Dennis Hall Managing director, Yellowtail Financial Planning
“There is no doubt in my mind that the manufacturers of these products have no real understanding of the end-consumer when designing the product. To some extent, they must work with what the market provides in terms of pricing and they design products that have appeal, given the conditions at the time. If there is a strong demand for a particular type of product, they will try to replicate it. That does not necessarily make it right.
“There is a bit of a production line mentality about the structured product market. Design it, produce it, ship it -job done. Now, though, the FSA wants providers to monitor the investment over its life cycle instead of simply shipping it and forgetting about it until maturity. I am not yet sure what is involved with monitoring a structured product as the terms and conditions under which they operate are established at outset. Perhaps it is to review the strength of the counterparty and take whatever might be needed if things look like they are going south.
“This is not going quite as far as product regulation but it is a step closer. If they do not take heed, we will see greater intervention and possible restriction on the distribution of the product.”
Martin Bamford Managing director, Informed Choice
“The new FSA guidance on the sale of structured investments is an important step towards tightening up the design and marketing of these products.
“Perhaps the most damning conclusion from the FSA on the structured product market is that providers tend to focus on their own commercial interests rather than the needs of the investor. This is a bold conclusion to make about an entire investment market although given some of the high profile failures of structured products in recent years, perhaps not unreasonable.
“Most of the proposed guidance focuses on the design of products rather than ensuring the suitability of their sale. There is a new obligation on structured product providers to monitor the sale of products during their life cycle although more clarity is needed on where the responsibility for suitability rests, with provider or adviser.
“It will be interesting to see how the FSA puts the guidance into action in the future and whether this new guidance has a real impact on the design and marketing of structured products.”
Ian Lowes Managing director, Lowes Financial Management
“On the face of it, a lot of the FSA’s points seem reasonable and I am sure the sector will ultimately benefit from improved, hopefully fair, regulation. However, I am a little perturbed by the fact that the FSA found basic weaknesses in firms’ identification of the target market(s) for their products and failed to consider consumers needs and wants.
“Providers creating different styles of products dependent upon market conditions which may appeal to different investors is not necessarily a bad thing – innovation drives competition. I hope innovation is not stifled to the extent that those of us who are in a position to choose from the whole market find choices limited to only a few solutions.”