26/07/2010 by Arthur Childs.

If you are interested in obtaining index-linked returns on your savings and investments you are probably already aware that such products were withdrawn from the market last week by National Savings and Investments (NS&I). Their withdrawal was made necessary because the rules state that NS&I is not allowed to dominate the market and sales had “far exceeded” the level anticipated.

There were probably two main reasons why the NS&I product was so attractive to savers:

(1) The first reason is the continuing low level of interest rates on deposit accounts, which seem unlikely to increase in the next year or two. The Bank of England Base Rate has been just 0.5% since March 2009. Although the Office for Budget Responsibility (OBR) has said that it expects rates to start to rise next year, economist Professor Peter Spencer of the Ernst & Young Item Club said recently that the Bank of England will have to keep interest rates at their current level until 2014 to counter-balance the government’s spending cuts.

(2) The second reason is the realisation that inflation is currently making a serious inroad into their capital. UK inflation slowed for a second month in June, to 3.2% from 3.4% in May but it is well above the Bank of England’s 2.0% target. The Retail Prices Index (RPI) which includes housing costs is still 5% after falling from 5.1% in May. Whilst a number of economists argue that deflation is more likely than continuing high levels of inflation, the problem is that the inflationary pressure of the previous Government’s massive quantitative easing measures is difficult to predict.

So where can investors turn now?

Well I could simply point to the fact that, over time, a well diversified portfolio of equities has proved to be one of the few consistent hedges against inflation. However, I am conscious that the majority of people who would have previously used the NS&I index linked products would be anything but equity investors.

Instead, therefore, I would like to mention an alternative investment that is likely to appeal to some investors who might otherwise have sought out an NS&I product. As you would expect from an investment adviser, this investment includes risks to your capital but those risks can be known in advance and a proper decision made about them.

I am referring to the Real Growth Plan (Issue Two) which is offered and managed by Jubilee Financial Products LLP, an independent asset management company authorised and regulated in the UK by the Financial Services Authority.

What does the Jubilee plan provide ?

This is a six year investment plan (the NS&I plans had 3 and 5 year terms) which offers investors a return linked to inflation as measured by the Retail Prices Index (RPI).  Now I mentioned deflation earlier so any purely inflation linked investment, such as that previously offered by NS&I, could provide a poor return. The Jubilee product is interesting because it offers a return linked to inflation as measured by the Retail Prices Index (RPI) or the growth of the FTSE 100 Index (the main UK equity index), whichever is greater. This is what is called a structured product, and these have been defined as ‘investment products that deliver a known return for given investment circumstances.’

So far, so good. So what is the downside? I did mention that there would be risks to your capital. There are two main risks as follows:

(a) Retail structured products usually provide a measure of capital protection and this is what makes them so attractive to investors. The protection in this case is what is referred to a ‘soft’ protection, that is it can be breached and is not a guarantee. Specifically you may get back less than you have invested if the FTSE 100 closes at or below 50% of its initial index level on any trading day during the investment term and both the FTSE 100 and the RPI are below their initial index level on the maturity date. So if the FTSE 100 never falls below 50% of its initial index level your capital is protected. Furthermore, even if the FTSE 100 does fall below 50% of its initial index level your capital is still protected if in six years’ time if either the FTSE 100 or the RPI index is no lower than its initial level. In a worse case scenario and both tests fail then your capital will be reduced by the percentage reduction in the FTSE 100 index. However even in that situation you may still receive a growth payment to partly offset this loss if the RPI is above its starting level. I appreciate that this can sound complicated but the literature is well written and we are here to answer your questions.

(b) The second risk is the possible failure of what is called the ‘counterparty’, that is the bank holding your money during the investment period. In this case the bank is UBS AG (London Branch), part of UBS, the second largest Swiss bank, which is rated A+ by Standard & Poor’s, Aa3 by Moody’s and A+ by Fitch. You should be aware, however, that should the bank fail then you would not have recourse to the bank guarantee scheme as you would with a normal deposit account.

General guidelines about structured products

Using structured products in an investment portfolio can reduce the risk of that portfolio because with structured products you know that they will do certain things at certain times. If you have never used a structured product before you should read our background notes on this type of product www.arch-fp.co.uk/structured_products.php. Our general guidelines are that you should not invest more than 25% of your investment portfolio into structured products and that no more than 10% of your portfolio should be in any one structured product.

Further information

The minimum investment is £10,000. Please note that the deadline for this particular issue is 6 August 2010, however, a further issue is expected in the middle of August. If you want to be informed when the next issue is available please email us to this effect. You can either invest directly or through the Nucleus wrap platform if you are already using that for your investments. If you would like to invest in the Real Growth Plan (Issue Two) or find out further information you should visit www.arch-fp.co.uk/structured_products.php where you will find a brochure, standard terms and conditions and application form.

Please note that this information does not constitute personal advice and should not be treated as a substitute for specific advice based on your circumstances. If you are unsure about investing in a structured product then you should discuss the matter with a suitably qualified independent financial adviser such as ourselves.  The risks of investing in this particular structured product are detailed in the Real Growth Plan brochure which you should read. This plan is not a deposit account and is not guaranteed by any third party. Your capital is at risk from a fall in the FTSE 100 during the investment term. You will not receive any dividends from companies in the FTSE 100. Averaging of the final index levels may constrain your returns. If you do not understand any of the risks please discuss them with us before investing.

If you would like to receive advice about investing in the Real Growth Plan or structured products generally, please ask your usual Arch adviser, telephone 01483 204600 or email enquiries@arch-fp.co.uk.

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03/07/2010 by Arthur Childs.

There is already a plethora of directories of UK financial advisers so why am I telling you about yet another one? Financial Planners Elite is quite simply unique mainly because, as its name suggests, it is an elitist directory. Criteria for membership is stringent. To become a member you must be, not only an independent financial adviser (IFA), offering unbiased financial advice, you must also be a Chartered Financial Planner and/or a CFP (Please note that ‘CFP’ and its longer form ‘Certified Financial Planner’ are registered trade marks of the Institute of Financial Planning).

Financial Planners Elite is the first directory to promote Chartered Financial Planners and CFPs together – and to the exclusion of all others. Why? Because such financial planners are the crème de la crème of the profession. In fact, in my view, they are the profession, whilst the bulk of IFAs are still entrenched in the financial services industry of the past when they were simply the retail arm of the insurance company wholesalers.

Chartered Financial Planners and CFPs have not only proven technical knowledge far beyond the average financial adviser; they have also, by the hours of leisure time they have sacrificed, and the money they have spent to attain their qualifications, proven commitment to giving the best financial advice to their clients. Sadly the majority of consumers are unaware that there is such a disparity of financial adviser qualifications – let alone how special Chartered Financial Planners and CFPs actually are. Financial Planners Elite is determined to raise the profile of these leading financial advisers. Why would consumers settle for average when they can have the very best financial advice?

Please do have a look at this new website financialplannerselite.com. Don’t be disappointed if you cannot find an adviser where you live. The number of advisers on the website is as yet small, as it has only just been launched, but it is likely to catch on very quickly by the look of the people already involved. You will, of course, find Arch Financial Planning Limited under the GU postcode.

Please note that Arch Financial Planning Limited is not responsible in any way for the advice that you might receive from any other advisers listed on the Financial Planners Elite website. Whilst we know many of these advisers by reputation and indeed some personally, and believe these to be the cream of our profession, we cannot be responsible for advice that is provided by others. You should not agree to deal with a financial adviser merely because he or she is listed on any website but you should make sufficient enquiries to satisfy yourself that you are dealing with someone you can trust with your and your family’s future financial planning.

If you would like to discuss any aspect of your financial planning, irrespective of where you live, then please do get in touch. If you already deal with an Arch adviser then please talk to him or her, otherwise telephone 01483 204600 or email enquiries@arch-fp.co.uk.

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