Structured products may be the answer

by PETER FISHER [email protected]

Peter Fisher is Financial Consultant with Blacktower Financial Management (International) Ltd.

Protecting your capital and making suitable gains is a delicate and often difficult balance. At the present time, having seen the UK Stock market fall by over 30per cent during the last 12 months and Bank Base Rate down at 2 per cent and likely to fall further, this is a practical impossibility. Then, to make matters worse for ex-pats living in Portugal, the Euro/Sterling exchange rate has fallen to an all time low with predictions of the rate becoming parity in the near future.

So for those needing to make a regular income from their capital, what do you do?  Structured Products may be the answer.

While the name may be new to some people these products have been around for the last 15 years, during which time they have developed significantly. So what are they and how do they work?

What are Structured Products?

Structured products are financial instruments which offer investors a range of different investment terms and risk profiles much like other mainstream investments.

At their most basic, structured products promise to protect some or all of the money you invest while providing some growth on your investment or a measure of predefined income throughout the life of your investment.

They are fixed-term products which means you have to be prepared to “lock in” your money for the term of the investment (often up to 5 or 6 years) but this often means that they have the potential to provide “enhanced returns” and can help with the financial planning process.

Potential benefits to investors

As the name suggests, these investments are ‘structured’ or ‘engineered’ by leading investment banks which allows a lot more product innovation than that available within other investments such as OEICs and unit trusts. This innovation enables structured product providers to adapt their plans to suit the underlying market conditions and provide a wider range of potential features and benefits to suit the needs of a wider range of investors.

The costs are calculated up-front when designing the product and are “built in” to the terms offered to potential investors. In this way, investors have a thorough understanding of their potential returns without the need to worry about additional costs and charges eroding their investment.

A defined investment term allows potential investors to plan more effectively and gauge their potential returns over the term of the investment.

Growth plans which offer geared or accelerated returns linked to the performance of an established index. For example, 5 times any growth in the FTSE100 Index over the term of the investment.

Income plans which offer attractive levels of fixed income over the term of the investment and which stay fixed despite market volatility or interest rate changes.

A defined level of capital protection which can either guarantee the return of capital in full or establish set rules for the return of capital at the end of the investment term, depending on the plan detail.

The returns are often linked to the performance of a well-known and publicised index which enables investors to monitor the performance of their investment.

Are they right for you?

Everyone’s personal circumstances are different and it’s important that you are investing your money wisely and in line with your overall financial objectives. For this reason it’s always sensible to seek professional financial advice from an IFA before embarking on any investment strategy. They will be able to help you develop a sensible financial plan that looks at your immediate priorities and sets realistic objectives for the future.

Despite their potential benefits, structured products are not suitable for everyone. There are a number of questions you can ask yourself to establish whether or not a particular plan may be appropriate for you.

Are you prepared to risk losing some or all of your money?

Do you need access to you money over the next 3, 5 or 6 years, depending on the terms of the product?

Do you have enough money put aside for emergencies?

Are you happy with an investment that is linked to the performance of stock markets (or other assets) depending on the terms the product?

Do you have a minimum lump sum to invest? The minimum amount will vary from provider to provider.

Do you want a regular income or are you looking for growth?

Structured products can be ideal foundation investments for a portfolio. Think carefully about the role of structured products within your overall investment objectives. How much protection will you need?

Whatcompromises, in terms of performance, are you are willing to pay for this protection? If you are in any doubt about choosing components for your portfolio, you should seek professional financial advice.

Current Product

A leading provider has recently launched a new product offering the following benefits:-

• £9.67% or €9.38% guaranteed income paid every year for 3 years.  

• 100% capital protection provided by ‘A’ rated investment bank with 50% downside protection.                                      

• Investment into 5 blue chip energy companies.

• Investment can be made in Sterling, Euros or Dollar.

• Minimum investment  20,000.

• The investment closing date for this product is February 14, 2009

If you require further information on Structured Products telephone (00351) 289 355 685 or email [email protected]  to receive a copy of the Guide to Structured Products.