He says these products are popular also because they attract coverage under the deposit side of the Financial Services Compensation Scheme, meaning that investors (assuming they qualify) would be covered up to £85,000 should the issuing bank fail.
The one ‘disadvantage’ of structured deposits, according to Mr Neave, is that any profits will be subject to income tax, whereas structured investments are often treated under capital gains tax, which is often more attractive from the investors’ perspective.
Structured investments are not covered by the FSCS, however Mr Neave says the advice regarding investing in them is, so if an investor feels they have been mis-sold they may still be able to register a claim through the Financial Ombudsman Service.
Structured investments come in two forms, capital protected or capital at risk, Mr Neave adds.
Capital protected products work in the same way that structured deposits do, the difference is that they may be constructed so that any profits arising are subject to CGT as opposed to income tax.
Mr Neave says: “It is important to check the wrapper for the product to establish the tax treatment, enterprise investment schemes may not be eligible for CGT treatment where dual warrant constructs may be; however it should be noted that warrant structures would not be eligible for inclusion in Isa.
“Capital at risk products generally offer higher returns than structured deposits or capital protected investments but investors do put capital at risk.
“Usually markets would have to fall considerably, typically by 40 per cent or more before an investor would lose money but once the level is breached losses will normally be on a one for one basis.”
Ultimately Mr Neave says retail structured products will usually protect investors against all but savage falls in the reference asset.
He says: “The most common reference in the UK is the FTSE 100 and capital at risk products will usually return 100 per cent of an investors’ capital unless the index has fallen more than 40 per cent.
“For risk adverse investors this can be an attractive feature, allowing participation in equity market growth while managing the downside.”
One of the biggest issues the structured product industry faces, according to Mr Neave, is ill-informed comment from so called experts dismissing structured investments as being highly complex.
He says: “This is incredibly naive and shows a complete lack of understanding of the mechanics of structures.
“It is essential to understand that there are two sides to a structured product; there is the asset the investor buys, and there are the actions a bank takes to hedge their liability to investors.