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Structured Products in Pension Plans and Estate Planning Graeme McCallion

Learn about the benefits of structured products in pension portfolios, portfolio allocations, return profiles, and how to rebalance portfolios effectively. Understand why investors choose structured products and the outcomes for both investors and advisors.

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Structured Products in Pension Plans and Estate Planning Graeme McCallion

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  1. For Professional Advisor use only Structured Products in Pension Plans and Estate Planning Graeme McCallion

  2. Structured Products in Pension Portfolios Agenda • Structured Product Benefits • Why do investors choose Structured Products • Portfolio Allocations • Return Profile • Rebalancing Portfolios • Outcomes for Investors and Advisors • Summary • IDAD Performance

  3. For Professional Advisor use only What do investors choose SP’s? Loss Aversion Markets are up 1% and you’ve made 10% REALLY HAPPY Markets are up 15% and you’ve made 10% HAPPY Markets are down 30% and you get all of your money back REALLY REALLY HAPPY 3

  4. For Professional Advisor use only Structured Products - Benefits • Clarity of return – if X happens you get Y • Fixed returns are offered at outset • Can be designed to produce a suitable level of income or growth at a reduced level of risk • Daily Liquidity – if you need to sell out early you can • Potential for a positive return in ALL market conditions • Simple for EVERY client to understand (2 paragraphs/10 minutes) 4

  5. For Professional Advisor use only SPs in Pension Portfolios - Benefits • Deliver regular income • Cover portfolio costs • Provide cash for “draw-down” • Headline rate – helps investors focus • Provide opportunities for regular reviews • Income payments made • Auto-calls • Deliver returns in different market conditions - Insulation • Growth/income in flat/falling markets 5

  6. For Professional Advisor use only SPs in Portfolios - Guidelines • Appropriate investment split for client objectives • Typically 50/50 with “traditional” assets • Diversify underlying investment links • The normal rules of investment still apply • Typically widely-based index links • Different links for different products • Counterparty diversification • Different banks • Appropriate risk with issuing banks • Typically 25% max per issuer 6

  7. For Professional Advisor use only Portfolio Allocations 7

  8. For Professional Advisor use only Portfolio Allocations Portfolio Splits 8

  9. For Professional Advisor use only Return Profile Portfolio 2 Portfolio 1 Average Return: 3 - 8% p.a. Average Return: 1.2 - 10.2% p.a. 9

  10. For Professional Advisor use only Re-balancing Portfolios • Returns from SPs don’t normally mirror DFM returns • Auto-call feature normally prevents value growing too much • Notes mature and proceeds can be re-invested proportionately • Additional investments into new offers can be made in small amounts • If very strong growth in traditional assets • Regular product offerings matching theme • 5-7% p.a. income • Modest risk to capital • Different underlyings • Counterparty diversification 10

  11. For Professional Advisor use only Client Outcomes • Tightens return range • Increased probability of meeting desired outcome • Allows for more aggressive investing in other assets • Crystalizes review opportunities • Regular income payments (contact opportunity) • Maximum term known at outset • Potential auto-calls (early maturity) • Different price path • Benefit of capital protection in poorly performing markets 11

  12. For Professional Advisor use only Summary • Delivers more stability on returns • Complements return profile of “traditional” investments • Reduces risk to capital • Delivers steady income • Income covers portfolio charges and other costs • A practical but important consideration • Reduces costs associated with regular sales from funds • Reduces need to hold higher cash balances (non-performing) • 50% exposure to SPs suitable for most clients • No more than 25% counterparty exposure • Diversified Underlyings 12

  13. For Professional Advisor use only IDAD Performance – Q4 2018 Average Annual Performance on all matured Products: 7.20% p.a. Annualised Performance since 2008 Total number of Products issued: 936 Total number of Products matured: 515 % of Products to make a loss:4.70% % of Products to only return 100%: 5.83% Annualised Performance by Product Type Autocall: 7.67% Conditional Income: 6.70% Fixed Income: 6.68% Capital Protected: 3.17% Source: IDAD 02/01/2019. Bloomberg 02/01/2008 - 31/12/2018 13

  14. Tel: +44 (0) 1730 263943 Email: enquiries@idad.biz www.idad.com IDAD Limited is authorised and regulated by the Financial Conduct Authority FCA FRN 740499. IDAD Limited is a limited liability company registered in England and Wales number 4521366. IDAD Ltd does not offer investment advice nor make any recommendation regarding any investments. Past performance is not necessarily a guide for the future. Head office: 2 Rotherbrook Court, Bedford Road, Petersfield, Hampshire. GU32 3QG Registered Office: 2 Central Parade, 101 Victoria Road, Horley, Surrey. RH6 7PH

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