting guaranteed investment products at short-term investors rather than those wi...
IFAs should be targeting guaranteed investment products at short-term investors rather than those with a long investment horizon, according to Pinnacle Insurance.
Clive Moore, general manager of Pinnacle Insurance, said these products should be aimed at the financially aware, prudent investors who know that equities are riskier than cash.
Speaking at a Future Value Consultants conference on designing and selecting guaranteed investments, Moore said: "The target investors for these products have worked for their money and now their money must work for them. They are more concerned with pounds per month than protection from inflation. The certainty of a fixed income for a fixed period also provides them with peace of mind.
"The product alternatives include cash, which offers security, control of money and accessibility but the reality can be very poor returns.
"Another alternative is corporate bonds which have a perception of security and a higher income but the reality can be capital volatility and erosion.
"With-profits offers a comfort factor, security and capital growth but they can also offer a low income, high charges and a lack of access."
He added that most guaranteed products are bought without advice as charges are seen as too high so people tend to buy direct or through a discount broker.
Moore said providers also have a duty of care to meet client expectations, use appropriate levels of capital risk and make products simple to understand.
He believes more providers will enter the guaranteed market and that there are increasing numbers of potential customers.
Future Value Consultants outlined its SPIRAL rating system for guaranteed investments at the conference.
The rating system looks at factors including the likely performance of the product, potential risk and how well the product is structured.
The ratings service has covered 73 products with an average rating of 5.9 out of 10. The M&G Protected Isa, launched earlier this year and offering a capital guarantee and a five year term based on the FTSE 100, is rated nine out of 10.
The HSBC Safety.net product, which offers a 90% capital guarantee based on a technology basket index, gets eight out of 10. In a separate presentation, Antony Stack, group managing director of administration firm NDF-Opal, also outlined the role of administration companies in the provision of guaranteed investment products.
The group's clients include Scottish Widows, Newton, INVESCO, Hendersons, Ivory & Sime Trustlink and Lazard Asset Management.
Stack said: "We have 20 years' experience in all types of investment products. Potential flashpoints can emerge over volumes of business, mis-information and timely processing and response."
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