Investments  

Clearing the fog over structured products

In response to some of the main concerns from the adviser sceptics, he said structured products were only difficult to explain “if you do not spend the time to read the retail brochure”, which has been carefully monitored by the regulator.

He added: “It is often argued today that structured products are far easier to explain than their fund cousins due to the precisely defined nature of their pay-offs.”

Mr de Mariveles also rejected the assumption that structured products were only suited to sophisticated, risk-hungry investors. Instead he pointed to the many products built for non-sophisticated retail markets, before adding that structured products were no riskier than any other type of investment.

He said: “Is there risk? Of course there is, like any investment, but the risk profile is different, in so much as often an investor removes market risk – of markets falling – and replaces it with counterparty risk – the risk that the bank they do business with may go bust, a trade many investors in this climate are happy to make.”

Despite scepticism from some quarters of the financial advisory profession, others such as Ian Lowes, managing director of Newcastle-upon-Tyne-based Lowes Financial Management, are keen to take structured products into consideration.

According to him, the majority of structured products are as easy to understand as life assurance policies and are hard to ignore because some have been among the best-performing investments of recent years.

He added: “Advisers and commentators who dismiss the market as complicated and expensive have not done enough research to retain an ‘independent’ title.

“Far too many pundits speak without the requisite knowledge, and anything is complicated if you do not want to bother learning.”

Christopher Taylor, managing director of London-based The Investment Bridge, agreed that a lot of adviser arguments against structured products are “nonsense”, and has been frustrated that such opinions receive more press attention than those of the many advisers who use them to positive effect.

Contrary to the opinion of some, he claimed structured products were attractive to advisers because it has been possible to evaluate and explain client exposure to key risks by referring to legally binding contracts, with precise details of risk-and-return parameters.

He said such a straightforward formula was more appealing to the “vagaries” of active fund management, and passive investments that just follow the market returns.

Like other advocates, Mr Taylor said structured products have come a long way since the financial crisis and the collapse of Lehman Brothers.

Despite going through a sticky patch of bad publicity, he said the sector has bounced back well and no longer merits a lot of the unfair and misinformed criticism it still received.