Wednesday, November 15, 2006

Structured product withdrawn in the UK

Dear Mr Tan,

My father nearly bought a structured product a few years ago in the UK. It offered a "guaranteed 10%", which sounded good as risk-free interest rates were about 6%.

In the small print, it was stated that the amount paid on maturity after 10 years was far from "guaranteed". It emphasised in big print that you might get more, but my father missed the small print which said that you might get less.

The money (less charges) was to be invested in some sort of balanced fund - including both bonds & equities - with a 10% draw-down facility each year.

In the (unlikely) event of the company achieving a 12% return, the policyholder would get money back after 10 years - or even more if returns were higher - but if returns were less, a lower amount would be returned at the end - with a minimum of zero.

All that was guaranteed was a return of the Principal without interest over 10 years, or on death within the 10 year period.

This product was marketed by some "reputable" UK insurance companies. They dropped the product after the press and consumer groups criticised the misleading sales literature. It was a very simple product - made to look like something it was not.

The lesson is that nothing comes free. If a product looks "too good to be true" - you have been misled by the marketing literature or by the salesperson.


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