Citigroup US Range Income Plan - November 2023

Introduction

Please read this guidance in conjunction with the supporting fact sheet and key investor information document (KID) enclosed.

What is a structured product?

A structured product is a fixed-term contract, providing a return based on the performance of an underlying share or stock market index. Inherently, a structured product is designed to limit investment losses while still creating a return to investors. Some structured product investments offer a degree of capital protection, while others do not.  The growth or income is usually not guaranteed, and you may not achieve a return on your investment.  Even where there is capital protection, the deduction of fees and charges could mean you receive less than you invested.

It is important to mention that a new structured product is not suitable for people who require access to their money invested during the potential term of the product.  Early redemption can be part of the whole amount invested but investors may receive less than the original sum invested.

Guidance for the new individual structured product - Citigroup US Range Income Plan - November 2023

The Citigroup US Range Income Plan November 2023 aims to provide a return of 10.5% per annum over six years.  The return is paid on the condition that the S&P 500 index is at or above 70% and at or below 131.5% of the initial strike level on each annual observation date.  The return is paid annually.  The observation dates occur annually from 2 December 2024 to 30 November 2029.  The initial strike level for this structured product will be observed on 30 November 2023.

This plan also has an element of capital security, whereby investor capital is returned unless the S&P 500 index has not fallen by more than 35% from its start level on 30 November 2023, when observed on the 30 November 2029.

Capital protection

The capital protection for this plan is dependent on Citigroup fulfilling its obligations, along with the investment being held until maturity, unless there is a prior autocall.  The initial capital is used to purchase securities issued by Citigroup that have similar characteristics to investing in corporate bonds.  In the event of default, investors will be creditors of Citigroup.

Citigroup has been rated ‘A+‘ by Standard & Poor’s as of 12 September 2023.  Standard & Poor’s is an independent credit rating agency that uses a scale to denote creditworthiness, ranging from ‘AAA’ (highest) to ‘D’ (lowest).  Issuers within the ‘A’ rating band are described by Standard & Poor’s as having strong capacity to meet their financial commitments but more susceptible to the adverse effects of changes in circumstances and economic conditions than those issuers rated ‘AAA’ or ‘AA’. Further information about ratings can be obtained via this website: www.spglobal.com/ratings/en/about/understanding-credit-ratings.

Capital at risk

Initial capital is not 100% secure with this structured product.  If on the final index observation date of 30 November 2029 the S&P 500 index is below 65% of its initial level, the initial capital being returned will be reduced by any negative performance.  For example, if the S&P 500 index was 70% below its initial strike level, the initial investment would be reduced by 70%.  Therefore, the return of the original capital invested is not guaranteed.

Risk warnings

While the tax rules and rates that are used within any current recommendation are up to date, the rules and rates can change at any time.  Mattioli Woods can accept no liability for any such changes and their potential effect on your investment.  The value to you of any tax benefits will depend on your personal tax position at the relevant time.

The value of investments and the returns from them can go down as well as up and you may not get back the amount you invested.  Past performance is not an indication of future returns and investments need to be considered as medium to long-term holdings.  Inflation will erode the purchasing power of your money.

Specific risk warning

There is no fixed cost for exiting this plan at maturity.  Please note, if you needed to sell this plan prior to maturity, the issuing bank will endeavour to provide quotes under normal market conditions for trading purposes on request, subject to a bid-offer spread of 1%.  Please ensure you read the accompanying fact sheet.  Citigroup has defined the holding period as ‘the recommended holding period for the product, which is until 30 November 2029 corresponding to the product's final payment date’.  Please also read the KID in relation to this statement.

Concentration risk

Investing in multiple individual structured products exposed to the same indices increases the risk to an investor should those indices suffer severe losses.  However, Mattioli Woods spread this risk across a wide range of index levels and future dates for the range of ISPs offered and will be mitigated by maturing structured products where autocall occurs.

We closely monitor this risk for existing structured products and whenever a new structured product is being considered, but should you have any concerns, please contact your consultant.

Cancellation risks

If you change your mind and do not wish to invest, please inform your Mattioli Woods contact by 30 November 2023, the start date for the structured product.  After this date you will only receive the value of the structured product when sold back to the product provider, which is likely to be less than your original investment.

Economic overview

The consensus amongst economists is that the global economy is slowing.  Inflation has reduced the purchasing power of wages, and a sharp rise in global interest rates over the last two years has deterred borrowing for consumption and investment.

The UK is at risk of recession, while the eurozone appears very vulnerable given its greater exposure to the weakening Chinese economy.  However, the US economy appears comparatively robust.  There is speculation of 3% GDP growth being recorded in the third quarter of 2023, a remarkable figure given that interest rates have climbed from near zero to 5.5% since March of last year, in turn pushing inflation down to 3.7% (August, year-on-year).  The economy appears poised for a ‘soft landing’, whereby the Federal Reserve brings inflation down without causing recession and mass unemployment.

Economists cite a variety of explanations for the strength of the US economy.  They include the continuation of some COVID-era government benefits, and the stimulus to investment provided by the $369 billion package of green industry subsidies in the 2022 Inflation Reduction Act.  Artificial intelligence has attracted a lot of new investment, while American big tech stocks continue to dominate their markets.   Consumption growth has been maintained through high employment levels, and the spending of pent-up household savings; albeit this is likely to end over the coming year.

A relatively healthy underlying economy will underpin American corporate earnings, which in turn will support dividend payouts and valuations.  For this reason, the S&P 500 index of leading US companies appears to be less vulnerable to the effects of a global economic slowdown than other major stock markets.   Furthermore, the US may be the first major economy to come out of the downturn, triggering a fresh global economic cycle at which it will be at the forefront.

This reflects the views of Mattioli Woods plc at the time of writing.

Information on IDAD and their relationship with Mattioli Woods

A company called IDAD is employed on behalf of Mattioli Woods to conduct an auction with competing structured product providers.  IDAD also settles the trade with our custodian and provides all the supporting documentation required by the FCA.  To complete these tasks, IDAD charges a fee.  For the Citigroup US Income Plan November 2023, IDAD’s fee is not expected to exceed 1%, with Citigroup’s estimated fee of up to 0.86%.  The combined total of these fees cannot exceed 1.86% and are built-in to the return of the plan so do not reduce the amount invested.  For example, based on a monetary investment figure of £10,000, the fee would equate to £186.  This charge has been accounted for in arriving at the stated potential returns and will not be deducted from that figure when the plan matures.

Financial Compensation Scheme (FSCS)

This product offers no FSCS protection.

Mattioli Woods – our ‘restricted’ status

For over 30 years Mattioli Woods has been at the forefront of providing advice, pension administration/trusteeship, and investment products and services for clients across the country.  Its key aim is to put clients first to help them reach the objectives they set.  This is done with integrity and professionalism while maintaining a bespoke approach, and it continues with this ethos as part of its culture.

The Mattioli Woods website (www.mattioliwoods.com) provides a further history of the company and the products offered to achieve clients’ various requirements.

In terms of financial legislation, firms can be ‘independent’, or ‘restricted’, or both.

We offer our own discretionary portfolio management (DPM), self-invested personal pension (SIPP), personal pension (MW PP) and small self‑administered scheme (SSAS) services, as our investment managers, consultants and client relationship managers are specialists in these areas of advice and management.  For this reason, we are classed as a ‘restricted’ advice business and, only where it is suitable and in line with your objectives, we will recommend these solutions to you.  Should your circumstances not be best served by our own propositions, we will look to the wider market to source the most appropriate solution for you.

In addition, as part of our centralised investment proposition, we offer the Custodian Property Income REIT plc, which is a real estate investment trust managed by Custodian Capital Limited, part of the Mattioli Woods Group.

Our solutions are designed to meet your needs and where appropriate we can also offer advice on pensions, investments, and non-investment insurances (protection policies) from the whole market.

Mattioli Woods is committed to ensuring the principles of ‘treating customers fairly’ set by the Financial Conduct Authority are applied with integrity throughout all aspects of our business.

Any tax-based calculations completed by Mattioli Woods are for illustrative purposes only and we recommend you check these with your accountant or tax adviser.

ISA guidance

Individual Savings Accounts (ISAs) are tax-efficient wrappers with the option to save via cash and/or stocks and shares, making them ideal for investors as there is nothing to include on tax returns.

Full details are included in the investment guidance booklet we provided you with and to which we would refer you.

You can draw funds from your ISA and replace the amount within the same tax year without losing the tax benefits or using up any further allowance in that tax year, specifically:

  • • ‘Flexible’ ISAs enable investors to draw cash from their ISA and subsequently replace this within the same tax year without it counting towards their annual subscription allowance
  • • The replacement of cash must happen within the same tax year the cash is drawn
  • • Any withdrawn cash not replaced before 5 April cannot be replaced and will be a new subscription counting towards the investor’s annual allowance
  • • Payments to the flexible ISA will be counted first as repayments of any outstanding flexible withdrawals made in the current tax year and second as a subscription against the current year’s annual allowance
  • • There is no carry over of either unused annual allowance or withdrawals between tax years
  • • Repayments of withdrawn funds may only be made to the account from which the associated withdrawal was originally made
  • • The full value of the ISA may be drawn but withdrawals must not exceed the total value of the ISA (overdrafts are prohibited), even when the amount available for withdrawal is less than the total of the current year’s contributions
Online documents
Citigroup US Range Income Plan - November 2023
Pershing documents

Pershing Securities Limited is the administration platform selected to operate the service.  For further information, please refer to the enclosed Pershing Terms of Business document.

Pershing Securities Limited

The administration platform we have selected to operate the service from is supplied by Pershing Securities Limited (‘Pershing’).

Pershing

Pershing is part of the Bank of New York Mellon (BNY Mellon) group, the world’s largest custodian and one of the world’s leading investment services groups with in excess of $35 trillion in assets under custody and administration as at Q1 2020.  Pershing has circa $1.8 trillion under custody and administration globally.  There were three main considerations in selecting Pershing from its rivals:

  1. 1. The security of your assets held on the Pershing platform is exceptional.  Not only are your assets held by the largest custodian in the world, but cash held within portfolios is managed across a wide range of banks to ensure diversification and is covered by the Financial Services Compensation Scheme (FSCS) up to the £85,000 limit.

Pershing has specialised in the provision of custody, execution, and settlement services since 1939 and has been present in the UK since 1987.  It is highly selective in working exclusively on a business-to-business basis and has chosen to partner with over 180 organisations within the UK.

  1. 2. As one of the largest global players in this market, our clients can have every confidence that Pershing systems and software will always be competitive and state-of-the-art.
  2. 3. Pershing’s wealth management platform, NexusComplete, offers unrivalled facilities for client firms who would like to benefit from an investment management and administration tool that can embrace their assets through various wrappers.

Pershing will provide quarterly valuations, quarterly custody statements, annual tax documents and contract notes, all accessible electronically via an investor portal or via post.

Cash balances

A cash amount of 1% is retained at outset and will cover ongoing fees.

You will receive a rate of interest on cash balances held with Pershing as decided by the Mattioli Woods Treasury Committee.

When this balance has been depleted and becomes insufficient to cover ongoing fees, we will either:

  • • retain natural income on your investments where available
  • • make a sale from the largest holding on the account for advisory and execution-only accounts  

The amount of credit interest currently paid to clients is 1.25%, with Mattioli Woods receiving 3%.  As an example of the amount Mattioli Woods would receive, if your total investment held with Pershing is £100,000, and you have 1% held in cash, namely £1,000, Mattioli Woods would receive interest of £30 per annum, outside of the interest you receive.  Due to varying cash balances, the amount of interest retained by Mattioli Woods is not factored into our fee cost disclosure calculations.  For current interest rates, please see www.mattioliwoods.com/resources.

Pershing – capital gains tax service (only applicable if invested in taxable multi-holding portfolio)

For taxable portfolios, Pershing can provide a capital gains tax (CGT) service for which the charge is £50 plus VAT per account, per year.  We will switch this service on for multi-holding taxable portfolios, unless you opt out via the application form, and deduct £50 plus VAT in May each year for the previous tax year’s report.  Pershing will then produce and send you a CGT report (which will be combined with your consolidated tax voucher) every year.  The service also allows us to calculate notional CGT on your account on request.

Investment services charge

Charges relating to the provision of investment services are 0.2% per annum of the total value of applicable assets administered by Pershing.

This charge is calculated and deducted from your Pershing portfolio account quarterly in arrears.  This charge is for the provision of investment services associated with the processing and servicing of investments and other costs incurred on behalf of clients, including access to the Pershing client portal.  Pershing currently retains between 0.10% and 0.11% of this charge for the services it provides including dealing, clearing, settlement, safe custody, and other associated services.  The figure retained by Pershing will be dependent on the aggregate value of assets held by Mattioli Woods’ clients with Pershing.  A full breakdown of the services provided by Pershing and their respective costs is available on request.

The balance of this charge is paid to Mattioli Woods.  The figure paid to Mattioli Woods currently ranges between 0.09% and 0.10% and is dependent on the aggregate value of assets held by Mattioli Woods’ clients with Pershing.  This charge is in addition to any advice or product fees Mattioli Woods may charge you and is explicitly detailed within all our literature as the investment services charge.  The investment services charge will be deducted from your investment via Pershing.

Provision for ongoing fees will be made via twice-yearly sales of units if required.

The full terms and conditions of the services Pershing provides to you are set out in your Pershing Terms of Business document.  In the event of any conflict between the terms as described in this section and the Pershing Terms of Business, the Pershing Terms of Business takes precedence.

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