# BCPs Split Deposit Bond



## gebbel (2 Feb 2011)

An ad in a Sunday newspaper last week relating to the above has me seriously tempted to put €30k into this fund. I quote the details of the investment from their website: 




> 25% of the investment amount is placed in a 12 month high yield deposit
> account. This account matures on 11th April 2012 and will return investor’s capital along with interest of 6% gross (6% AER).​
> 
> 75% is invested in a 3 1/2 year Quadruple and/or Double Growth Bond and is allocated to the basket which is equally weighted between each of the 25 shares.
> ...




I like the sound of this product because I would obviously like to protect the principle, but at the same time give myself a decent chance of generating a higher return than the best available deposit rates.​ 
I note, however, from Brendan as far back as 2003 outlining his concerns about misleading claims in relation to potential returns.​ 
Brendan: did you ever hear back from IFSRA and would you still advise people to stay well away from this product?​ 
Anyone else with an opinion?​


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## Radiowriter (3 Feb 2011)

Hi gebbel,

Brendan is correct in his concerns about this bond.  I invested four years ago and have 6 months left to maturity.  In this time it hasn't made a cent and in my opinion a complete waste.  Conversely I also have 10-15% of my investments in Gold which returned 30% over the past year.  Ah..hindsight!  

My advice is to stay away from these products but others may be of a different opinion.

RW.


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## marie88 (11 Feb 2011)

The BCP Bond carries either 90% Capital Security or 100% Capital Security and generally when you have capital security with investments there are caps on the growth. 
BCP has the potential to perform better than deposits, and many times it has, however it is all about timing and how the 25 shares that it follows performs. 
But if you are looking for high returns that you can get from investing in funds such as Gold it is not the investment for you. But it is important to remember that investing Gold funds are high risk and although the growth potential is very high, your capital is not secure. 

However in saying that there are much better capital security investments available out there at the moment.


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## Brendan Burgess (11 Feb 2011)

Yes, I still recommend to people to stay well away from this product.

The advertising confuses people.  What is the point of offering a product which is two separate products forced together? 

It is because it allows them to advertise a deposit which gives a return of 6%. This catches so many people's attention but they don't understand that they are getting 6% on only 9% of their investment. 

I have not looked at the most recent version of the documents, but the previous ones were very misleading. It was not technically possible to earn 4 times the growth.

I got no response from the Financial Regulator.  I wondered why at the time. But it seems now that they had bigger things to do nothing about. 

Brendan


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## frankmac (12 Apr 2011)

I have recently received literature from BCP on a new 50/50 bond. 50% invested in a 12 month high yield deposit account at a fixed deposit rate of 6%. The other 50% is invested in a 4 year global equity bond. You can opt for 90% capital security with returns capped at 70% or 100% security with returns capped at 40%. Capital security provided by Bank of Ireland is a bit worrying though. I also note in the warnings at the foot of the brochure that it says the value of the investment may go up or down and you may not get back what you put in. Presumably this refers to the 90% capital security option, or am I missing something.


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## sam h (12 Apr 2011)

I haven;t seen the literature for the current product but from the last ones, bear in mind:
 - the % return on the cash element is only for 12 months.....you then need to decide what to do with this separately. Mmakes financial planning messy as you are spliting up your money.  BCP suggested to me I could opt for another bond with that portion of my money.....hence spliting it futher.  Decided it was too messy
 - The max % returns on the shares is only possible if ALL of the shares achieve the max return, which is almost impossible.  Check out the small print - it's all there, it just doesn't jump out at you


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## frankmac (12 Apr 2011)

Thanks for that Sam. Yes I was aware that the deposit bit is for 12 months and is returned at the end of that period.


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## eirefinq (22 Apr 2011)

Brendan Burgess said:


> It is because it allows them to advertise a deposit which gives a return of 6%. This catches so many people's attention but they don't understand that they are getting 6% on only 9% of their investment.


Hi Brendan,

i had a look at the brochure and cant figure out how your point above about it offering you 6% on only 9% of the investment. This is how I read it:

Total amount available to invest in product: 100k
25% of that goes on deposit @ 6% gross which means you get 6% on 25k paid back after 12 months.
% goes towards fees etc
Balance invested in the share options?

Can you explain where you get your 9% number from please? Maybe i am missing something obvious!

Thanks!


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## Brendan Burgess (27 Apr 2011)

75%  x 42 months = 3150
25% x 12 months =   300
Total = 3450

300 is 8.7% of 3450 

Brendan


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## bryanod (27 Apr 2011)

I am actually more confused now.

Surely you get 6% of 25k (from the hypothetical 100k above) , i.e. 1.5k in 12 months.
The 75% goes into the deposit and you get that back in 3.5 years.

If you only get 6% on 8.7% of your investment it would only be 522euro.


It looks like you have calculated some sort of average-duration kind of thing here but I have no idea what it means to be honest!


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## eirefinq (27 Apr 2011)

That makes 2 of us unfortunately..


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## bryanod (28 Apr 2011)

Well I also see Dolmen doing a similar structure based on the EUCFIDR (EURO-Rupee) which pays 10% for the year due to Indian Rates being approx 6% higher than ours at the moment.


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## Brendan Burgess (28 Apr 2011)

This is very difficult to understand and to explain, which is why these combination products are misleading and should be banned. 

*Step 1
*Assume a product which has two equal parts of the same length e.g. 1 year, 3 years etc. 

Part A (50%) pays 2%
Part B (50%) pays 6%

It's easy to work out the average return on this. 
It is (2 + 6) = 8/2 = 4%

*Step 2
*Now let's say that Part A is 75% and Part B is 25%

The average return is a bit more complicated 

(75 x 2) +( 25 x 6)/100 = 300/100 = 3%

*Step 3 
*Now let's say that you must leave Part A on deposit for 42 months but you get Part B back after 12 months.

The average return is 

[(75 x 2 x 42) + (25 x 6 x 12)]/[(75 x 42) + (25 x 12)]
or [6300 + 1800]/[3150 + 300]
or 8100 /3450

= 2.35% 

*Or another way of looking at it is: 

*[8.7% x 6%] +[92.3% x 2%]
=.52% + 1.84%

= 2.36%

*This is almost impossible for most consumers and advisors to calculate
*There are three variables which have to be factored into the calculation 


 Different lengths of time
 Different percentages of the investment
 Different rates of return
 
And all of this is on top of a complicated underlying product whose return cannot  be known in advance.


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## bryanod (28 Apr 2011)

Is there an actual name for that calculation Brendan? Not sure what it means still to be honest, guessed thats how you calculated it but don't get the economic sense at all. 

Why does the numerator get multiplied by the months but not the denominator?

Part 1 and 2 are obviously very clear, but throwing in the monthly-weighted return loses me completly. Surely discounting the actual returns to today's value would be better way of accounting for time.

For example assume the longer part returns 0%, your figures suggest that would be a return of 0.52% on the product, but you would recieve more than 520euro for your 100000euro investment, you would actually recieve 1500euro (25000euro at 6%) i.e. 1.5% of our overall investment.


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## Brendan Burgess (28 Apr 2011)

Hi Bryan

Sorry, I can't explain it any better. 



> Surely discounting the actual returns to today's value would be better way of accounting for time.



You are correct. But it doesn't change the principle. 

Try thinking of it as a portfolio of investments which are not linked. That might help. 

Or try the following and do the arithmetic yourself to see how it works. 

Assume it pays 6% on Part B for 12 months and then 2% for the remaining 30 months.


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## bryanod (28 Apr 2011)

Assuming you mean a single investment (on the same nominal 100k) it would be (simple interest here) 100k @ 6% for 1 year = 6000 then 2% would be another 2000 in 30 months.

So you have gotten a total return of 8%.

If you want to discount it back at say a nominal 3%p.a. it would be approx 5822 and 1800 in todays money. 


If you mean split 25% at 6% would get the 1500 in 12 months and 75% at 2% would get another 1500 but iin 42 months. Discounting these back 1455 and 1350. 


Not a clue what yours would look like, if you can't explain it I really don't think you should be using it because for all I can see it is actually just wrong to say what you are saying as the results are confusing the matter further and your results have no economic reasoning, as my example above suggests.

Can you try explain the difference in my above example between your 0.52% and 1.5% I calculated? I would really love to get my head around this.

If anything, your method is linking the investments by the monthly-weighted numerator, when in reality they are just two products thrown together.


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## Brendan Burgess (28 Apr 2011)

Hi Bryan

I was being polite by  saying it is difficult to explain. 

In reality, what I am saying is that people can't understand it. 

The fact that you can't understand it doesn't mean that I should not criticize it. 

The principle is that bundling products together like this for no reason other than to confuse investors should not be allowed. 

Brendan


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## bryanod (28 Apr 2011)

While I agree with the last line, the rest of your post is incredibly condescending and very surprising.

I have an education and experience in financial services yet yur system I have never seen before and looks made up, if you cannot/will not explain what you are trying to do suggests you are further confusing an already bad idea.

If you would show me how 100k results in 52euro back for the investor I would be delighted to be understand it, you can try me I am fairly well educated in Finance, in fact just reading up on a spot of multiple-regression analysis as I type. 

Bryan


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## Brendan Burgess (28 Apr 2011)

Hi Bryan

Not meant to be condescending. It was a reaction to the the following comment: 



> Not a clue what yours would look like, if you can't explain it I really  don't think you should be using it because for all I can see it is  actually just wrong to say what you are saying as the results are  confusing the matter further and your results have no economic  reasoning, as my example above suggests.



I don't really follow your figures either, but I assume that is me not understanding them, rather than your failure to explain them.

Forget my analysis so. How would you analyse the BCP product from scratch?

However, this is the Key Point. and I am glad we agree on it.



> The principle is that bundling products together like this for no reason other than to confuse investors should not be allowed.


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## bryanod (28 Apr 2011)

I think the opening-post link to your very old and detailed posing from 2003 sums up the investment part of the product very well, and we are both in agreement that the bundling together is a cheap-ploy to try and entice customers. 

My only problem was your calculation of the percentage, in the bigger-scheme of things that is not overly important, being a difference of 1%, although the way the product is structured it may be the only 1% you get!!!

Sorry to anyone else reading this two, we've probably confused you more!


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## EAP (29 Apr 2011)

*Tax issue*

There is another potential issue with split deposit structures where there is a capital at risk version (not just BCP of course) in that, you could end up needlessly paying tax on the deposit element. Consider the situation where the deposit gets paid out after 12 months returning for e.g. 5% net of the applicable tax. Then in 3 years, the remainder of the bond matures, but the underlying returns zero, and you get back only 90% of the 75% of your capital invested in this part, i.e. you lose 7.5% of your original capital. 

In total you then receive back less than 100% of your original capital, having paid tax on 'growth' with a portion of it. Maybe investors' are happy to consider the 2 investments as separate. But seems like a potential issue to me.


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## Brendan Burgess (1 May 2011)

Hi EAP

That is very interesting. I hadn't thought of it like that.

But is that any different, in reality, from having two separate products, maybe even from separate suppliers? 

Let's say I take out a BCP Quadruple Bond on its own i.e. not the combination version.  Let's say I also have money on deposit in Rabobank. I pay tax on the Rabobank interest and if the BCP Bond loses money, I can't set the losses on one against the other. 

Likewise, I have losses on an ETF which I can't use against gains on direct investment in shares. 

Artificially combining them, as these products do, makes it look like you are paying tax on losses.


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## Rory Gillen (5 May 2011)

Most structured products, and particularly guaranteed products, are a waste of money most of the time. I trust it is OK with Brendan if I post a link to an article I wrote on the subject recently and is posted on my own website.

http://www.investrcentre.com/index....ontent/id/36DBEA62-A9EF-BB3E-16BB46DE9F03D395

Rory Gillen


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## David Quinn (5 May 2011)

Interesting article Rory. I agree with most of it, and prefer to avoid Structured products for clients where appropriate. However, you do make a very common and sweeping generalisation that all advisors who recommend structured products take the full commission. As fee based advisors we tend to refund or offset the commission, which tends to make for a more attractive product for the client. 

As part of a wider portfolio, structured products have their place for the risk averse client. The trick is finding the good structures, and ensuring you and the client fully understand the detail. I always prefer to recommend investing without the cost and limits of the guarantee and structure, but sometimes clients will insist on guarantees, which is completely understandable.


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## frebel (29 Aug 2012)

I've read a few posts on the BCP products and have been enlightened and confused in equal parts.

I took some financial advice from an advisor and ended up splitting 10k - 5k into 2-6% return rate; and 5k into 100 growth bond and 200 growth bond (2.5k)

Overall my rate of return over the year is 12.09%

I can take out the 5k which has made a return of 4.5%. 

Admittedly, the remaining 5k should be staying for another 3 years.

Am I not getting something here? Fairly good return on 5k over 12 months and a little bit of risk with the remaining money with seemingly good returns so far. I know you can be lucky/ unlucky but has anyone had any success with these products?


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## Brendan Burgess (30 Aug 2012)

This is where these products mislead and confuse people. 

You are impressed with the return of 4.5% on half your money.

But it's not really half your money, it's 20% of your money. You have it on deposit for one year, but the other half for 4 years. 

The only way to assess these is to look at the average annual return over the period.

Most people would not be able to calculate this. So these split products should not be allowed.


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## Munsterbhoy (30 Aug 2012)

Well Gebbel,

I am not a financial guru, but I know what I don't like and that's these split deposit bonds with their high interest headlines to suck you in.  I invested in a few a number of years ago and I got my 90% back i.e. they lost but it got me looking at what they invest in.  If you look at the small print, you will see they invest in shares of large cap companies, many of them dividend payers, but you don't get the benefit of any of these payouts, all your returns are based on share price fluctuation as the fund is not the beneficial owner of the shares (see the small print).  You also get double the % increase so I don't know whether its derivatives, CFD's, short trading or what they are doing but someone else is gambling with your money and you're paying them a commission for the privilege !  
So I stopped investing in these products, took a bit of time to figure out how to invest in shares and took responsibility for my own investments.  If you have the time, I would recommend it, if not I would make the time, after all it's your savings.


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## frebel (1 Sep 2012)

Based on these comments I will take out the 5k that has made 4.5% (which was my original plan anyway). The rest is obviously at risk but I'm willing to take that risk


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## darag (2 Sep 2012)

bryanod said:


> Not a clue what yours would look like, if you can't explain it I really don't think you should be using it because for all I can see it is actually just wrong to say what you are saying as the results are confusing the matter further and your results have no economic reasoning, as my example above suggests.



The point (I think) can be explained by considering an extreme example of such a product.

Let's say you'd a product that paid 20% return on half your investment (returned in 1 year) and 0% on the other half (returned in 2 years).  Is your "average" return 10%?  

What if the 0% half was being held for 5 years?  Or 20 years?  Are you still getting the same (10%) "average" return?

Of course you can argue about various definitions of "average return", but it's clear that calculating an "average" this way results in a useless (at best) number when it comes to products structured like this.

Product providers of course will always include a generous looking return for the 1 year part in order to use this exploitable weakness in most people's intuition about "average returns".


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## Radiowriter (5 Sep 2012)

Hi All. For what it’s worth, following my first post on this topic some time ago, the BCP bond matured and, after 5 years made nothing. The capital was 100% guaranteed so got that back but overall very disappointing.  I have since taken the time to research and make my own investments and, thankfully am doing fine.  My advice is to stay away from these products.  RW.


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