Investec Retirement Plan

redmalc

I Have been offered the Investec Retirement Plan by my IFA as an alternative investment if i decide to retire early at 61.
I deposit 100K for 6 years and each year it pays £3750 and if the FTSE 100 is 90% higher at its maturity i receive the 100K back.
Anyone else looked at this product ?

bigadaj

Structured products have had a bad reputation though there have been some good ones over the years.

Has your adviser explained why he's recommending this product? What's the effect if the ftse falls below the 90% value, how much of your capital would be lost in that scenario?

It doesn't look too attractive to me at face value.

dunstonh

SCARPS are a niche product. You tend to find that most of the time, the terms are pretty naff. However, periodically (as in once a decade), you get a window where the economics line up and the terms can be attractive.

They have no FSCS protection. So, 100% loss potential if the market counterparty fails. For that reason, the FCA guide is to recommend no more than 25% of your savings/investments into SCARPS and no more than 10% with any one market counterparty.

Malthusian

redmalc wrote: »

I deposit 100K for 6 years and each year it pays £3750 and if the FTSE 100 is 90% higher at its maturity i receive the 100K back.

Not quite correct, if the FTSE is 90% of its current value, i.e. hasn't fallen by more than 10%, you get £100k back. Otherwise you get £77,500 back, which added to the 6 x £3,750 in annual payments means you've simply been handed your original £100k back.

This is not actually a SCARP - SCARPs are "structured capital at risk products" and your capital is not technically at risk here. Because if the FTSE does fall by more than 10%, you have still got your original £100k back at the end when you include the £22,500 previously received in annual payments - which are not interest but your capital being handed back to you. And it is protected by the FSCS - although you are over the limit, so if Investec went bust you would only get £75,000 of your outstanding capital back.

Now that that's all cleared up - absolutely appalling value, avoid like the plague.

There isn't remotely enough incentive to tie your money up for six years in this thing.

Why does your IFA think this is a good use of money which you won't need any access to for six years, as opposed to investing it in the stockmarket or (if you can't afford even the tiniest chance of a loss after six years) leaving it on deposit?

AnotherJoe

Depends what else you've got in savings, in my case (warning, I tend to highish risk) I'd be inclined to pick 4 or 5 income trusts or funds across across a span of sectors, each offering 3-4% income, and get a similar amount in income each year (its not guaranteed mind) plus the growth over 5 years or longer if you let them run. Or you could just buy a low cost FTSE100 income ETF, which will probably be returning around 4% anyway. (again, not guaranteed, but the upside is it could be higher)

In effect this deal is offering you a guaranteed 3.75% for five years but the trade off is, you get none of the growth if there is any, and if there is a decline above 10% you take a loss (eg you take the painful loss but not a small one). So thats how they make their money, off what they expect to happen, a bigger rise and they will take any dividends about 3.75%.

Thats my POV anyway would be interested in others opinions.

bigfreddiel

Another joke has the right idea, straightforward, easy to set up, and easy to understand.

Rule of thumb, if you don't understand an investment strategy don't do it.

Is your IFA on a nice little kickback from invested by any chance?

Cheers fj

dunstonh

Is your IFA on a nice little kickback from invested by any chance?

That would be unlawful. Not only for the IFA but for the provider. So, the answer is no.

Malthusian

bigfreddiel wrote: »

Is your IFA on a nice little kickback from invested by any chance?

No. And this is one of the odder things about it. Before 2012 a plan like this would typically have paid 3% commission to the IFA, and this would be costed into the terms of the plan. So if the plan doesn't deliver, you would still get 100% of your capital back and the IFA has his 3%.

However now that IFAs are not allowed to take commission, the IFA would have to charge a fee which is not costed into the plan terms. So if he charges you a 3% fee for arranging this and it's taken from the investment, and the FTSE is down more than 10% at the end, you'll only get £97,000 back (including the annual payments). (Unless the IFA has agreed to refund his fee in that event, but I've not heard of anyone doing that.) So it's no longer guaranteed to return your original stake which is the plan's raison d'etre. If you pay a fee separately you'd get £100,000 back but the same logic still applies as your stake is effectively £103,000.

This is one of the reasons structured products have been much less popular with IFAs since 2012. Although a far more important reason is that the terms are complete crap.