7-Sep-18

Skin in the Game: Triple Point Income Service

Triple Point was one of the first investment managers to offer an IF ISA (Innovative Finance ISA) product as part of its Advancr Service in 2016. As the Service has grown and gained market share, a decision has been made to change its name to “the Triple Point Income Service”, in order to be more descriptive of the simple and attractive benefits that it offers investors.

Belinda Thomas, head of sales at Triple Point, tells Intelligent Partnership that a key differentiator and one that is evidence of the robust nature of both the strategy and quality of the underlying investments, is the firm’s “skin in the game” - Triple Point having an equity share in the bond issuer.

Investors in the Triple Point Income Service can choose how long to invest for: a 1-5 year time horizon over which investors can elect to either receive interest monthly or have the interest reinvested and paid at maturity, benefiting from the effect of compounding.

Investors can earn up to 5.9% AER for the three year bonds. There is also a 50 basis point incentive to invest in the service via a financial adviser. 

Who are you targeting with the Income Service?

The thinking behind the Income Service is to provide attractive fixed returns by giving investors access to similar deal flow to our Navigator strategy, which has consistently delivered on-target returns since 2013.

Investments are used to provide loan, lease and other asset finance to a large and diverse range of carefully-vetted UK businesses. Investors benefit from an investment that generates predictable, inflation beating returns as well as one that is uncorrelated to traditional equity markets.

This makes our proposition really attractive as returns from savings accounts are still pretty paltry, and sometimes it's not appropriate for people to invest in equity markets which may give them a higher yield, but equally higher levels of volatility.

The target market is intentionally broad. For individual investors, the minimum investment amount is £1,000. For advised investors, the minimum amount is £10,000. It is also available for corporate investors too.

Investors can hold the bonds within an IF ISA, which allows for tax free gains on the £20,000 annual limit, as well as the ability to do ISA transfers.

How will further increases to the Bank of England base rate affect your product?

Even though the base rate has risen to 0.75%, it’s still well below the rate of inflation, resulting in savers who are holding cash, losing money in real terms. At present, the rates we’re offering are very competitive compared with other bonds available in the marketplace especially when taking the various risk profiles into account.

If interest rates continue to rise, we may adjust the rate correspondingly.

Is there a sector focus on the companies being lent to?

We have three different areas that the bond issuers are approaching: leasing, secured lending and short-term finance.

With leasing, for instance, credit card terminals are a classic example of an asset we fund. We have over 45,000 contracts. A credit card terminal is a business-critical asset, and that’s the type of asset we like to be lending against.

Within our three areas of focus, we can see what the resulting cash flows are going to be in the business. We can model them in the short-to-medium term, which means we can be confident in the level of interest we’re offering.

If the base rate does rise further, you’ll find that the new contracts that we’re writing will incorporate that increased interest rate into the rates we’re requesting from borrowers and therefore we will be in a position to evaluate a corresponding rise in the rates we offer investors.

What was the reason behind the name change?

What we found, from speaking to advisers, was that we’d given a complex name for something that was meant to be a very simple Service. By changing the name to Triple Point Income Service, we’re just creating a simple name for what is essentially a simple proposition - delivering a predictable income stream whilst expertly managing the risk.

As part of this the Income Service offers a huge amount of diversification in terms of the number of contracts within the underlying bond issuer – leasing and lending to thousands

of carefully-vetted UK businesses.

We hope that the new name is far more descriptive of these benefits

You’ve given investors a 50 basis point incentive to go through the adviser route. What was the reason behind this?

It’s really because we want to make sure investors are appropriately advised. We have always, as a business, believed in the value that Financial Advisers create. One mechanism for doing that is by saying: ‘By going to an adviser you might be incurring a cost for the advice, but in return, you get a higher rate from us’. So we’re really trying to support the adviser marketplace.

What is the advantage for investors in the Income Service versus investing in a Stocks and Shares ISA?

One of the key advantages of the Income Service is the predictability over the rate of return.

When an investor chooses the Income Service, and asks for a one year bond, for example, they know that the annual return is going to be 5.25% if they’re taking a monthly income. This is of course providing the bond issuer is able to make the payment.

Historically, we’ve made every payment in full and on time. When you look at comparative products in the marketplace, they have a target return. With our Income Service, you know that this is the rate available now.

When we publish our rates, we know that we have a certain capacity level that we can offer these rates for. Typically, those capacity levels are somewhere between £5m and £10m because we know the opportunities the bond issuer has, and what level of return we can generate to then be certain about the level that we’re passing on to the bondholders. In turn, this gives advisers confidence that the rate they discuss with their clients will be available for a period of time.

How do you charge fees?

A key feature of the Income Service is that we don’t charge fees. The way Triple Point is remunerated is from being the equity shareholder in the bond issuer. All of our bondholders get paid first, then the profits within the company, after tax, are Triple Point’s effective fee for providing the service. We are really keen to make sure that defaults are kept to an absolute minimum, otherwise we don’t get paid!

It’s not that we are investing alongside all of the bondholders as you might find in other comparable products. We are an issuer, so we have 100% skin in the game.

Risk Warning: Your capital is at risk. There is no guarantee that target returns will be achieved and investors may get back less than they invested. Tax rules and reliefs are subject to change.

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