Financial advisers are being urged to consider structured products to protect the capital for clients accessing pension freedoms.
Investec, a provider of structured products, predicts that the introduction of packaged retail and insurance-based investment products (Priips) in January 2018 will also make the products more attractive.
The provider claims the introduction of the regulation will make it easier for clients and advisers to compare the risks and the costs of structured products versus alternatives.
Investec estimates that a third of advisers have used or use structured products and that 10 per cent use them on a regular basis.
Investec’s white paper Four per cent still the magic number? Sustainable spending for UK retirement argues that structured income plans offer income streams with protected capital without giving up access to that capital.
Structured products, which are equity-based but use counterparty backing to protect the capital of investors, fell out of favour following the banking and credit crises of 2008 and 2009 when several counterparties - including Lehman Brothers - went bust, leaving investors out of pocket.
But Investec claims regulation of banks as well as capital adequacy requirements introduced after 2009 mean investors are now better protected.
Leigh Fisher, intermediary distribution at Investec Structured Products, said advisers were often reluctant to admit using structured products.
"We have held workshops for advisers when only one has held their hand up when asked if they used structured products, but afterwards we have been approached by advisers who don't want to admit publicly they use them. It's a bit like being a (Donald) Trump supporter.
Ms Fisher said: “We embarked on this white paper to help advisers work out how a structured product might help their clients.
"There are more and more people out there with responsibility over their own pension pot. The annuity market is getting smaller and smaller versus the drawdown market, pushing more people into looking at products that can offer them an alternative.
"We believe structured products are part of a solution, and we want advisers to consider them. At the very least as a base to work from."
samantha.downes@ft.com
