With structured products returns defined at outset an investor is able to calculate exactly what their return will be for any given movement in the reference asset.
This relative certainty as to what can happen can allow, with effective financial planning, for future financial requirements, such as school fees or pension drawdown, to be met.
But one concern about structured products is counterparty risk.
Most structured investment products will be structured as a loan to a major financial institution.
What happens if that backer goes bust, like Lehman Brothers or Keydata did?
Advisers and investors must be aware that unlike deposit based products, structured investment plans do not benefit from Financial Services Compensation Scheme cover if the financial institution acting as counterparty goes bankrupt.
Therefore it is of paramount importance that investors understand the risks of placing their money with the issuing institution and counterparty.
This guide will explain the different types of structured products, pros and cons of these investments, the regulator’s view of these deals, what happens if the backer goes bust and the tax implications for investors.
The contributors to this guide are Adrian Neave, managing director of Gilliat Financial Solutions; Ian Lowes, founder of StructuredProductReview.com; and Graham Devile, managing director of Meteor Asset Management.