In its Retail Distribution Review policy documents, the Financial Services Authority used structured products as an example of a product of which financial advisers would need to have “sufficient knowledge” if they wanted to retain their ‘independent’ status.
As might be expected, Ian Lowes, founder of StructuredProductReview.com, says this generated considerable interest in structured products, and in part has led to the take up of these investments by advisers who had their eyes opened to their qualities and potential.
Mr Lowes says the regulator has carried out an extensive review of the structured product market starting in 2009 and culminating in a final policy paper in March 2012.
He says the result of the FSA’s review of the sector has gained a much greater degree of maturity.
Following the FSA consultation and policy papers it issued the ‘Structured investment products assessment template’, a document grounded in Conduct of Business rules and high level principles, which forms the methodology by which the regulator will assess suitability, focused on customer outcomes.
The FSA produced a frequently asked questions sheet that deals with the key issues for advisers in using the template.
One of the myths arising from the FSA policy documents, according to Mr Lowes, was that advisers could not invest more than 10 per cent of a customer’s assets into any one structured investment product and no more than 25 per cent into structured products generally.
The FAQs sheet dispels that myth by confirming that the regulator considered these figures to be trigger points prompting further assessment of suitability and not hard limits or safe thresholds.
Mr Lowes says: “To some extent, the FSA Review and the last policy paper issued in March 2012 have helped to increase adviser confidence in using structured products as they have now been through the regulatory scrutiny.
“The FSA said it would continue to monitor structured products and the industry has responded positively to that.
“When the [Financial Conduct Authority] took over the regulatory reins from the FSA, in one of his first speeches, the new chief executive Martin Wheatley flagged that the regulator would be keeping structured products in its sights – using what has been described as controversial terminology saying some of the exotic products are “almost like spread bets on steroids”.
“We will have to see how the new regulator follows up on that speech.”
However, Mr Lowes insists the industry has responded well to the previous FSA scrutiny and considerable steps have been taken to improve transparency both in product and marketing and to raise the levels of understanding and dispel the myths and misconceptions around structured products through educational campaigns including free training for advisers.
He says: “We believe it will continue to do so, guided by bodies such as [the UK Structured Products Association].
But Graham Devile, managing director of Meteor Asset Management, disagrees with Mr Lowes on the structured product limits set by the regulator.