BCPs Split Deposit Bond

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gebbel

Registered User
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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:



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?​
 
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.
 
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.

 
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
 
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.
 
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
 
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.
 
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.
Click to expand...
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!
 
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!
 
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.
 
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.
 
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.
 
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.
Click to expand...

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.
 
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.
 
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
 
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
 
Hi Bryan

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


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.
Click to expand...
 
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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