What are structured investments, how they can work for investors before and after

retirement?

January 2013Andrew Savill – Director, GFS

Professional Advisor use ONLY – Not for distribution to Retail Clients.Gilliat Financial Solutions is a trading name of Arbuthnot Latham & Co., Limited who are authorised and regulated by the Financial Services Authority No. 143336.

• In simplest form a structured product is like a loan to a financial institution, usually a bank

• For the ‘loan’ the bank will promise to pay a rate of interest or ‘return’

• This return is often transformed from a traditional stream of interest into a market linked return

• For structured products that feature full protection to capital, the bank will promise to repay this too

• For non capital protected products there are market linked conditions that govern the amount of capital repayment

What are structured products?

A Mutual Fund

Investor Invests money with a Fund Manager

Fund Manager willAttempt to ‘beat the benchmark’

Great if benchmark is beaten but poor performance is ‘outsourced’ back to the investor

A Structured Product

Investor Invests money in a structured product

Unless the Bank collapses the returns will be delivered EXACTLY as advertised

Behind the scenes a trader manages the Bank’s liabilities. If the trader does a good job there may be a profit for the bank but if the trader performs poorly this performance IS NOT outsourced back to the investor.

A simple Example Product

• Israeli Shekels• Goldman Sachs 5 year Note

• i.e. Investor ‘lends’ funds to Goldman Sachs• Interest Rate is defined by the performance of the Tel

Aviv 25 Index• i.e. instead of [say] 3% p.a. the investor gets a rate

equivalent to any rise in the Index over the 5 year term. No interest if the index falls.

• Capital fully protected• i.e. if the Index falls there is no loss of capital

04/10/23 5Gilliat Financial Solutions is a trading name of Arbuthnot Latham & Co., Limited who are authorised and regulated by the Financial Services Authority No. 143336.

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Why are Structured Products Useful?

Full spectrum of defined riskdefined risk characteristics

Enable ‘infinite’ return profiles‘infinite’ return profiles to accommodate any economic or market scenario

Provide accessaccess to a broad range of asset classes including those where direct holdings are impractical

Tax Planning

Structured Products in retirement planning(1) Accumulation Phase

04/10/23 7Gilliat Financial Solutions is a trading name of Arbuthnot Latham & Co., Limited who are authorised and regulated by the Financial Services Authority No. 143336.

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Accumulation Phase

In the early stages focus is on strong investment growth

Traditionally a higher weighting to equity in pension portfolios

Actuarial Expectation of 7% p.a. growth in equities

But certainty of consistent equity growth is more remote than it used to be

Structured Product Alternative?

• ‘Annual Kick-Out’• RBS• Term 6 Yrs (max)• Linked FTSE100 and S&P500• 50% protection against market

falls• Headline Rate (p.a.) :

• 9% (90% reference level).• Early maturity from year 2

Accumulation Phase

Initial Level of the FTSE 100 & S&P 500 taken on the Start Date

Yr 2 Anniversary: Is the closing level of both the FTSE 100 and the S&P 500 the same or

higher than 90% of their Initial Levels?

Yr 3 Anniversary: Is the closing level of both the FTSE 100 and the S&P 500 the same or

higher than 90% of their Initial Levels?

Yr 4 Anniversary: Is the closing level of both the FTSE 100 and the S&P 500 the same or

higher than 90% of their Initial Levels?

Capital is reduced 1% for every 1% fall in the lowest of the FTSE 100 and S&P 500 at maturity

18% Return PLUS repayment of capital

27% Return PLUS repayment of capital

36% Return PLUS repayment of capital

45% Return PLUS repayment of capital

54% Return PLUS repayment of capital

Yes

Yes

Yes

Yes

Yes

NONO

NONO

NONO

NONO

Annual Kick Out: How it works……

Yr 5 Anniversary: Is the closing level of both the FTSE 100 and the S&P 500 the same or

higher than 90% of their Initial Levels?

Maturity: Is the closing level of both the FTSE 100 and the S&P 500 the same or higher than

90% of their Initial Levels?

NONO Was one of the Indices ever over

50% down?

Yes

NONO Capital repaid to

Investor in FULL

Pros• Above benchmark returns• Significant protection to

market falls• 9% p.a. growth even if markets

fall by up to 10%• Potential early maturityCons• Credit exposure to RBS• If markets perform strongly

then this will not keep up

Pros and Cons

Further Assessment

• Structured products operate on a defined set of rules• The robustness of the product can be tested historically

04/10/23 12Gilliat Financial Solutions is a trading name of Arbuthnot Latham & Co., Limited who are authorised and regulated by the Financial Services Authority No. 143336.

Backtesting – IN THE BROCHURE…….

The Gilliat Growth Multiplier – October 2011

Summary Product features• 6yr Term• Linked to the FTSE100 Index

Client Returns• 800% of the Rise in the FTSE100 up to a max return of 80%

Client Risk• If FTSE halves during Term and fails to recover then at

Maturity loss of capital on a 1 for 1 basis.i.e. if FTSE started at 6000 and ends at 4500 having halved during the Term capital repayment would be 4500/6000 = 75%

• RBS continued solvency

Performance to Date• FTSE100 starting level was 5226 – currently 6200 >> up 18%

>> product would return 80% if it matured today

Performance Analysis

04/10/23 15Gilliat Financial Solutions is a trading name of Arbuthnot Latham & Co., Limited who are authorised and regulated by the Financial Services Authority No. 143336.

Performance Analysis

04/10/23 16Gilliat Financial Solutions is a trading name of Arbuthnot Latham & Co., Limited who are authorised and regulated by the Financial Services Authority No. 143336.

Underperformance

Outperformance

Outperformance

Structured Products in retirement planning(2) Approaching Retirement

04/10/23 17Gilliat Financial Solutions is a trading name of Arbuthnot Latham & Co., Limited who are authorised and regulated by the Financial Services Authority No. 143336.

Close to Retirement - Market linked returns with capital protection

• Israeli Shekels• Goldman Sachs 5 year Note

• i.e. Investor ‘lends’ funds to Goldman Sachs• Interest Rate is defined by the performance of the Tel

Aviv 25 Index• i.e. instead of [say] 3% p.a. the investor gets a rate

equivalent to any rise in the Index over the 5 year term. No interest if the index falls.

• Capital fully protected• i.e. if the Index falls there is no loss of capital

04/10/23 18Gilliat Financial Solutions is a trading name of Arbuthnot Latham & Co., Limited who are authorised and regulated by the Financial Services Authority No. 143336.

Market Linked Returns with Capital Protection

• Other products…..

• Inflation linking - indexing a proportion of the pension in the last few years before retirement.

• Protected portfolio - multiple asset classes, capped returns but still linked into the equity, commodity bond markets. Capital protected.

• All are possible using structured products.

04/10/23 19Gilliat Financial Solutions is a trading name of Arbuthnot Latham & Co., Limited who are authorised and regulated by the Financial Services Authority No. 143336.

• Structured Products in retirement planning(3) Retired

Retired

• Retirees are income seeking with a desire for capital protection for the next generation to inherit

• Annuity rates have really suffered, income also paid out of capital

• In addition to a traditional annuity how can savings be ‘put to work’?

• There are alternatives to supplement poor income & annuity rates that can be used for regular investment

Enhanced Income Builder (Feb 2013)

Enhanced Income Builder (Feb 13)

•Commerzbank backed•Quarterly Income Note•Income (re)paid if FTSE100 is above 3500 points •8.20% p.a.•6yr 1wk term•5% Comms

Enhanced Income Builder (Feb 2013)

3500 FTSE100 Level

04/10/23 24Gilliat Financial Solutions is a trading name of Arbuthnot Latham & Co., Limited who are authorised and regulated by the Financial Services Authority No. 143336.

8 days

Fixed Rate Bonds in the UK – Current offers…

A scan of the UK Market – w/c 21st January 2013 - best rates from the ‘big 5’ UK banks

•Barclays Bank – 2.15% for 18 months•RBS – 2.1% for 2 years•HSBC – 3% for 5 years (£100k +)•Santander – 2.5% for 18 months•Lloyds TSB – 2.25% for 3 yearsIn 2007 rates of 6% + were available

Source: Bank Websites 21 January 2013

Summary / Q&A

Gilliat Financial Solutions has become the leading independent provider of structured products in the UK and now internationally by:

• working with our clients, for their clients

• providing access to a broad range of Issuing Banks

• delivering value and innovation, time and time again

Any last questions?

04/10/23 26Gilliat Financial Solutions is a trading name of Arbuthnot Latham & Co., Limited who are authorised and regulated by the Financial Services Authority No. 143336.

Contact InformationAndrew SavillBusiness Development DirectorGilliat Financial Solutions Arbuthnot House20 Ropemaker StreetLondon EC2Y 9AR

Office: +44(0)20 7012 2803Mobile: +44(0)7785 470 030Email: andrewsavill@gilliat.co.uk

Toby StaggBroker Consultant

Gilliat Financial Solutions Arbuthnot House

20 Ropemaker StreetLondon EC2Y 9AR

Office: +44(0)20 7012 2807Email: tobystagg@gilliat.co.uk

Important Notes

This material is for professional financial advisers only and persons of any other description should not rely or act upon it. Any investment in Gilliat Financial Solutions products should be made only after the investor has read and understood the product Guide including the Terms & Conditions, and the Termsheet.

Issued by: Gilliat Financial Solutions a trading name of Arbuthnot Latham & Co., Limited. Arbuthnot Latham & Co., Limited is registered in England No. 819519. Registered office:Arbuthnot House, 20 Ropemaker Street, London EC2Y 9AR.

Gilliat Financial Solutions a trading name of Arbuthnot Latham & Co., Limited. who are authorised and regulated by the Financial Services Authority, 25 North Colonnade, Canary Wharf,London E14 5HS. Registered under the Financial Services Authority number 143336.

Gilliat Financial Solutions does not offer investment advice or make any recommendation regarding investments.

Returns from the structured products are at risk in the event of any of the institutions who provide securities for these products default on their financial obligations.

04/10/23 28Gilliat Financial Solutions is a trading name of Arbuthnot Latham & Co., Limited who are authorised and regulated by the Financial Services Authority No. 143336.