Assessing client needs

Introduction

This overview is intended to assist professional advisers who recommend Barclays structured products to their retail clients. It shows how we group consumers together so that products can be designed to meet their investment needs.

Naturally, defining consumer groups among a wide spectrum of retail investors is not an exact science, and advisers may well categorise their clients into groups of a different kind. However, we believe that if advisers understand how we define consumer groups for structured products, this will help them to demonstrate that their client recommendations are appropriate.

Defined consumer groups

There are five consumer groups to which Barclays targets its retail structured investment plans and structured deposits. The table below shows the key characteristics that define each group.

Consumer Group 1Consumer Group 2Consumer Group 3Consumer Group 4Consumer Group 5
Investment priority / goalSecurity of capital is importantMaintaining spending power is importantAchieving investment growth higher than inflation is importantAchieving significant gains is importantTargeting highest potential gains is important
Attitude to capital lossIs only willing to risk losing a small proportion of investment; prefers investments to have fairly certain future outcomesIs averse to the possibility of substantial losses, but is prepared to hold some investments to target higher returns than deposit accountsIs comfortable with higher risk investments to target enhanced potential return; is prepared to risk a meaningful loss in adverse marketsWill commit a large part of portfolio to higher risk investments to target long term growth; accepts the potential of significant losses or gainsAccepts that portfolio may be entirely exposed to very risky assets; accepts that the portfolio may fall or rise significantly in value
Attitude to investment volatilityAccepts lower long term returns to minimise risk of lossPrefers a steadier, lower rate of growth than a highly volatile oneAccepts the possibility of frequent fluctuations in portfolio valueAccepts regular and large short term portfolio fluctuationsAccepts high levels of volatility even over long time periods
Time HorizonHas a shorter term investment horizon and accepts that inflation may erode the value of wealthHas a medium term investment horizon to target inflation-beating returnsHas a long term investment horizon to target increasing spending powerHas a long term investment horizon to target potential significant gainsHas a long term investment horizon to target maximum potential gains

Product design

Our investment specialists consider these consumer groups during their product design process, in order to ensure that the product features are aligned with the attitudes and preferences identified in the proposed target market(s). Products may be designed to suit more than one target market, to increase the distribution opportunities; where this is the case, the product features will be structured to potentially appeal to the investor characteristics found in both groups.

This does not mean that we aim to offer products to suit all consumer groups at all times; on the contrary, investors in consumer group 5 (those most comfortable with very high investment risk even over long time periods) are rarely accommodated, since most structured products aim to repay capital at maturity and usually balance this aim by capping the potential returns on offer.

Once a product has been launched, it may subsequently be re-released: that is, a second tranche of almost the same design is created, sometimes with refined features such as different rates of potential return. These refinements are usually made in response to changes in the wider economy, including interest rates or levels of the underlying investment indices.

If a new tranche of a product is released, it is usually designed to suit the same consumer groups targeted by the original edition, as refinements to the product features are not intended to materially change the essential nature of the product.

Investment Risks

Structured investments are not without risk. You should ensure that your clients understand the risks detailed in the product documentation before they invest.

Repayment of investors’ capital and the payment of any return will depend on the ability of the relevant counterparties to pay at the maturity of the investment or the early sale of the investment, in accordance with any early disposal feature.

Investors can sell the investment before maturity or early redemption but may get back less than they invested.

Please note that products may be structured as capital at risk investments and will not be guaranteed. Payment of the return and repayment of capital will be conditional on the performance of the underlying index. Please read the terms and conditions in the brochure.

 

Contact Us

For technical and product related queries please email us at structuredproducts@absacapital.com or call us on:

+27 (0)11 895 5528