With the RDR requirement for advisers to consider all investment options for their clients, advisers are now obliged to be aware of structured product options.
However, the products have been hit with a series of regulatory developments in recent years. In its recent case study on Inside Structured Products, consultancy firm Defaqto outlined the key details of FSA regulation relating to structured products in the post-Lehmans collapse environment that advisers should be aware of.
Fair, clear and not misleading – review of the quality of financial promotions in the structured investment products marketplace
The key outcome from this document was that any companies wishing to promote structured products must be clear on where the client’s money is invested, clearly explain counterparty risk, prominently state that capital is at risk when relevant, use language the advisers and investors are likely to understand and avoid using the terms ‘guaranteed’ or ‘protected’ if thought to be misleading.
Using the FSA’s structured investment product advice suitability assessment template
The FSA designed a template to assess the quality of structured product advice and published it in order for firms to be able to assess suitability of advice in the event of a claim but also to proactively use within compliance checking processes for both past and future recommendations.
Quality of advice on structured investment products
This document summarised the findings of an extensive review carried out by the FSA into the advice given to clients who invested in products backed by Lehman Brothers. The review found that 46 per cent of recommendations were unsuitable, which is a disappointingly high figure. The document does however provide examples of what the FSA deemed good and poor practice, which could be useful for firms considering using structured products in client portfolios.
Source: Defaqto
