He says these investments generally offer the highest return on investment, because as well as the reward of potential returns, there is the risk that the capital invested can be lost in adverse market conditions.
The investor is offered a premium for taking the greater risk.
Many capital-at-risk products will protect capital unless there is a large fall in the markets.
For example, Mr Lowes says some products will only reduce the capital returned if the FTSE 100 falls by more than 50 per cent.
This event is only likely to occur in extreme market conditions, Mr Lowes points out, as the FTSE 100 did not fall by more than 50 per cent in the financial crisis, for instance.
Capital return is dependent upon movement in the underlying asset and the extent of any protection barrier.
Also, Mr Lowes says rather than being deposits, like structured capital ‘protected’ products, structured capital-at-risk products most often take the form of loans to banks or other financial institutions.
The returns outlined for any structured capital-at-risk plan, including the return of capital, are therefore dependent upon the counterparty remaining financially solvent for the full product term.
This is because these products do not have the benefit of the Financial Services Compensation Scheme in the event of the insolvency of the counterparty.
Within these categories of structured products are three primary product types, according to Mr Lowes: income, growth and autocalls.
Autocalls are growth products that are able to mature early depending on market conditions.
Common types of structured products are kick outs, reverse convertibles, digitals and accelerated growth products, according to Graham Devile, managing director of Meteor Asset Management.
Kick out products can mature early at set observation points if the performance of the referenced underlying has met, or exceeded, a pre-determined value or percentage value of its strike level.
If the conditions are not met at an observation point, Mr Devile says the product continues until the next date where the test is applied again.
If the kick out conditions are not met on any observation date, the product will have run its full term.
At this point, Mr Devile says the capital and investment returns will be calculated as per a pre-defined formula.
Reverse convertible products are also known as income products, says Mr Devile, and these are designed to pay an income in excess of the rates available from high street deposit account providers and ahead of inflation
The income may be paid monthly, quarterly, half-yearly or annually.
In order to achieve this return, Mr Devile says the capital invested is usually put at risk, with its return at the end of the product term linked to the performance of a referenced underlying asset.