Step Down Kick Out investments

[MickR]

Hi,

Has anyone have any views or experience with these types of investments?

https://www.moneyworld.com/structured-i ... -out-plan/

I'd never heard of them but a recently retired friend has been persuaded to invest in one by their FA. I can't quite work out if they are an easy way of earning 10% yield , or an easy way of tying up capital for 7 years with a potential loss of capital and zero income.

Had a search on the forums but no one seems to have mentioned them

Mick

[mc2fool]

Yes, I've used these types of investments before, and the answer to your question is both.

It's a shame that there's no longer any exchange traded ones (i.e. ones you could trade on the secondary market) as I particularly liked those. And of the primary market only ones, many have gradually disappeared over the years too, Investec being the last major retail provider to stop issuing them, a year or two ago now. Hopefully with the rise in interest rates we'll see more returning (lower interest rates made them more difficult to put together).

I've had a couple of structured investments that kicked out in each of the last couple of years, and have a structured deposit one still in play, It's important to understand the difference between the two, being that the former is capital-at-risk, unprotected and the returns subject to CGT whereas the latter is capital-guaranteed, FSCS protected and the returns subject to income tax. However in most other respects they are much the same so, before all the knee jerk reactions start ( ) I'll just point you to a previous post on deposits as a starter, here: viewtopic.php?p=196736#p196736. Remember the differences as you read it (the one you link to is a structured investment)

By and large most of these are fairly straightforward to understand once you get the hang of them. The documents contain pretty much all you need to know, and while it may look unfamiliar and head scratching to start I'm sure you'll understand it on the 2nd read, if not the 1st. The only additional thing to think about is counterparty risk, and in this particular case that's Morgan Stanley, so you have to figure the risk of them doing a Lehmans!

[AJC5001]

Hi,

Has anyone have any views or experience with these types of investments?

https://www.moneyworld.com/structured-i ... -out-plan/

I'd never heard of them but a recently retired friend has been persuaded to invest in one by their FA. I can't quite work out if they are an easy way of earning 10% yield , or an easy way of tying up capital for 7 years with a potential loss of capital and zero income.

Had a search on the forums but no one seems to have mentioned them

Mick

Out of curiosity I looked at the link provided.

At the top right of the page, it shows "As Recommended by ...." where the recommending name are:-

The Guardian
This is Money
Express
Candid Money (never heard of them!)
and MoneySavingExpert.com

Now I know that Martin Lewis is insistent that he never recommends any financial products so I doubt that MSE would either.

That alone would put me off this as an investment.

It also says the Closing Date is 21st December 2022, so it probably doesn't matter anyway.

And all the Blog entries are dated 2017.

Adrian

[mc2fool]

Out of curiosity I looked at the link provided.

At the top right of the page, it shows "As Recommended by ...." where the recommending name are:-

The Guardian
This is Money
Express
Candid Money (never heard of them!)
and MoneySavingExpert.com

Now I know that Martin Lewis is insistent that he never recommends any financial products so I doubt that MSE would either.

That alone would put me off this as an investment.

The MSE recommendation is for Moneyworld as a discount IFA, "If you know what you're doing"( ), not the Meteor product, and is at https://www.moneysavingexpert.com/insurance/cheap-life-insurance/.

I've used Moneyworld before for exactly these kind of products and they're fine (although it's a shame Cavendish Online stopped servicing that business, as at a flat £35 vs 0.5% fee they were cheaper for the amounts I invested into structured products).

It also says the Closing Date is 21st December 2022, so it probably doesn't matter anyway.

Indeed, for that one, but there are always new Structured Investments and Structured Deposits coming along that they offer.

[Howard]

By and large most of these are fairly straightforward to understand once you get the hang of them. The documents contain pretty much all you need to know, and while it may look unfamiliar and head scratching to start I'm sure you'll understand it on the 2nd read, if not the 1st. The only additional thing to think about is counterparty risk, and in this particular case that's Morgan Stanley, so you have to figure the risk of them doing a Lehmans!

Ouch!

Your post reminded me that Mrs H and I both invested £7k ISAs in an NDF structured product paying 8.25% annual income over a 5 year term. This seemed a sensible return at the time of high interest rates. The fact sheet reported that the "issuer's capacity to meet its financial commitments is considered strong." "Supported by an independent assessment from Standard and Poor's which gives the issuer a rating of A+ as at 3 June 2008".

The issuer was a large and hugely successful bank called Lehmans.

As it turned out over five years, the plan would have benefited from the market recovery and would have met it's objectives. Unfortunately all the funds were held by the bank.

I did wonder if the FSCS would pay compensation as NDF was authorised by the FSA. When I obtained a form, it made it clear that compensation was limited to needy unsophisticated investors and we couldn't really claim to be in that category.

Grant Thornton handled the administration of the fund and to their credit recovered quite a bit. The most recent payments actually came a few weeks ago for the princely sum of just under £2.50 each. I don't think there will be any more. In total from the original £7k amounts we received about £4,300 each in nine payments between 2013 and now.

So mc2fool, thanks, you are right to point out the risks which can come from unexpected quarters. Good advice!

regards

Howard

[mc2fool]

Ouch!

Your post reminded me that Mrs H and I ...

Oh! Sorry! Sounds like your timing was really unfortunate too. I take it it wasn't an advised investment, as you then might have had a claim.

Still, you got more back than I did from Carillion! OTOH, my gains from listed RBS autocalls (kick outs) did more than make up for my losses in RBS shares....

[Howard]

This is slightly off topic but timely. By chance, today the Guardian published an article on the complexity of the administration winding up the London branch of Lehmans. This is being handled by PWC who our structured fund administrators (Grant Thornton) dealt with.

The article is interesting reading and it does indicate that investing in a structured fund might get one into a complex financial web.

£1.1bn in fees, 3.1m hours, 14 years: the UK cost of winding up Lehman Brothers

"PwC, administrator of Lehman’s London arm since bank’s failure in 2008, secures three more years to finish process."

https://www.theguardian.com/business/20 ... n-brothers

regards

Howard

[mc2fool]

The article is interesting reading and it does indicate that investing in a structured fund might get one into a complex financial web.

Well, indeed more so than investing in the shares of a company, which are at the very bottom for recoveries, after all creditors (Including after such products). There wasn't any complex financial web for shareholders about Carillion, they got totally wiped out instantly.

The article ends with PWC saying "Over 14 years, we have successfully returned over £43bn in total to counterparties, repaying creditors in full, plus interest", so you might ask Grant Thornton why you haven't been repaid in full.

Investing in anything unsecured has its risks, but let's not overstate the relative risks of structured products ... how much have Lehman's shareholders got back? Certainly less than you; at least your product made you a creditor.