BCPs Split Deposit Bond

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.
 
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.
 
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.
 
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?
 
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.
 
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.
 
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
 

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".
 
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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