# Bespoke Investments - Split Deposit BRIC Currency Bond



## EuroGirl (27 Feb 2011)

I am a novice investor looking to protect what little savings I have, and have been reading the Bespoke Investments brochures on the "Bespoke Split Deposit BRIC Currency Bond" (NB: it is advertised in to-days SBP, but as a new poster I am not allowed to mention the URL). I am very interested in the 'Accelerated' Option - but it looks too good to be true. How can the bond yield allow an investor to be paid an attractive 250% of any potential the fall of the Reference Basket? 

Apologies if I am missing anything obvious, but I am in new territory and I cannot invest in a product I don't understand - but do not want to miss a good opportunity to hedge against what might happen to the Euro in the coming months. I could find only one short and limited AAM thread on Bespoke Investments (again, I am not allowed to post the URL) so I would be grateful if anybody could help shed some light on this?


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## Brendan Burgess (27 Feb 2011)

Hi 

You may be a novice investor, but you have detected a lot of the reasons for avoiding this bond: 




> it looks too good to be true.





> How can the bond yield allow an investor to be paid an attractive 250% of any potential the fall of the Reference Basket?





> I cannot invest in a product I don't understand


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## EuroGirl (27 Feb 2011)

Brendan,

I am very grateful for your reply. The considerations you have highlighted seem like good common sense yardsticks for a new investor to apply before making any investment decision. Will pass on this particular opportunity and continue to research options. Thanks again for your reply.


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## John555 (3 Mar 2011)

*Bespoke Investments Limited MD*

Dear Eurogirl, 

My name is John McDonnell I am Managing Director of Bespoke Investments Limited.  Thank you for your interest on our product.  At Bespoke Investments Limited we deal with over 100 approved regulated intermediaries across the country.  

I'm  genuinely surprised Mr Burgess does not seem to know how Deposit wrapped structured products works, I would be delighted to explain it to him if he would bother to research a product before giving his sage opinion on it.  Eurogirl, thank you for your interest in our product and good luck in your search for a suitable product for you.  You are certainly correct in your assertion that you should not invest in a product you do not understand.  However it is the job of suitably qualified regulated financial advisors to help you understand these products in order that you can make an informed decision.  With whatever you decide I would recommend you seek the advice of a qualified, regulated financial advisor who can give you genuine, fully researched, impartial financial advice, allowing you to make an informed decision on a product.  I don't feel you have received this in this instance and have essentially been swayed by an unresearched, uninformed opinion, in my view. 

Kindest regards, 

John McDonnell BBS QFA LIAP
Managing Director
Bespoke Investments Limited

Bespoke Investments Limited is Regulated by the Central Bank of Ireland


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## Brendan Burgess (3 Mar 2011)

John

Deal with the question without making broad generalisations. 



> How can the bond yield allow an investor to be paid an attractive 250% of any potential the fall of the Reference Basket?


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## John555 (3 Mar 2011)

OK Brendan; 

for the 100% protected product 88.12% is left on deposit with Ulster Bank which will accrue fixed term interest to bring the amount left on deposit back to 100% over 3 years 9 months.  With the balance an option is bought for the full uplift of any fall in the Euro versus an equally weighted basket of BRIC currencies over the term of the bond.  Therefore if there is 1% uplift, on a notional investment amount of, say €100,000, the client would get €101,000 back (less DIRT or other taxes which may be applicable). If there was a 30% uplift investor would get €130,000 back in this hypothetical example(less DIRT or other taxes which may be applicable).  If the Euro has not fallen versus the 4 BRIC currencies and the return of the investment strategy is flat or negative, then the option expires worthless and 100% of initial investment amount is returned with no growth.

for the 90% version, just under 80% needs to be kept on deposit in order to get fixed deposit interest to bring the deposit amount back up to 90% by the end of the term, with fixed deposit interest being paid by Ulster Bank.  This effectively gives an extra 10% to play with.  This enables us to purchase 2.5 times the amount of option purchased in the protected option and hence investors enjoy an accelerated return of 2.5 times any uplift, as 2.5 times the amount of option has been bought.  The downside here is that 10% of capital is at risk and any return is on top of the 90% capital protected amount.  Therefore 10% needs to be made back before an investor is in profit over and above their initial investment amount.  Therefore the first 4% of growth in the underlying investment strategy brings an investor back to par (i.e. 4%*2.5 times = 10%, added to 90% gives 100%).  Anything over 4% return means that investors will enjoy 2.5% for every 1% return in the underlying investment strategy.  From the example above, in the event of a 1% uplift in the underlying investment strategy the return would be 2.5% above 90%, i.e. 92.5% (€92,500 in the hypothetical example above), meaning the client would LOSE 7.5%.  In the event of a 30% uplift in the investment strategy the overall return would be 30% *2.5 = 75% on top of the 90% capital protected amount which would be an overall return of 65% (€165,000 in the hypothetical €100,000 investment above) on an investment (less DIRT or other taxes which may be applicable).  In the event of flat or negative growth investors would LOSE 10% of their investment.

Kind regards, 

John McDonnell


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## Brendan Burgess (6 Mar 2011)

Here is another reason for avoiding this company and its products. 

It has an ad in today's Sunday Business Post on the Front page where the most prominent, largest type part of the ad says 6%

The sub title to this is "deposit interest over 12 months*"

This confusing advertising is disgraceful. And it's a further disgrace that it is not stopped immediately by the Central Bank. 

You can't get a product paying 6% on its own. You can only get it as part of another product - this BRIC currency bond.

Try explaining this to your elderly aunt that this product does not pay 6%. She will contradict you and tell you "this is what the ad says"

The reality is that the 6% is paid on 25% of your investment for 26% of the period. In other words, they are paying you 6% on around 7% of your investment. The shocking thing is that many of the intermediaries selling the product probably don't fully appreciate this either. 

I could come up with a deposit account paying 2% over 4 years and using the Bespoke Advertising standard sell it as follows: 




> *10%
> *deposit interest over 12 months*



I would stick it in smaller print that it only applies to 25% of the investment and I woul put the balance on deposit at 1% to get an effective return on my investment of 1.4%.


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## mercman (6 Mar 2011)

Brendan Burgess said:


> This confusing advertising is disgraceful. And it's a further disgrace that it is not stopped immediately by the Central Bank.



Brendan, exactly the point I have continually made in the past. The sellers of the Financial Products in this country carry on unabated to continual misgivings of their trade.

As a respected professional, I both request you and challenge you to place these offensive matters to the hierarchy of the Finance Industry, the Regulator who has made so many promises to rectify the Finance Industry and to all parties concerned, including the Minister of Finance and the Ombudsman, to rectify Financial miselling and in essence fraudulent behaviour.


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## Brendan Burgess (6 Mar 2011)

Mercman

I have made informal and formal complaints about the BCP Quadruple Growth Bond and it's still being advertised that they give four times the stockmarket growth. 

The Central Bank announced during the week that they had reviewed the tracker industry and they are all adhering to the codes.  In this respect, very little has changed. 

Brendan


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## Brendan Burgess (8 Mar 2011)

OK, so here is the brochure for the  [broken link removed]


*Verdict *(For those who don't want to read a long  post and a longer brochure)  *
*


*I  don’t think that this bond is good value. *
*Avoid a company which markets its products in this way. *
*If you have the time, complain the brochure and advertising to the Central Bank *
 

  What is the most prominent feature of the brochure?   6% interest. The fact that this is payable on only 7% of your effective investment is not obvious to  most people.  This type of advertising should not be tolerated by the Central Bank. Others do the same, but this is no justification. 

  I personally think that the following quotations  in the detail of the brochure are far more relevant and should be highlighted on the front page and in the ads



> *Warning: If you invest in this product you could lose 7.5%* *of the money you put in.*





> Ulster Bank Ireland Limited accepts no responsibility for the accuracy or otherwise of the information set out in this brochure
> nor has it verified the accuracy of such information other than the information directly relating to the Bank.





> *Warning: Deductions for charges and expenses are* *not made uniformly throughout the life of the product,* *but are loaded disproportionately onto the early period.*
> *If an investor withdraws from the bond prior to the end* *of the 3 years, 9 months term, the practice of front-end* *loading will impact on the amount of money that the* *investor receives.*


 *But put my strong criticisms of their brochure and advertising to one side for the moment, what is this product about? *

  You are putting 80% of your money on deposit with Ulster Bank for 3 years and 9 months and this will be used to get 90% of your initial investment back. 

  So what happens the other 20%?  It’s used to pay for the cost of this punt on currencies and to pay for the costs and commissions. 

  I am worried about the future of the Euro. But is this the right product for me? I would prefer to spread my risk against Sterling and the US$ rather than against Brazilian, Russian, Indian and Chinese currencies. 

  I am not a currency expert, but what is the market telling us about these currencies?

Brazilian 4 year bonds yield over 10% p.a. more than German bonds. This reflects the higher confidence in the German bonds but it also reflects the market's expectation that that the German currency the euro is more likely to rise against the Brazilian currency than it is to fall. 

So someone is granting Bespoke Investments an option to guard against something which the market is not expecting. I can’t find how much of the investment is going on this option, but I imagine it is a tiny percentage of the 20% not going on deposit. 

  Now back to the brochure. I don’t get this bit at all



> *Warning: Deductions for charges and expenses are* *not made uniformly throughout the life of the product,* *but are loaded disproportionately onto the early period.*
> *If an investor withdraws from the bond prior to the end* *of the 3 years, 9 months term, the practice of front-end* *loading will impact on the amount of money that the* *investor receives.*


 However, it also says: 


> €0 or 0.00% will be taken in charges.


 I did a review yesterday of the Irish Life Clear Tracker. I don’t like Tracker Bonds but have a look at the way they explain the product and the clarity on the charges on Page 20


> 81.52% of your investment will go on deposit
> 9.56% of your investment will be used to buy the option
> 
> 8.92% of the investment will be taken in charges.


By comparison, just under 80% of the Bespoke Investments Product goes on deposit. But we have no idea how much is going on charges. 



Verdict: 

I  don’t think that this bond is good value. 
Avoid a company which markets its products in this way. 
If you have the time, complain the brochure to the Central Bank


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## Brendan Burgess (22 Mar 2011)

I made a formal complaint about the way that this bond is marketed and since then, they have changed the brochure. They have not changed the product. 

The 6% is no longer highlighted on the cover. 

They have changed the section on Where Does your Money Go? 

The original brochure read

"0% will be used to secure the cash bonus which may be payable after 3 years 9 months

0% will be taken in charges". 

It now reads

"3.34% will be used to secure the cash bonus which may be payable after 3 years 9 months

5.57% will be taken in charges"

The 3.34% is the really key figure when looking at a tracker bond. No one can tell you what the chances are of the euro falling against the Russian, Chinese, Brazilian and Indian currencies. But the markets are charging Bespoke only 4.45%( 3.34% on 75%)  for this option. So they think that it's very unlikely that there will be any fall over three years and 9 months. 

So if you buy this product you are giving up the interest on your money for 3 years and 9 months in exchange for something which costs 3.34%. This shows that it is terrible value. 

Brendan


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## mercman (22 Mar 2011)

Brendan Burgess said:


> 5.57% will be taken in charges"
> 
> So if you buy this product you are giving up the interest on your money for 3 years and 9 months in exchange for something which costs 3.34%. This shows that it is terrible value.
> 
> Brendan



I stand to be corrected but 8.91% is taken to cover charges and some form of security. Doesn't sound like to good a value proposition to me.


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## Brendan Burgess (22 Mar 2011)

Hi mercman 

The Bespoke Split Currency Bric Currency Bond is very complicated and very difficult to understand. 

It invests 25% on a short term deposit.
It is further complicated by two separate versions. 
One of these versions has capital protection for only 90% of the amount. 

As a result, it's very difficult to explain the charging structure.

They changed the charges section of both products, but I just quoted one verbatim. 

It shows that 1) there are charges where previously they had been denying that there were and 2) It's lousy value when they disclose what they are obliged to disclose under the Consumer Protection Code
Brendan


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## Duke of Marmalade (22 Mar 2011)

Good work, _Boss,  _now we are getting nearer the requisite disclosure on this product but it still doesn't gel.

Fees & Charges are set out as follows:

Option 1:

Duggan Asset Management 0.5%
Bespoke:  1.82%
Investment Intermediaries:  3.25%
Total:  5.57%

This is the total now disclosed in "where does my investment go?"

But what about Ulster Bank's charges?  Typically the charges of the backing bank are quite significant.  To my mind this is not compliant disclosure.  

On Option 2 the situation is that the distributors' and asset managers' fees are 6.93% and this is the disclosed "total" charges, again ignoring completely Ulster Bank's charges.

Getting back to OP's comment that the 250% version looks too good to be true, even with this inadequate disclosure we can see how valid this statement is.  The 250% currency protection is worth €8,340 but to achieve that you surrender €7,500 of your capital and all of the interest on €75,000. Too good to be true?  Almost too bad to be true.


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## Bronte (23 Mar 2011)

What is CPC?

If the original ad was misleading does that mean that everybody who 'invested' in this product is allowed to take their money back without any fees or charges?  

Does the central bank, who are in charge of regulating this presumably, order the product suppliers to notify customers who have taken out the product on the basis of the first ads that a) the ad is misleading b) they may have been misled c) they can get their money back?


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## Brendan Burgess (23 Mar 2011)

Bronte said:


> What is CPC?



Sorry Bronte. I have edited my post. It's the Consumer Protection Code



> If the original ad was misleading does that mean that everybody who 'invested' in this product is allowed to take their money back without any fees or charges?
> 
> Does the central bank, who are in charge of regulating this presumably, order the product suppliers to notify customers who have taken out the product on the basis of the first ads that a) the ad is misleading b) they may have been misled c) they can get their money back?



They are very good questions. We won't know the answers unless the Central Bank sanctions Bespoke and publishes the sanction.

Offhand, I can't think of any sanctions being issued for misleading ads. The solution seems to be to correct them.


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