This also applies when considering how best to use Individual Savings Account (ISA) allowances.
With interest rates low and the Libor curve for Sterling not pricing any interest rate rise until the end of 2013 at the earliest, Fernando Gasca believes that the positive signs we are starting to see in the global economy are making investment in the stock market a profitable option again.
As such, he believes there is another option that could well meet the needs of the more cautious investor, in the form of a structured product. “A Cash ISA is quite a conservative solution for people who want to take a conservative approach,” he says.
“However, advisers can also recommend structured products to more risk-averse investors as part of a balanced portfolio because they are held in the form of a deposit.”
It’s at this point that some advisers may feel anxious. Structured products have a reputation in some quarters – rightly or wrongly - for being aimed at sophisticated investors but Mr Gasca strongly believes hat they can be the right product for investors who want capital protection and the possibility of an upside return.
“When you talk about structured products you’re usually thinking more about investments but our solutions are structured deposits,” he explains. “This makes them very suitable for clients with conservative or balanced portfolios that would otherwise be investing in cash.”
It’s important to acknowledge the difference between a structured deposit and a structured investment. While the former are more suitable for those with more conservative ambitions, the latter are aimed at those willing to take more risk.
The capital return element of structured deposits is based on cash term deposits with a variable interest payment linked to the performance of an underlying asset, such as movements in a particular stock market.
Structured deposits are always capital protected at maturity and those on sale in the UK are covered by the Financial Services Compensation Scheme. Structured investments, on the other hand, more commonly have a corporate bond as the basis of their capital return and protection, and can be both capital protected or capital at risk.
The UK has a long-held tradition of long-only investing and this can make explaining the concept of structured solutions to clients more of a challenge. It’s one that only solid returns and lessons learned from various financial crises around the world, is likely to change.