Verbatim and Goldman Sachs keep it simple with UK deposit product
Verbatim Asset Management, the investment arm of the Huddersfield-based SimplyBiz Group, launched its first structured deposit to UK retail in August. Not only is it the Verbatim Deposit Growth Solution September 2015 the asset manager’s first foray into structured products, it is the first time a product has featured the custom made Verbatim Multi-Asset Growth Indexx Excess Return (a strategy offering exposure to a diversified basket of five Verbatim funds and a target volatility of 6%) and the first time Goldman Sachs has been a deposit taker for a retail deposit in the UK. SRP spoke to Dan Russell (pictured), managing director of Verbatim, about its new structured solution and its plans for the future.
What led Verbatim to create structured products with this deposit?
After the 2014 budget, we asked adviser focus groups what they thought about the changes to ISAs (individual savings accounts) and pensions. Overwhelmingly, they told us that growth with capital protection was a concern – particularly cash ISA clients facing low interest rates and pension clients with little or no capacity for loss. They also wanted a simple solution that was client friendly. We explored many types and shapes of product that could achieve these aims, and in the end it was a deposit that did it most clearly and simplistically.
Do you see an appetite for structured solutions?
It may be due to client circumstance, capacity for loss, timescale or to achieve a specific investment goal – but clearly structured products and deposits should be considered by advisers. However, there are advisers who make sweeping generalisations about structures – too complex, too opaque, too risky – and sometimes these concerns are justified.
We have launched a very simple deposit structure, as we feel there is greater demand for simple solutions that do what they say on the tin rather than more complex capital-at-risk products with highly convoluted terms or complex features. It is crucial that advisers are educated and understand what they are offering. This is why we are only allowing advisers who have been through our own CPD session on structured products and deposits to use our solution.
What was behind the idea for your new index?
It is innovative, however the innovation is for a very deliberate reason. The market is flooded with products that track the same market cap-weighted indices (eg. the FTSE) at a time when many advisers have moved towards more diversified, multi-asset, risk-managed investments. Our idea was to create a product that had an investment underpin that matched the wider investment process and philosophy of the firms we support. If you use multi-asset, risk-managed funds for clients in OEICs (open-ended investment companies) on platforms because it matches the language of risk that you use with clients, why not continue to do so within a structured deposit?
What is your view on the rise of smart beta, specifically the increase in factor/strategy indices? Would you consider the new index to be smart beta?
Smart beta or factor index investing is a very interesting area and one which we are exploring. Our job is to align the talents of the investment market with the advice process. I wouldn’t class this solution within that camp. Smart beta is about creating a passive index based on rules that capture inefficiencies or biases in the market. The Verbatim Multi-Asset Growth Indexx tracks the performance of a range of well-established, active, risk-managed funds.
How did the collaboration with Goldman Sachs come about?
We needed to work with a deposit taker who had the technical capability and desire to launch a new type of deposit, rather than the same old market weight indices. Also, there are a limited number of deposit takers in the retail space in the UK, so we thought it would be good for clients and advisers to have access to a new counterparty, with associated FSCS [financial services compensation scheme] cover, to broaden the options available. Goldman’s tick both boxes in that they were willing and able to do something new and while they have a big name they didn’t have a retail presence in the UK.
How important are counterparty ratings?
If somebody is offering to look after your money for six years and then hand it back, hopefully with some interest from the underlying investment, you want to know that it is a promise they can and will keep, so counterparty risk is clearly one of the most important considerations with a deposit. Ratings are still one of the principle ways to assess counterparty risk.
How do you view the pension reforms in Chancellor George Osborne’s 2014 budget? Do you see a place for structured products in the retirement space?
The pension changes mean ‘lifestyling’ is dead as a strategy, and increasingly clients will have many different pots of money for use in retirement, with different timescales for use, different risk profiles and different capacity for loss on those pots, depending on when and what they intend to use the money for. There is undoubtedly a sizeable group of clients out there who want to put money away for later in retirement but who have no or low capacity for loss. With a promise to return your money but also potentially access growth above low interest rates, deposits have a place in the retirement planning supply chain of advisers. This, along with poor rates on cash ISAs, is one of the principle reasons we have launched this solution.
Does Verbatim plan on marketing any other structured products?
There is nothing planned, but we continually talk to the advisers to find out what they need. If there is strong demand for a clear client need then you can be sure we will explore adding to the solutions we offer. We have seen very strong interest in our first deposit launch, so we are helping advisers incorporate this.
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