Morgan Stanley UK Income Plan - December 2022

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 investments offer a degree of capital protection, while others do not.  The growth is usually not guaranteed, and you may receive no return on your investment.  Even where there is capital protection, the deduction of fees and charges could mean you get back less than you put in.

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

Please ensure you fully understand the key points and risks associated with this structured product.

Guidance for the Morgan Stanley UK Income Plan – December 2022

The Morgan Stanley UK Income Plan aims to provide a quarterly return of 2.25% paid quarterly over six years.  This quarterly return is paid on the condition that, on each quarterly observation date, the closing level of the FTSE 100 index is at or above 68% and at or below 123% of its initial strike level on each quarterly observation date, paid quarterly.

The observation dates occur quarterly from 22 March 2023 to 22 December 2028.

The initial strike level for this structured product will be observed on 22 December 2022.

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

Morgan Stanley has been rated ‘A-‘ by Standard & Poor’s, as of 11 November 2022.  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 22 December 2028 the FTSE 100 index is below 65% of its 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 to you 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.  Morgan Stanley has defined the holding period as ‘the recommended holding period for the product which is until 22 December 2028, corresponding to the product’s maturity’.  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, this risk is spread across a wide range of index levels and future dates and will be mitigated by maturing structured products where auto‑call 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 22 December 2022, 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 defensive composition of the FTSE 100 index has helped the index perform well this year, relative to its peers.  It has benefited in particular from having a relatively small exposure to growth-dependent sectors, such as technology companies that have seen a significant de-rating this year, and from its broad geographic exposure.  Approximately two thirds of constituent revenues come from overseas, giving it a surprisingly low direct exposure to the UK economy.

We expect the defensive aspect of the FTSE 100 to continue to be attractive in 2023.  Global economic growth is likely to continue to weaken in the first half of next year, which makes the outlook for growth-dependent sectors particularly uncertain.  In contrast, the demand for products provided by more defensive sectors, such as energy, financial services, and pharmaceuticals, is more stable.

Bouts of negative sentiment towards all stock markets will persist, leading to occasional falls in the FTSE 100.  The largest risk comes from inflation proving more stubborn than expected, and global interest rates having to be higher, for longer than is currently anticipated.

The flip side of suffering relatively mildly during an economic downturn is that the FTSE 100 is likely to underperform more growth-dependent stock markets when the next economic cycle kicks in.  This may be from the third quarter of 2023 in the US, but later in the UK, according to Bank of England projections.  However, relative underperformance should not be confused with absolute falls in the index: ‘a rising tide lifts all boats’.

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 Morgan Stanley UK Income Plan, IDAD’s fee is not expected to exceed 1%, with Morgan Stanley’s estimated fee of up to 0.9%.   The combined total of these fees cannot exceed 1.9% and as noted, they 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 £190.  This charge has been accounted for in arriving at the stated potential return of 9% per annum 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 and consultants/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 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.

If the recommendation is in relation to an Individual Savings Account (ISA) please read this section.  ISAs are a tax-efficient wrapper 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 that has been made available to you either online or provided to you, to which we would refer you, along with your supporting key information documents as appropriate.

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:

• Flexi-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 drawn 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 flexi-ISA will be counted, firstly, as repayments of any outstanding flexible withdrawals made in the current tax year and, secondly, as a subscription against the current year annual allowance
• There is no carry-over of either unused annual allowance or withdrawals between tax years
• Repayments of drawn 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 current year contributions