Wednesday 26 October 2016

State savings outperforming tracker bonds - regulator warns consumers

Published 01/09/2016 | 14:55

Central Bank (Stock picture)
Central Bank (Stock picture)

MORE than half of investment bonds and trackers sold by stockbrokers and investment firms underperformed An Post State savings products, the Central Bank said.

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The regulator has warned consumers about the investments. They are usually marketed as tracker bonds, investment bonds, or kick-out bonds.

Stockbrokers and wealth mangers offer them as medium to long-term investment products, with a typical minimum investment of €10,000. Low interest rates on bank deposits have meant that money has poured into these products, investments the Central Bank calls structured retail products.

Close to €1bn of structured retail products were sold last year, with 371 of these investments launched.

But consumers were warned that many of these products do not guarantee the capital that is invested, unlike previous versions of these investments.

A themed inspection of firms selling these products was carried out.

“The Central Bank is of the view that structured retail products are not always a suitable alternative for consumers, given their complexity and potential for partial or total loss of investment,” the regulator said.

It said weak product governance arrangements were identified in a number of firms selling the investments.

Products which involved investors borrowing were sold by a number of firms, but the risk associated with the debt element of the product was not properly highlighted.

A performance comparison exercise found that over half of the products that matured in 2014 and 2015 underperformed when compared with State savings options available when the structured retail products were launched.

State savings are issued by the National Treasury Management Agency (NTMA) and sold though An Post branches.

Director of consumer affairs in the Central Bank Bernard Sheridan said: “It is important that consumers are fully informed about the risks they are taking on and that they receive appropriate advice. 

“Not all structured retail products are the same, they can be very complex and risky and may not be suitable to meet consumers’ needs if they have a low risk appetite.”

He said that what he called credit-linked notes are particularly complex and can carry a much higher risk than other products and may not be suitable for most consumers.

Firms that issued investments without proper controls may end up being subject to enforcement actions.

In June the NTMA cut a range of interest rates on State savings schemes for the fifth time in four years.

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