Structured Products for risk averse saver

Imnoexpert_2

My sister (against my advice so far) has chosen not to see an IFA and to trust Nationwide and HSBC financial advisers. She is financially secure, just about to retire on a good pension (lucky her) and has a heavily building society cash biased savings.

My sister is very risk averse.

The HSBC man had advised her to sell the S&S ISA she has, and the HSBC OEIC and Life bond she has and invest in two products

Barclays Wealth Moneybuilder Deposit Plan
Morgan Stanley FTSE Protected Growth Plan 44

Are these products any good?

How appropriate does this advice seem ?

In general I often read that Structured products can be useful as part of a portfolio, but what circumstances do you think these might be?

Thanks

dunstonh

My sister (against my advice so far) has chosen not to see an IFA and to trust Nationwide and HSBC financial advisers.

oh dear.

How appropriate does this advice seem ?

Difficult to say with limited facts. However, possibly poor or even bad advice. The ISA should not have been sold. It should have been transferred (to retain the ISA status).

Barclays Wealth Moneybuilder Deposit Plan
Morgan Stanley FTSE Protected Growth Plan 44

Are these products any good?

Not advice but opinion and just mine (as that is all it can be on an internet forum).... A quick and dirty check shows that one of those would fail our research criteria and would be rejected as being above acceptable risk. Even if we ignore that that and applied a quick 1-10 risk scale (1= cash, FTSE100 around 7 and highest risk UTs at 9) then it would be around risk 3/4 on that scale. Hardly suited to some with a very low risk profile.

In general I often read that Structured products can be useful as part of a portfolio, but what circumstances do you think these might be?

The FSA did a thematic review on structured products and it highlighted that no more than 25% of a persons savings and investments should be in structured products and no more than 10% in any one counterparty.

Ignoring the security issues, there are better versions available via IFAs. Although that is not something you can complain about. If you don't use an IFA then you won't get best advice. it will be restricted in some way (limited product range being the key difference).

That said, if she really is concerned about risk (assuming she understands cash savings have risks as well) then she really shouldnt be using structured products other than perhaps for a very small amount, if at all.

IronWolf

As a former (naive) investor in an HSBC OEIC I can say that it's never a bad thing to get out of them

As a general rule I would never trust a bank financial advisor, given their conflicting interests

I've looked at the Morgan Stanley product, the risk is basically with Morgan Stanleys solvency and I would treat it as the same risk as a MS 6 year bond. To be honest I'd be surprised if the FTSE 100 was not higher than 5500 in 6 years (but anythings possible), so I personally think it would be much better to invest in a tracker instead which would give much more flexibility.

Oh and not to mention the FTSE tracker would give dividends, which are around 3.5% per year on the FTSE 100 at present. Over 6 years, that's 18.7% difference between the tracker and Morgan Stanley, well worth the risk of losing capital imo (which I consider minimal)

Imnoexpert_2

I was innacurate in describing the advice as selling the ISA. I meant transfer. Apologies to the adviser.

I've looked at the products myself and can't see much benefit in the Barclays case on getting a maximum 5.05% interest based on the stock market when you could get quite close to that in a 5 year fixed rate building society account which might even let you withdraw money with lose of some interest.

The Morgan Stanley if I read right gives you a reasonable return on the gamble though arguably as has been commented a ftse tracker might be an alternative. However if Morgan Stanley goes bust as I read it you aren't covered by the compensation scheme. I take it this is the risk you mentioned Dunstan?

I must bully my sister into seeing an IFA!

Regards

oldvicar

Imnoexpert wrote: »

...
I must bully my sister into seeing an IFA!

Regards

Not worth the risk of falling out with your sister over anyhing as trivial as money. What do you stand to gain.

With a good pension (lucky her) and low risk tolerance, then it may be that your sister should stick to what she is used to - ie Building Society deposits. She probably has a lifetime's experience of these and could probably manage her way round these without an adviser. But she needs to be strong and resist any 'advice' about investments the banks may give, and go independent if she does actually want to consider risk based investments.

dunstonh

The Morgan Stanley if I read right gives you a reasonable return on the gamble though arguably as has been commented a ftse tracker might be an alternative. However if Morgan Stanley goes bust as I read it you aren't covered by the compensation scheme. I take it this is the risk you mentioned Dunstan?

The risk is Morgan Stanley failing and there being no FSCS protection to pay out if it does. Morgan Stanley are only A rated.

The terms are still not great. You can get 10% p.a. (potential) versions at the moment with AA rating counterparty risk. Even with that though, they still carry a risk that is not in line with your description.

property.advert

How people can sleep knowing their money is tied up in instruments they know nothing about is beyond me.

7246

Details of both plans are on CompareStructuredProducts.com

The Barclays plan is a deposit and as such potentially covered by FSCS in the event of them going bust but the Morgan Stanley plan is effectively a loan to the bank and as such isn't.

If accepting the albeit unlikely risk of Morgan Stanley going bust is palatable then adding a moderate amount of market risk may be too - consider the Morgan Stanley FTSE Kick Out 14

Same credit risk AND a risk of loss that will occur if the FTSE is 50% down after 6 years but double the potential return. Consider it as an alternative or compliment to a tracker?

atush

If accepting the albeit unlikely risk of Morgan Stanley going bust

They were close to going after LB fell ;-)

I have to say as your sister is risk averse, this one is too risky for someone like that. But I suppose she can claim against the bank advisors if it all goes pear shaped as the risk to too high for her avowed profile.

qpop

7246 wrote: »

Details of both plans are on CompareStructuredProducts.com

The Barclays plan is a deposit and as such potentially covered by FSCS in the event of them going bust but the Morgan Stanley plan is effectively a loan to the bank and as such isn't.

If accepting the albeit unlikely risk of Morgan Stanley going bust is palatable then adding a moderate amount of market risk may be too - consider the Morgan Stanley FTSE Kick Out 14

Same credit risk AND a risk of loss that will occur if the FTSE is 50% down after 6 years but double the potential return. Consider it as an alternative or compliment to a tracker?

Spam. Two posts both advising to use above site :spam::spam:
(Please report)

dunstonh

If accepting the albeit unlikely risk of Morgan Stanley going bust is palatable then adding a moderate amount of market risk may be too - consider the Morgan Stanley FTSE Kick Out 14

I suggest you read the thread again. The risk profile of the individual is not consistent with this product. It is as unlikely as Lehman Brothers going under..... except they did go under and what happened to all those that had structured products with LB as the market counterparty....