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F&C unveils capital protected RDR share class

by Emma Dunkley on Jan 08, 2013 at 08:28

F&C unveils capital protected RDR share class

F&C has launched a capital protected, retail distribution review-ready share class across its Lifestyle range and flagship Thames River Distribution fund .

The new D share class is designed to protect against a capital shortfall of up to £150,000 in the event of death.

If an investor puts away £1 million as an initial investment and this falls to £870,000 at the investor’s death, for example, the investor would gain a £130,000 shortfall payment to the estate.

F&C said investors up to the age of 79 can buy the D share class on a ‘whole of life’ basis, for an annual management charge of 0.75% on the Lifestyle range and 1% for the Thames River Distribution fund.

This charge is 0.25% higher than the respective funds’ standard B and C share classes.

John Yule, head of UK retail at the firm said: ‘Our research of market rates for "whole of life" cover suggests the cost of this additional protection represents good value for money for investors across a range of age and investment size profiles.’

‘We believe this cover is suited to a number of financial planning situations, and offers those investors who may require exposure to risk assets - such as equities and corporate bonds - the peace of mind that the original sum is protected for their family in the event of their death.’

The protected share class is available on the four funds in the Lifestyle range, comprising F&C Lifestyle Defensive, F&C Lifestyle Cautious, F&C Lifestyle Balance and F&C Lifestyle Growth.

It is also offered on the Thames River Distribution fund, Thames River Cautious Managed and Thames River Global Boutiques funds.

F&C added cover is adjusted if any capital withdrawals are made during the term of the investment, and will remain unaffected by any dividends paid by the fund.

8 comments so far. Why not have your say?

Kathy Booth

Jan 08, 2013 at 10:35

Hmm F&C Safeguard optimiser funds, I will be giving this one a miss, just in case I miss something in the detail.

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Stephen Gallacher

Jan 08, 2013 at 11:16

Hi Kathy, just remind me is that an existing fund or an old F&C fund ........what is the story in respect of that one ? I thought this sounded quite an interesting option(s) in respect of capital protection on death ?

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Mike Morley

Jan 08, 2013 at 13:33

It was an old F & C idea offered across their MM range of funds. Not sure about the new share class but on the old version they do reserve the right to remove the capital protection on the death of the life assured if they find that they cannot obtain satisfactory terms for this cover when they are reviewing it.

I think this could prove quite useful in some circumstances such as an Interest in Possession Trust as the Thames River Distribution fund is well diversified, gives a decent level of income and the Capital Protection gives some comfort to the remaindermen. The main problem is that the protection is more likely to be withdrawn if the underlying fund value drops dramatically which would be just when it is needed!! As stated in the article the payment of dividends does not affect the protection offered.

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Stephen Gallacher

Jan 08, 2013 at 14:03

Thanks Mike, very helpful

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Martin Smith IFA Ltd

Jan 08, 2013 at 21:25

I work within a retired marketplace and capital preservation is a big thing, hence lots of research has been done.

If 100% death guarantee of the original sum invested is needed then Sterling funds offer that feature. I'll be doing the research on these F&C funds, but previously I found there were too many catches attached to their use of the word Guarantee.

If using Investment bonds, LV = have their Cautious Series 2 fund which gives the investor themselves a maturity guarantee of 100% initial sum invested at the end of term (shortest is 5 years) AND the same is extended to the estate upon earlier death. Same is true of AVIVA's Guaranteed 100 Fund but you have only a 5 year term here. Pru Protected Cautious Fund gives the option to add an estate guarantee but the shortest maturity guarantee date for clients is currently at 8 years.

Maturity Protection of course comes with Structured Products (deposit versions being the preferred route as they have FSCS cover.) Investec's range for clients aged 75 or under when applying, also gave a 100% estate guarantee.

Martin Smith (07584 030071)

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Mike Morley

Jan 08, 2013 at 22:13

Thanks Martin - I do see the problem if the cover is removed by F & C at a review and that is an area that has to be fully discussed with client and properly documented.

Bond don't, of course, work for an IIP Trust where only natural income can be paid out to life tenant. My understanding is that with most if not all the "protected" solutions to which you refer the protected sum is reduced by amounts withdrawn. With the F&C funds the payment of natural dividend incomedoes not reduce the amount "protected".

Many older clients at this stage do require income but I guess as always it is a matter of horses for courses.

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Stephen Gallacher

Jan 08, 2013 at 22:24

Hi Martyn, appreciate the additional points & guidance you make.......to be fair I am fairly familiar with what is available via Investment Bond's i.e Aviva, Pru, LV, Met Life etc......Additionally I have a number of client's who have invested within Structured Deposits.

What is interesting for me in respect of this is that the funds can be held within ISA, deemed of course the most tax efficient of the 'standard' Investment choice and of course can be held within an OEIC to utilise different tax advantages, particularly for non tax payer's and generally for a basic rate tax payer (appreciate arguments for & against the use of Investment Bond's versus OEIC/UT's).............as a Sesame approved adviser I/we generally need to give strong consideration to these investments over Investment Bonds & Structured Deposits.

It is 'rare' to find an OEIC fund that offers such protection, albeit on death only.

I feel Mike's comments re:- protection being withdrawn when it is needed the most i.e collapsing markets, that also concerns me & I wonder if the financial industry, inc IFA's, networks such as Sesame etc... and of course the FSA give this consideration when recommending/approving these types of funds.

I would be interested to hear more views in respect of this.

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Martin Smith IFA Ltd

Jan 08, 2013 at 23:43

Mike - Yes. Take income and wave goodbye to the capital security feel. I guess the only possible twist on that would be Income producing SCARPS but only if they behave themselves and the capital is actually return as no breach of barrier has happened

Stephen - If only there was an ISA'able UT or OEIC that gave a 100% maturity Gtee AND extended this to the estate on earlier death !!! If there was, I guess we'd all be out of a job, or selling the same thing to every elderly client. I take the stance of drilling deep into why the client wants to preserve the initial capital. Often they have had bad experiences or it may be just their age. The FSA put together a good guide that touched on how they see the sale of Structured Products in excess of their 25% / 10% guideline levels.

At the end of the day, if the client wants 100% mat Gtee and 100% Death Gtee then the only ISA options I know of are Investec Structured Deposits for those aged under 75 (accept cash ISA tfr's) or just leave in cash ISA at the bank.

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