HOW DOES THE XXXX (INSERT NAME) TRACKER BOND WORK?
This section must include:
- the name and address of the product producer(s);
- a brief description of the benefits promised by the tracker bond to the consumer, including the promised payment which applies. The compound annual rate equivalent of the promised payment, related to the total investment amount, must be shown;
- if there is a risk that the consumer may lose some or all of the money invested, a statement of this risk;
- if there is a risk that the consumer will not achieve the estimated or anticipated return on his or her investment, a statement of this risk;
- if averaging and/or any lock-in provisions can impact negatively on the promised benefits, as compared with an identical investment without such benefits, the way in which such an averaging or lock-in provision can lead to reduced return on his or her investment (which must be disclosed prominently);
- whether or not the tracker bond will benefit from dividends payable on the underlying shares; if the tracker bond will benefit from such dividends, a clear statement of the extent to which the tracker bond will benefit; if the tracker bond will not benefit from such dividends, a clear statement that the tracker bond is suitable only as a capital growth investment;
- if the relevant credit institution or insurance undertaking benefits from any dividend or interest income arising from the investment used to secure the cash bonus promised to the consumer, a statement of this fact;
- if there is any currency risk, interest rate risk and/or price volatility risk to the consumer, in relation to the benefits promised, a statement of this risk;
- the period to the date of the promised payment;
- if the tracker bond is guaranteed, the level, nature, extent and limitations of the guarantee and the name of the guarantor; and
- if the tracker bond involves leveraging, a statement of the effects.
WHERE DOES MY INVESTMENT GO?
This section must show clearly the split of the investment amount (or a typical investment amount for this type of product if the disclosure is being made on a provisional or generic basis) into three components:
1 the open market value, at the date of investment, of the payment promised to the consumer;
2 the open market value, at the date of investment, of the cash bonus promised to the consumer; and
3 charges representing the balance.
The implied compound annual rate of the amount promised to the consumer, relative to the total investment amount, should also be stated prominently.
The disclosure should take the following format:
Your proposed investment of €xx,xxx will be used, at the date of investment, as follows :
€xx,xxx , or xx%, will be used to secure the promised payment of €xx,xxx payable after xx years and yy months. This is equivalent to a promised return on this part of your investment of xx% pa, before tax is deducted.
€xx,xxx , or xx%, will be used to secure the cash bonus which may be payable after xx years and yy months.
€xx,xxx, or xx%, will be taken in charges. If applicable, intermediary remuneration must be disclosed in this section.
€xx,xxx Total
If the cash bonus is zero, the promised payment will represent a return of x.x% pa, on your total investment over the period to the date of the promised payment, before any tax is deducted.
Where relevant, insert an explanation that the consumer’s return on his or her investment will be capped/limited. This explanation should clearly set out that the excess of any earnings over the cap/limit will be retained by the product producer and / or a third party.
The open market value referred to above is the open market cost of the benefit promised to the consumer at the date of investment, net of the value of any commission or other reward or benefit payable to the credit institution or insurance undertaking and/or a connected party to that credit institution or insurance undertaking.
DO I HAVE ACCESS TO MY INVESTMENT?
In this section, the consumer must be informed of the limited nature of the promised payment, e.g. that it is payable on one specified date only.
This section must also include:
- whether or not the consumer can get access to part or all of their investment, before the date of the promised payment;
- if access is provided before this date, whether the encashment will be on promised terms or not; and
- whether or not the consumer is likely to suffer a penalty or financial loss if access is provided to part or all of their investment, before the date of the promised payment.
WHAT HAPPENS IF I DIE BEOFRE THE TRACKER BOND MATURES?
This section must include:
- the circumstances, if any, in which the tracker bond may or must be encashed on death and the procedure for encashing it on death, if this is allowed; and
- the benefit payable on encashment of the tracker bond on death, when this benefit is payable, how this benefit is calculated, and whether there is any promised level of benefit payable on death.
WHAT ABOUT TAX?
This section must include:
- the tax that may be deductible by the regulated entity from benefits payable;
- the circumstances, if any, in which the tax referred to above, may not be deductible from the benefits payable;
- a general statement that a consumer should satisfy themselves in relation to revenue reporting requirements and the implications of non-disclosure where required.