Investments are categorised as follows:
- Growth - those investments designed to potentially provide growth at the end of their fixed term
- Income - those investments designed to provide a fixed level of income throughout the stated term
- Income (Contingent) - Investments that are designed to provide a contingent income and or may terminate early
- Growth & Income – those investments designed to potentially provide a combination of both growth and income
- Auto-Call / Kick-Out – those investments which have the potential to mature on pre-determined regular anniversary dates with a cumulative ‘coupon’.
- Growth with Auto-call – Growth investments which also have the potential to mature early on a pre-determined anniversary date.
- Other – investments that do not fall into the above categories perhaps because they have combined features of more than one type.
The overview is a simple summary of the plan and does not normally include details of risk to capital. Please ensure you read the full description and product literature to satisfy yourself as to the full terms and risks of any investment.
Products are categorised as follows:
- Capital at Risk: Those products that are designed to put some or all of the investor’s capital at risk if the underlying index falls below a certain level or in the case of counterparty default
- Capital 'Protected': Those products that are designed to ensure that an investor will only lose capital in the case of counterparty default
- Deposit Based: A fixed term deposit account in which some or all of the investor’s capital may be covered by the FSCS.
Note that any capital protection is only applicable to the issue price, and so a mid-term investment when the plan value is above the issue price may result in a loss of capital if the investment only returns the issue price.
Returns, including the return of capital, under any structured investment are dependent on the continued solvency of the relevant counterparties.
Protected Income
This sector includes products that offer a potential income stream during the term of the product, plus full repayment of capital upon maturity.
- 1140 - Protected Conditional Income
- 1180 - Protected Range Accrual Income
- 1198 - Protected Income - Other
Non-Protected Income
This sector includes products that offer a potential income stream during the term of the product. Capital is at risk at maturity if the Underlying closes below a certain level. Because of the additional risk to capital, the potential income on offer from Non-Protected Income products should be greater than that from Protected Income products.
- 1230 - Fixed Income
- 1280 - Range Accrual Income
- 1290 - Conditional Income
- 1299 - Income - Other
Protected Growth
This sector includes products that offer a potential growth return to be paid when the product matures along with the repayment of capital in full.
- 1100 - Protected Uncapped Growth
- 1120 - Protected Capped Growth
- 1150 - Protected Digital
- 1160 - Protected Kick Out
- 1170 - Protected Range Accrual Growth
- 1199 - Protected Growth - Other
Non-Protected Growth
This sector includes products that offer a potential return at maturity, depending on the performance of the Underlying. Capital is at risk at maturity if the Underlying closed below a certain level. Because of the additional risk to capital, the potential return on offer from Non-Protected Growth products should be greater than that from Protected Growth products.
- 1320 - Uncapped Growth
- 1370 - Capped Growth
- 1260 - Kick Out
- 1270 - Digital
- 1285 - Range Accrual Growth
- 1399 - Growth - Other
* Source: UK Structured Product Association
The underlying measurement to which returns are linked.
The investment term stated in the product literature. There may however be some additional weeks between the date on which the offer ends and the start date and also between the final investment date and the maturity proceeds distribution date.
Lowes 'Preferred' plans are those that we view to be the best available on the market at the time of launch.
There are ten types of barrier observations commonly used in retail structured products.
The barrier level is the percentage by which the underlying index needs to fall (either during or over the term, depending on the barrier type) to cause a capital loss at maturity. It is expressed as a percentage of the Initial Index Level, i.e. 60% of the Initial Index Level. If the barrier is breached, the invested capital will usually be reduced in line with the fall in the Index on a 1% for 1% basis. For example, if an investment has a 60% end of term barrier, and its Final Index Level is 55% of its Initial Index Level, the loss to the invested capital would be 45%.
- Not Applicable (Structured Deposit): A fixed term deposit account.
- Not Applicable: Capital is 'protected' at maturity.
- End of Term Only: Capital loss will occur if the reference asset (e.g. Index) is below the barrier level at the Final Index Date only.
- Full Term Daily Close: Capital loss will occur if the reference asset (e.g. Index) closes below barrier on any day during the term, and fails to recover by maturity.
- Full Term Intra-Day: Capital loss will occur if the reference asset (e.g. Index) falls below barrier at any point during the term, and fails to recover by maturity.
- Part Term Daily Close: Capital loss will occur if the reference asset (e.g. Index) closes below barrier during a defined period during the term.
- Part Term Intra-Day: Capital loss will occur if the reference asset (e.g. Index) falls below barrier at any point during a defined period during the term.
- Combination (see description): A combination, or variation of any the above.
- No Barrier Protection: Capital loss will arise if the reference asset (e.g. Index) falls below the Initial Index Level.
- No Barrier Protection, Reduced Downside: Capital loss will occur, but will be reduced by less than 1% for every 1% fall in the reference asset (e.g. Index) below the Initial Index Level.
The summary risk indicator is a guide to the level of risk of this product compared to other products. It shows how likely it is that the product will lose money because of movements in the markets or because the Issuer is not able to pay you.
Please note that the Price figure(s) shown are for indicative purposes only and the value of a product should always be confirmed with the Provider. Where there is more than one investment option displayed in an individual product information screen on StructuredProductReview.com (for example monthly / annual income or note / warrant investment options) more than one price may be listed.
Counterparty
When investing in a plan of this type, the capital will, in effect, be loaned to a financial institution known as the 'counterparty'. The return of capital will be dependant upon the continued solvency of the counterparty throughout the term of the investment, therefore the capital will be at risk from the date of investment. Before proceeding, investors must be aware that should the plan's underlying counterparty file for bankruptcy during the term of the plan, or be unable to repay its liabilities, some or all of the capital invested may be lost. As with all investments, it is imperative that those who wish to invest in a plan of this type read the plan brochure and terms and conditions thoroughly and understand the risks involved before proceeding.
Deposit Taker
When investing in a structured deposit, the capital will be placed in a fixed term deposit account held with a financial institution known as the 'deposit taker'. The return of capital will therefore be dependant upon the continued solvency of the deposit taker throughout the term of the investment. Before proceeding, investors must be aware that should the deposit taker file for bankruptcy during the term of the plan, or be unable to repay its liabilities, some or all of the capital invested may be lost. Investors may, however, be eligible for cover provided by the Financial Services Compensation Scheme (FSCS) up to a certain amount of their investment. The availability of such compensation is defined under the terms of the FSCS, and certain investment limits will apply. As with all investments, it is imperative that investors read the plan brochure and terms and conditions thoroughly and understand the risks involved before proceeding.
The financial strength of the Counterparty, as rated by Standard & Poor's, a leading Credit Rating Agency for financial institutions worldwide. Standard & Poor's provides both short-term and long-term credit ratings, rating institutions on a sliding scale from 'AAA' to 'D', where 'AAA' denotes the highest level of financial strength and 'D' the lowest. Intermediate ratings are also offered at each level within the major categories between AA and CCC, sometimes with the inclusion of a '+' representing the higher end of the category, or '-' representing the lower end of the category.
AAA - The highest rating assigned by Standard & Poor's. The capacity of the financial institution to meet its financial commitments is considered to be "extremely strong" (the world's major companies and governments);
AA - The capacity of the financial institution to meet its financial commitments is considered to be "very strong";
A - The financial institution is more susceptible to the adverse effects of circumstantial and economic changes than those financial institutions appearing in higher-rated categories. However, the financial institution's capacity to meet its financial commitments is still considered to be "strong";
BBB - Adverse economic conditions or changing circumstances are more likely to lead to the financial institution having a weakened capacity to meet its financial commitments. However, the capacity to meet financial commitments is still considered to be "stable".
The financial strength of the Counterparty, as rated by Fitch Ratings, the smallest of the three major Credit Rating Agencies (Standard & Poor's and Moody's the other two). Fitch Ratings provides both short-term and long-term credit ratings; rating institutions on a sliding scale from 'AAA' to 'D', where 'AAA' denotes the highest level of financial strength and 'D' the lowest. Intermediate ratings are also offered at each level within the major categories between 'AA' and 'CCC', sometimes with the inclusion of a '+' representing the higher end of the category, or '-' representing the lower end of the category. Fitch Ratings's generic long-term credit ratings are explained below.
AAA - Highest credit quality. Such ratings denote the lowest expectation of default risk. They are assigned only in cases of exceptionally strong capacity for payment of financial commitments. This capacity is highly likely to be adversely affected by foreseeable events.
AA - Very high credit quality. Such ratings denote expectations of very low default risk. They indicate very strong capacity for payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events.
A - High credit quality. Such ratings denote expectations of low default risk. The capacity for payments of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to adverse business or economic conditions than is the case for higher ratings.
BBB - Good credit quality. Such ratings indicate that expectations of default risk are currently low. The capacity for payment of financial commitments is considered adequate but adverse business or economic conditions are more likely to impair this capacity.
The financial strength of the Counterparty, as rated by Moody's Investors Service, a leading global credit rating, and research and risk analysis firm. Moody's publishes both short-term and long-term credit ratings, rating institutions on a sliding scale from 'Aaa' to 'Caa', where 'Aaa' denotes the highest level of financial strength and 'Caa' the lowest. Moody's includes numerical modifiers '1', '2' and '3' to each generic rating classification from 'Aa' and 'Caa'. The modifier '1' indicates that the obligation ranks in the higher end of its generic rating category; the modifier '2' indicates a mid-range ranking; and the modifier '3' indicates a ranking in the lower end of that generic rating category. Moody’s generic long-term credit ratings are explained below.
Aaa - The highest rating assigned by Moody's. The financial institutions' obligations are judged to be of the highest quality, with minimal credit risk.
Aa - The financial institutions' obligations are judged to be of high quality and are subject to very low credit risk.
A - – The financial institutions' obligations are considered upper-medium grade and are subject to low credit risk.
Baa - The financial institutions' obligations are subject to moderate credit risk, considered medium-grade and as such may possess certain speculative characteristics.
A credit default swap (CDS) is a contract between two parties where the buyer is either protecting against a credit event or speculating on the creditworthiness of a particular institution. The buyer of the protection pays a premium to the protector who, in turn, agrees to make good the loss in, for example, the event that the reference institution is declared bankrupt. The CDS rate is the premium payable over the risk free interest rate for the protection.
The CDS rate may therefore serve as a further tool to indicate a counterparty’s strength as the higher the rate, the greater the indicative potential for default as viewed by the market at that time.
That said, it should be appreciated that the CDS rate is a snap-shot which can vary daily and whilst it may give an early warning of potential problems with an institution there are definite limitations. To illustrate this, at the time Lehman Brothers filed for bankruptcy their CDS was in the six to seven hundred range. During the financial crisis, Citi reached roughly the same level as Lehman’s, Morgan Stanley’s CDS rate was almost double that and the rate for AIG at one point exceeded 3700, yet these three institutions are still trading today.
The CDS may therefore give an indication of the market’s view of the strength of a counterparty but should not be relied upon in isolation.
The tax treatment of any income or growth arising from the investment if held directly, i.e. outside of a tax shelter such as an ISA as outlined in the product literature.
In addition to the Plan Manager and the Counterparty, a structured product also relies on two other parties:
Administrator: An administrator may be the same as the Plan Manager, or a separate third party. The administrator will process your initial application, issue confirmation and valuation statements, process income payments, issue maturity options forms and process maturity payments.
Custodian: When you invest in a structured product, the administrator will purchase securities, which are held by a custodian for safekeeping during the investment term in designated client accounts. The custodian is usually a very large and reputable firm due to the value of assets they hold.
Should either of these parties run into difficulty during the term, your plan may be affected, and you may be subject to additional fees, however you should not suffer a catastrophic loss.
In addition to investment risk, the return of capital will be dependant upon the continued solvency of the underlying counterparty or deposit taker throughout the term of the investment. Before proceeding, investors must be aware that should the plan’s underlying counterparty or deposit taker file for bankruptcy during the term of the plan, or be unable to repay its liabilities, some or all of the capital invested may be lost. As with all investments, it is imperative that investors read the plan brochure and terms and conditions thoroughly and understand the risks involved, before proceeding.
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