Giving consumers further information on potential outcomes to manage expectations over returns, one suggestion of a consumer research paper published by the regulator, is fraught with difficulty and would need to be applied across the investment industry, a trade body has said.
The UK Structured Products Association argued that providing customers with probabilities of future unknown events can be “fraught with complexity and uncertainty”.
The FCA’s thematic review into the sector yesterday (5 March) warned that firms could be hit with further fines, forced to set up consumer redress programmes, or proscribed from marketing products to certain consumers, if they do not correct a range of failings identified.
Several product providers were asked to “assess their historic approach to product design” in order to determine whether customers “may have lost out as a result of any deficiencies”, adding that this could result in “further remediation work... including redress for some customers”.
A research paper published alongside the review found consumers had unrealistic expectations of returns and suggested improved disclosure based on various types of targeted information, in particular likely product returns.
Zak de Mariveles, chairman of UK Spa, said the findings are an important reminder to the structured product industry, and no doubt the wider investment community, that “more must be done to help consumers make better informed investment decisions”.
He added: “Providing customers with probabilities of future unknown events, such as whether a fund manager is likely to over or under perform, or what the level of the FTSE 100 may be in the future, whilst potentially helping consumers, can also be fraught with complexity and uncertainty.
“[We] believe any such initiative needs to be carefully investigated and should be applied across all retail investment products.”
Ian Lowes, managing director at Lowes Financial Management and founder of website StructuredProductReview, told FTAdviser that the majority of structured products have very clear outcomes delivered in known circumstances.
“In the IFA sector, structured products have delivered exceptional and consistent returns over the years, but it’s the less good structured products and deposits and the downturn in the market that... need to be kept an eye on.”
He added that consumer understanding of risk is a priority, with providers and advisers working towards a situation where if that risk transpires in the worst possible outcome, it is not a complete shock to the investor.
“The vast majority of the sector are keen to see it develop appropriately and will take this as feedback as to just to double-check that they tow the line. There have undoubtedly been some bad apples, which will always be the catalyst to any sort of focus like this, but is wrong to assume the sector as a whole is troubled.”