In a move into the retirement income market, Barclays Bank PLC on Sept. 1 will launch two structured-note products designed to provide income over 15- to 30-year time spans.
The bank's Level-Pay Notes will offer an annuitylike payment of $100 per month, while the Inflation-Indexed Level-Pay Notes will tie continuing monthly payments to the cost of living. In both cases, payments will consist of interest and a return of principal, with the notes designed to liquidate at the end of their term.
Scheduled to be priced Aug. 23, the products will be marketed to insurance companies for inclusion in annuities, to fund managers for use in target date portfolios, and to individual investors through the bank and outside advisers.
The notes, which will be senior unsecured debt of the bank's global parent, Barclays PLC, will be available in 15-, 20-, 25- and 30-year terms. The interest rate paid will be a function of the issuance pricing, and new issues are scheduled monthly.
Barclays said the range for the initial investment for the level pay 15-year note will be $12,600 to $13,900. For the inflation-indexed note, the range will be $14,300 to $15,900.
The notes will be sold by Barclays Wealth advisers, as well as outside financial advisers and brokers.
The goal is to appeal to retirees who seek stable monthly payments, said Leo Clark, director of rates structuring for the Americas at Barclays Capital, which will serve as the issuer's agent in connection with the distribution of the notes.
“We're providing a tool that can be used for assembling a retirement income portfolio,” he said.
“To our knowledge, there's nothing else out there exactly like this. The underlying structure of amortizing fixed-rate notes looks fairly complex, but it all comes down to a single, fixed cash flow of $100 per month, per note,” Mr. Clark said.
In time, Barclays plans to expand the range of the products and may include exposure to equities, he said.
As the first two products come to market, observers have concerns about their cost, liquidity and safety.
“My overarching concern as an investment product manager would be how tried-and-true the product is and how products like it have fared — and if you want to package it, how can that be done?” said Lynette DeWitt, director of research at Financial Research Corp.
Unlike annuities, the Barclays products don't address longevity risk, said Ben Williams, vice president of Retirement Engineering Inc., a consulting company that develops retirement products.
“As a building block, most people would need a well-trained adviser to help them use LP notes in a comprehensive plan that covers all risks, including longevity, inflation and others,” he said.
One wrinkle that may deter registered representatives from using the new income tools is that as a structured product, the notes may not be covered under broker-dealers' errors-and-omissions-insurance contracts.
“Carriers might decide that this new product bumps them into a higher-premium level,” said Andrew J. Fotopulos, senior vice president of Starkweather and Shepley Insurance. The key issue will be how much of the clients' assets are in the new products, he said.
“If it's 25% or more, insurers will want to charge more for the coverage or raise the deductible,” Mr. Fotopulos said.
E-mail Hilary Johnston at [email protected] and Darla Mercado at [email protected].
