BNP Paribas UK and Japan Defensive Growth Plan - September 2023

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

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 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.

The BNP Paribas UK And Japan Defensive Growth Plan September 2023 will pay a return of 22.5% (11.25% per annum) plus initial capital if the FTSE 100 and TOPIX indices are at or above 105% of their respective start date levels on the first observation date of 16 September 2025.  The start date for this plan is 14 September 2023.  If one or both indices is below 105% of its start level, the plan continues to the next annual observation date. The potential return is 11.25% for each year that has elapsed since the start date until the plan matures on the final observation date of 17 September 2030 is reached.

The early maturity or autocall barrier level of 100% or above of the index start levels applies for years 3 and 4, reducing to 95% for the following year, 90% for the next year, until lastly 74.5% for the final observation on 17 September 2030.

This plan also has an element of capital security, whereby if the worst performing of the FTSE 100 and TOPIX indices as of 17 September 2030 has not fallen by more than 35% from the start level on 14 September 2023, all the investor’s capital is returned.

The capital protection for this plan is dependent on BNP Paribas 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 BNP Paribas that have similar characteristics to investing in corporate bonds.  In the event of default, investors will be creditors of BNP Paribas.

BNP Paribas has been rated ‘A+’ by Standard & Poor’s as of 10 July 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.

Initial capital is not 100% secure with this structured product.  If at maturity on 17 September 2030 the worst performing of the FTSE 100 and TOPIX indices are below 65% of their initial level, the initial capital being returned will be reduced by any negative performance.  For example, if the FTSE 100 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.

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.

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.  BNP Paribas has defined the holding period as ‘the recommended holding period for the product, which is until 24 September 2030 corresponding to the product’s final autocall payment date’.  Please also read the KID in relation to this statement.

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.

If you change your mind and do not wish to invest, please inform your Mattioli Woods contact by 14 September 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.

The UK’s main market has a bias towards energy, mining, financials, and utilities.  It has few tech and other so-called ‘growth’ companies.  The composition of the FTSE 100 index helps explain why it is considered defensive, which is a useful attribute as the global economy slows under higher interest rates.  These are cash-generating companies that do not need new financing to finance massive R&D spend (in contrast to much of tech) and can often protect them from inflation by raising selling prices.  It is also defensive in that FTSE 100 companies are generally operating around the world, with around two thirds of combined revenue coming from outside the UK.  Given the current headwinds to UK economic growth, the global exposure of the FTSE 100 is an advantage.

The composition effect also explains why the FTSE 100 index appears cheap, compared with many of its international peers that carry more tech.  Since the COVID global stock market rally started in spring of 2020, tech has outperformed defensive stocks, thanks in large part to an exceptional rally by the biggest of the US tech companies.  A handful of well-known tech companies now dominate the S&P 500, and by extension global stock market indices.  To many analysts, these appear overpriced.  The high cost of capital to finance R&D is a concern, as is the dependence on much of big tech on cyclically sensitive advertising revenue, which looks set to fall as the global economy weakens under the pressure of high interest rates.

The FTSE 100 also has cyclical exposure, whether in discretionary consumer goods, construction, industrials, leisure, and travel.  A global economic slowdown will hurt these sectors.  However, given their relatively modest valuations they would appear less at risk from an economic downturn than their more expensive US equivalents.

The Japanese stock market has come back to life!  The TOPIX index that tracks all the main Japanese companies rose nearly a fifth in the first six months of this year.  It has been helped by a cheap yen and continuing low interest rates, both of which reflect the ongoing, and large, quantitative easing programme being pursued by the Bank of Japan.  In addition, stock valuations look fair on current earnings estimates, and cheap if value can be unlocked through corporate reform.  Such reforms are happening, whether it is creating clearer holding company structures or handing cash back to shareholders in the form of dividends.  The strong rally of Toyota this year, in the hope it may engineer a new type of electric vehicle, bitterly demonstrates that the country continues to be an industrial powerhouse.

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

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 RBC FTSE Income Plan September 2023, IDAD’s fee is not expected to exceed 1%, with Royal Bank of Canada’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.

This product offers no FSCS protection.

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.

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.

As mentioned, 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.

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

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. 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.

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.
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 2.75%.  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 £27.50 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 actual 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 actual 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.