Blue Chip Issue 78 - Jan 2021

INTERVIEW
partnerships with financial advisers, and more recently, we started
to go back to these roots. And the people who work at Momentum
Investments demonstrate this in how we engage with advisers and
their clients. By building these lasting relationships with financial
advisers, we can improve our understanding of the needs of both
advisers and their clients. This enables us to enhance our services
and solutions to truly address their personal needs.
By building these lasting
relationships with financial
advisers, we can improve our
understanding of the needs of
both advisers and their clients.
What would be the typical profile of a client considering a
guaranteed product?
There is no typical profile as it can differ vastly given the
circumstances of the client – as it is personal. This is exactly where
individual financial advice is valuable as it considers each client’s
unique circumstances.
However, guaranteed products typically resonate with clients
who are on the lower end of the spectrum of risk tolerance or
risk appetite. These clients often prefer investment solutions that
provide more defined or predictable returns or proceeds.
This does not mean that only risk-averse clients should be
interested in guaranteed products. We believe that guaranteed
income products like life annuities should form part of most
retirees’ investment portfolio as it provides a portion of
guaranteed income. This guaranteed portion can potentially
be earmarked for the minimum income required during retirement
for living expenses. This portion of a retiree’s income can
therefore be secured with a life annuity, which will then be
unaffected by changes in the markets or interest rates.
Other types of guaranteed products can be used to diversify
a client’s investment portfolio and give a different return profile.
The important thing is to consider it in the context of a specific
client’s needs and circumstances, which again brings us back to
the necessity of individual financial advice.
Historically, guaranteed products have often been regarded
as somewhat opaque. How are your guaranteed products
structured and what is guaranteed?
The main purpose of structured products is to provide certainty
in terms of benefits or investment returns. It attempts to ‘hide the
wires’ of investment complexity, and it should provide simple and
easy-to-understand investment proceeds. The investment outcomes
of these products should therefore be transparent and clear.
Our guaranteed products aim to deliver on exactly this – simple
and predictable investment outcomes that provide more certainty
to clients. The guarantee offered can either be in the form of a
capital guarantee or a minimum return over a predetermined
investment horizon. Alternatively, a life annuity – also a form
of a structured product – can provide certainty on the level
of income that a client can expect over the remainder of the
client’s lifetime.
Do you offer different types of guaranteed products, and if
so, what would the different types be, and their benefits?
There is a wide range of products, but I will focus here on two types
of products. The one category is where the proceeds of the product
are fully guaranteed and predictable. Examples of these solutions
include guaranteed endowments and life annuities. Both products
provide certainty on the benefits and proceeds that are provided
to the invester – either a guaranteed capital return after a five-year
period or a predetermined level of income that is payable for life.
The second category is where a portion of the benefits are
guaranteed, but the client can potentially still benefit from
positive market movements over the lifetime of the investment.
An example of this is Momentum’s Enhanced Growth Option
product where we offer a minimum guaranteed return over a
five-year period, even if markets do not perform over this period.
A client can also potentially receive enhanced returns if markets
do perform well over the investment period. These are therefore
structured products that offer the best of both worlds – a minimum
capital guarantee if markets perform poorly, but also potentially an
improved positive return if markets do provide favourable returns.
There is no such thing as a ‘free lunch’, so what are the
additional charges that a client has to pay in a guaranteed
product versus a conventional market-linked investment
like a balanced unit trust?
There are typically three types of fees on investment products –
administration fees, advice fees and investment management fees.
These are equally relevant for structured products and unit trusts.
We believe in transparency of fee disclosures as it allows advisers
and their clients to make informed decisions. We support the
introduction of the Effective Annual Cost (EAC) disclosure in the
industry as it requires product providers to illustrate the fees on
investment products in the three categories explained above.
I’m sure that you would agree that a financial adviser should
never advise on something that they don’t understand. How
do you ensure that financial advisers who put clients into your
guaranteed products understand them fully?
I fully support that advisers and clients should make informed
decisions – including the choice of investment products. At
Momentum, we conduct product-specific training that is a
requirement before advisers can support the relevant product
range. And because Momentum Investments believes in
partnerships, we also make sure that our consultants and product
specialists are always available to financial advisers should they
need any support on specific aspects of our solutions – whether
it is on our guaranteed product range, or any other solution that
we offer.
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