benefits Arc structured products

All financial advisers remember Arc and many lost out thanks to the firm’s compliance around the marketing of Lehman-backed products – but how many will benefit from one of its products four-times FTSE growth returns later this month?

benefits Arc structured products


This meant that those with live growth products did not suffer, whereas those that had an income payment during that period lost 3% of it and those that had a maturity land in the client account arguably suffered disproportionately.

Four-times FTSE 100

Investors that held the Arc Enhanced Growth Plan, of which I was one, suffered little inconvenience or disturbance and should have little cause to be disappointed by this particular investment as, when it matures this month, it is due to deliver four times the rise in the FTSE 100 index, subject to a maximum of 85% of the investor’s original capital investment.

The investment started at a time when all hell was breaking loose in the markets in 2008.  The initial index level when the plan was issued had fallen to 4,364.96 and while in the words of Warren Buffet you should buy when everyone else is selling, it is easier said than done.

The plan was issued at the height of the banking crisis when there was talk of the end of capitalism and no one knew what was coming next.  The Arc plan presented the opportunity to gain exposure to a recovery in the market while protecting capital from all but the failure of Barclays Bank or a further fall in the FTSE to lower than 2,183 points.  While these eventualities were far from impossible the protection helped reconcile heart and mind, making the investment decision that little bit easier.

As it was, the final index level on 7 November 2013 was 6,697.20, giving a 53.43% rise in the index and so the full 85% payout to investors.

The Ronseal of approval

The names Arc, NDF and Keydata are cited as reasons not to buy structured products yet as shown by this product and other products like it – the Keydata Dynamic Growth Plan 18 matured in August 2013 returning 72% compared to a 6.3% rise in the FTSE 100 over six years and the NDFA Capital Secure Fixed Growth Plan July 08 that struck in September 2008 returned 50% on capital after five years against an index that had risen 28% – the investments themselves have often done well for investors. They show quite categorically that structured products ‘do what they say on the tin’.

In the four years since the collapse of these companies the market has moved on considerably. Indeed, the market is growing in strength. Whereas in the past there were a number of smaller independent providers without the deep pockets of larger players, the current market is dominated by experienced providers including some of the best known banking names in the business.

Particularly encouraging is the recent entrance of Société Générale and the return of BNP Paribas to the UK retail structured products market, a reflection of the potential for the market to grow and for structured products to become a significant part of more investors’ portfolios.
Similarly, the range of counterparties is also growing. Royal Bank of Canada, rated AA- by S&P and AA by Fitch, is one bank being used more frequently, as is Credit Suisse, which is also looking to launch its own products into the IFA market.  

Genuine independence

This increase in the number of counterparties also allows for greater diversification of structured products within a portfolio, to protect against the impact of the failure of another bank no matter how unlikely that may seem.

Alternatively, for anyone concerned about a product with a single counterparty, a number of products exist in the market that offer four or five different institutions as counterparties and Morgan Stanley has brought to market another issue of its Gilt-Backed Growth Plan, which collateralises the daily surrender value of the plan with UK government bonds.

The regulator has cited structured products as an investment that advisers must have sufficient knowledge to advise on if they wish to trade as independent and whole of market.  There is no grey area in this regard – if you are independent you are expected to know the ins and outs of structured products.

But with the strengthening of the market, for any financial adviser, it makes sense to properly research the sector today – not to do so could be doing your clients a disservice.



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