I have a question about these bonds in general.
As far as I understand they work as follows:
1. John and Mary give their friendly advisor 10,000 euro.
2. The advisor takes 2 - 2.5% commission
3. The product provider takes 2 - 2.5% commission.
4. About 8,500 of John and Mary's money is put on deposit in the bank at 4 - 5% per annum which is enough to guarantee their 10,000 in 4 years time.
5. The balance is used to purchase a call option or some other financial instrument which will reflect the performance of the 'flavour of the month index'.
6. If that index does very well say, growing at 20% per annum, the product provider will skim 10% of this as a performance fee.
7. After 4 years John and Mary get their 10,000 back plus performance of the index subject to a cap.
My question is this..
How can John and Mary go about buying the option themselves? They could leave their own 8,500 in their own bank, risk their 1,500 euro, keep the commissions and receive the full performance of the index.
There must be a way of cutting out the middlemen.