Barclays Wealth Kick-out

Judith5252

Does anyone know anything about Barclays Wealth Kick-out. My independent financial adivsor suggests I put money into this scheme. What do other people think about it? I have a couple of weeks to change my mind.

dunstonh

Do you want the protection that is in place?
If yes, then there is limited choice available. If no, then there is no point having a protected product.

Guarantees and protection come at a cost. So, these types of plans limit the potential for growth but have limits on the potential for loss. For someone that doesnt want the protections in place, these plans are often a complete waste of money. For someone that does want the protections in place, then sometimes they are worth considering.

SnowMan

Your “adviser's” advice seems dubious at best.

The annual kick out plain is an awful product designed to look good value (7% return) but in reality it can only be offered because it is NOT good value. The provider can put profit margins into the product because calculating its underlying value and comparing investments is complex. These type of products typically pay 3% commission which is very attractive for the adviser and is effectively priced into the product and being paid by you. That is a lot of money for an investment that might only last 2 years and if it lasts more than 2 years then you are in real danger of not getting any return at all. In 2 years time if you are lucky and the FTSE 100 has gone up the adviser will be back for more commission.

These products also prey on the misconception that preserving the nominal value of capital is the important thing, in practice preserving the real value of capital (i.e. allowing for inflation) is more important in most cases. So not getting any return over 6 years is a really bad result.

The danger with this product is the cliff edge risk involved that the FT100 falls by year 2 and never returns above the initial level. Note that if the FT100 falls by year 2 then in year 3 not only does the FT100 have to rise, but it has to rise by more than it fell in the previous 2 years so you are perhaps into odds of around 1 in 4 of recovering the situation in year 3. And by that stage there is a real danger of the FT100 never reaching its initial level over the 6 years.

There are also dangers that you won’t get your money back if the counterparty behind the product goes bust.

Incidentally if the FT100 only exceeds its initial level in year 6 the actual return is only 6% per annum not 7% per annum (because you need to allow for compounding).

You would be better to advised to invest in a mix of (say) savings type accounts and share type investments. The appropriate mix would depend on your attitude to risk. Over long periods share investments have outperformed savings type investments (no guarantee they always will of course but it is a long history) but have the risk of short (to medium term) falls in value as seen in recent years.

With say a 30%/70% investment/savings mix this choice has a similar but not identical risk to that of the Barclays investment.

Commission as already mentioned is one of the reasons behind these products. Commission is paid to the adviser for this product based on the whole value of the investment, if someone is investing in a 35%/65% mix of share type investments and traditional savings accounts then commission is only paid on the share type investments so it is in the adviser’s interests to find a different less suitable product (assuming he gets away with it) which pays commission on the full amount.

A good rule of thumb is that ALL structured products of this type are best avoided.

(ps had to laugh at the quote from Lisa Chaudhuri, vice president, Barclays Wealth on their website which promotes this product on the basis that “investors are increasingly looking for transparent products”. Of course we know the exact opposite is the case here.

dunstonh

These type of products typically pay 3% commission which is very attractive for the adviser

Actually, that makes them typically lower than conventional investments as there is no trail. An adviser recommending a structured product is not doing so for any hypothetical or perceived commission bias. The commission is not explicitly charged but built into the terms. So the terms are key here.

I am no fan of structured products as any regular would know but I dont think its right to suggest a bias for recommending them. Also, despite scepticism of these plans, you do find the odd one that looks attractive and some people do like the limited protection they offer. I think Barclays had a kick out some time back that was doing around 9% a year. That wasnt bad value. At 7% it is less attractive obviously.

Cautious_Investor_3

SnowMan wrote: »

Your “adviser's” advice seems dubious at best.

A good rule of thumb is that ALL structured products of this type are best avoided.

Hi

I'm sorry but I have to take issue with these two comments:

1. Snowman, you do not know enough about the client to say that the adviser's advice is dubious. The adviser may well have conducted a full fact find, reviewed the client's circumstances and put together advice based on these things which led he or she to believe that the Barclays plan was appropriate.

I have recently seen Barclays Kick Out Plans recommended by very well qualified and experienced advisers as part of an overall package of investments and have no reason to think that they were recommended simply for the commission.

2. To say that ALL structured products should be avoided really is throwing the baby out with the bath water. I would agree that many Structured Products offer poor value for money, these are indeed often peddled by the banks, however there are a good number that offer excellent value and can and have provided returns over the past few years that have beaten inflation but also alternative investments such as Trackers etc. It really isn't a case that they are all bad, some are good, some are bad, some are right for some clients, some are not, an element of pragmatism is needed here.

If the OP is worried about the advice being skewed or influenced by the commission then there is a simple solution. Ask the IFA to rebate all commission and pay a fee for the advice, the OP can then be certain that the advice is not skewed due to the commission payable.

I agree that commission can skew advice, but it doesn’t make all products bad, I’d suggest you cast an eye over David Stevenson’s columns in the FT, he rates some Structured products highly, especially those produced by the likes of Barclays and Blue Sky, he’s a pretty canny investor and isn’t often wrong.

The Cautious Investor

SnowMan

Clearly the adviser will be back in 2 years to pick up another 3% commission if the FTSE100 goes up in 2 years. Much better than trail commission. So there is an obvious commission incentive to sell.

If someone is seeking advice they don't want to have to come back in 2 years for a complete new set of advice (as is needed with this product where the FTSE100 goes up and the product matures) but just want to know their portfolio is still appropriate. Surely an IFA should be recommending a suitable long term investment stategy. Even if someone is investing over 2 years to meet a particular liability then this product is unsuitable as the product may not mature for 6 years.

If the company pays the adviser 3% commission then it reasonable to assume that has been priced into the product. If it isn't the company expects to make a loss, I can't see that happening.

To assess the product based on it's terms is highly complex. The products themselves are underpinned by financial derivatives but those derivatives reflect the probability of the FTSE100 increasing in year 2, year 3 etc and also on the expected returns. Because the market is very close to being "perfect" there is no way these products can create money out of nothing. Explicit or implicit the client pays the 3% now (and future 3%'s also)

As a trained mathematician I've also done back of the envelope calculations to convince myself that these products can be expected to work out worse than a more straightforward savings/investment mix at a similar risk and that has always seemed to be the case. I won't pretend the calculations are simple. Probably repeated simulations are needed to test it out and I've never seen those simulations done.

We all remember the pension opt-out scandal (I'm talking opt-out rather than transfer here). While it was direct salesmen who did most of the damage there was a significant number of IFAs who opted people out of schemes (I was involved in doing some of the redress sums for IFAs so I know).

That was blatant mis-selling. Advisers were claiming at the time not all pension opt-outs were bad but the rule of thumb that opting out of any scheme with an employer contribution was bad would have saved many people from losing out.

The rule of thumb that ALL structured products are bad is a good rule in my view.

These structured products are a mis-selling scandal that is happening now. Whether it will be ever recognised as such or can be swept under the carpet is another matter.

dunstonh

Clearly the adviser will be back in 2 years to pick up another 3% commission if the FTSE100 goes up in 2 years. Much better than trail commission. So there is an obvious commission incentive to sell.

If that is the case then the consumer will be quite happy as they are not paying the 3% and it means they have got the positive return.

If someone is seeking advice they don't want to have to come back in 2 years for a complete new set of advice (as is needed with this product where the FTSE100 goes up and the product matures) but just want to know their portfolio is still appropriate. Surely an IFA should be recommending a suitable long term investment stategy. Even if someone is investing over 2 years to meet a particular liability then this product is unsuitable as the product may not mature for 6 years.

Why should they not be making changes after 2 years? Most servicing portfolios get balanced annually and tweaked accordingly. Things change and you can an eye on them. Better that then be a lazy investor hoping for the best.

If the company pays the adviser 3% commission then it reasonable to assume that has been priced into the product. If it isn't the company expects to make a loss, I can't see that happening.

It is factored into the terms but no more so than it is with interest rates on a savings account.

We all remember the pension opt-out scandal (I'm talking opt-out rather than transfer here). While it was direct salesmen who did most of the damage there was a significant number of IFAs who opted people out of schemes (I was involved in doing some of the redress sums for IFAs so I know).

And it was trained mathematicians that usually did the calculations which resulted in the advice being to opt out.

That was blatant mis-selling. Advisers were claiming at the time not all pension opt-outs were bad but the rule of thumb that opting out of any scheme with an employer contribution was bad would have saved many people from losing out.

No it wasnt. You had the Govt saying it was better. You had acturies saying it was better. It was not blatent mis-selling as no-one did it with malice. It was based on assumptions that used figures that had occurred in the past but didnt occur in the future.

However, what that has to do with this product I dont know.

The rule of thumb that ALL structured products are bad is a good rule in my view.

Apart from the good ones.

These structured products are a mis-selling scandal that is happening now.

There is no widespread mis-selling scandal happening on structured products. There are a few isolated cases relating to a lack of understanding of risk by some salesforces (norwich & peterborough being the largest example). The failure of Lehmans being the catalyst. The FSA themselves didnt understand the product much prior to completing the thematic review. However, their review was very handy and if you look at their criteria you tend to find most of the Barclays plans pass without problem. The FSCS were not even sure the liabilities existed and if they were within their remit as nothing had ever happened like that before.

However, the OP isnt looking at pre Lehman standards but now and as we know the Barcalys KO plan does satisfy the FSA thematic review standards, then there is little point harping on about potential mis-sales.

Cautious_Investor_3

Hi Dunstonh

I think we are fighting a losing battle here!

Liek most products, some SP's are good, some are bad, some people are right for them, others are not. Saying as a rule of thumb they are all bad is lazy and unconsidered.

Having taken some of these products out in the past I have been very happy with their performance, have certainly beaten my friends Tracker funds.

The Cautious Investor

SnowMan

Cautious_Investor wrote: »

Hi Dunstonh

Saying as a rule of thumb they are all bad is lazy and unconsidered.

You are entitled to disagree with my comments, and judith5252 can make her own judgement from what she reads, but I can assure you that my comments are not unconsidered. I stick by the rule of thumb that structured products are always bad (to clarify not always disastrous but always bad and with a better alternative)

The only thing that makes me think that structured products are OK is this daily mail article.

http://www.dailymail.co.uk/money/article-1277640/Youre-conquest-customer.html

In it is the quote

[FONT=&quot]Our whistleblower, who manages a large sales team at Barclays, says: 'It's a very high-pressure environment. The way we are paid means there is a lot of emphasis on getting people to invest more of their savings in the stock market than they should.' [/FONT]
[FONT=&quot]
[/FONT]
[FONT=&quot]He adds: 'Some of the things we sell - such as structured products - are rubbish. These are one of the most popular investments. It's an easy sell as they offer elements of protection. But we are now being discouraged from selling so much because we want to be seen to be giving proper advice.'[/FONT]


[FONT=&quot]
[/FONT]
[FONT=&quot]Now as I have another rule of thumb that anything in the daily mail is incorrect there is an obvious contradiction that I am unable to resolve :rotfl:
[/FONT]

Cautious_Investor_3

SnowMan wrote: »

The only thing that makes me think that structured products are OK is this daily mail article.

http://www.dailymail.co.uk/money/article-1277640/Youre-conquest-customer.html

In it is the quote

[FONT=&quot]Our whistleblower, who manages a large sales team at Barclays, says: 'It's a very high-pressure environment. The way we are paid means there is a lot of emphasis on getting people to invest more of their savings in the stock market than they should.' [/FONT]
[FONT=&quot]
[/FONT]
[FONT=&quot]He adds: 'Some of the things we sell - such as structured products - are rubbish. These are one of the most popular investments. It's an easy sell as they offer elements of protection. But we are now being discouraged from selling so much because we want to be seen to be giving proper advice.'[/FONT]


[FONT=&quot]
[/FONT]
[FONT=&quot]Now as I have another rule of thumb that anything in the daily mail is incorrect there is an obvious contradiction that I am unable to resolve :rotfl:[FONT=&quot]
[/FONT][/FONT]

I couldn't agree more about the Daily Mail.

But.....you seem to be confusing the abhorant sales tactics employed by tied agents of banks with IFAs who, on the most part, are trying to do a good job with good quality products.

I think we will have to agree to disagree on this one!

The Cautious Investor

dunstonh

Our whistleblower, who manages a large sales team at Barclays, says: 'It's a very high-pressure environment. The way we are paid means there is a lot of emphasis on getting people to invest more of their savings in the stock market than they should.'

Barclays sales force is known to be high pressure sales and have poor quality of advice. They are one of the worst of all the banks. However, the OP isnt seeing a Barclays sales rep.

He adds: 'Some of the things we sell - such as structured products - are rubbish. These are one of the most popular investments. It's an easy sell as they offer elements of protection. But we are now being discouraged from selling so much because we want to be seen to be giving proper advice.'

Any decent adviser would be expected to have a very low ratio of structured products in their product mix. Banks go gung ho for them and over sell them to people that shouldnt have them. However, that doesnt make the product bad. That makes the seller bad. Barclays tend to have around 8-10 or so structured products on the go at any time. The branch salesforce doesnt get access to them all I believe. Out of those 8-10, probably only 1 or 2 are worth considering and then it would depend on the terms.

Generally, I dislike the product but I wont rule out the occasional time they fit the need (and I have actually used a couple of Barclays structured products in the last year and you can count the total number of structured products I have used in nearly 17 years on my hands).

Now as I have another rule of thumb that anything in the daily mail is incorrect

Cant disagree with that given the Mail's track record