Firms hit back at Hargreaves
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Providers and advisers have rebutted recent comments made by Hargreaves Lansdown chief executive Peter Hargreaves that structured products should be outlawed.
Lowes: ‘In this respect he is stuck in the past’
Speaking at a Money Marketing structured products round table, Novia chief executive officer Bill Vasilieff disputed Hargreaves’ view that structured products had not “delivered the goods”.
He said: “If delivering the goods is delivering what you said you would I think they have, so I do not see where that comment comes from.
“He seems to be alluding to the fact that you get more with equities from not having a guarantee. But that does not address the point that people are willing to give up some return for a guarantee.”
Barclays Wealth managing director Colin Dickie said: “It has ignored the good experience clients have had from structures by and large. In this environment there is something pleasing about getting money back when the alternative would have been to lose it which is the reality, particularly if you are putting money on a fund platform that is going to be equity-based.”
But Helm Godfrey managing director Bruce Wilson said: “I support Peter’s view but not whole-heartedly. My challenge is that these things are sold, they are not advised primarily.
“It is all about the guarantee and if the guarantee stands, that is great, but a lot of the products are triggered on events happening. However, you cannot just ban them they have their place.”
Lowes Financial Management managing director Ian Lowes said: “I have an immense amount of respect for Peter Hargreaves but I think in this respect he is stuck in the past.”
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Readers' comments (16)
You must be joking | 5 Feb 2010 10:05 am
I can agree with both sides of this to a certain degree.
I can see no merit in fixed term, inflexible, structured products which tend to span an economic cycle (i.e. 5 or 6 years).
I can, however, see places where "kick-out" plans have a place in a diversified portfolio.
I don't know what Peter said, but an outright ban would appear harsh.
The main issue with structured products remains the fact that any return is dependent upon one specific institution, which in itself goes against the concept of diversification.
Not surprisingly, my view seems to differ from that of the FSA, however, I have been in the industry 25 years, have studied economics and actually understand how clients think.
The FSA unfortunately appear to show none of the above attributes.
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Anonymous | 5 Feb 2010 10:07 am
So it is OK to distribute a 'guaranteed' financial product underpinned by an unknown financial company with excellent star ratings today that could go bust next week !!
Any financial product using 'smoke & mirrors' to hide something should be outlawed - BUT what is our dear regulator doing - absolutely nothing.
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Richard Smith | 5 Feb 2010 10:08 am
It's easy to look at structured products and think they are manna from heaven. In simple terms if a client does not have the risk profile for equities then they should not be invested in them full stop.
Most of these structured contracts are biased toward the creator and are attractive for them in the main.
I agree, that they are sold and any adviser that uses them is looking for an easy life. Given that many IFA's do even understand the basics of Asset Allocation (as noted on other posts) it is not surprising that these products continue to be used.
22 years in now, never sold a structured product, never had a complaint.
I am pleased more exams are coming, perhaps this will actually help the 'advice process' and cease the sale of anything that cannot be understood by a 15 year old.
Ok, I do not agree with some of the stuff that Peter Hargreaves comes out with, but his platform delivers and he does more business than most IFA firms. Jealousy will of course get them nowhere.
Happy Friday.
Richard Smith
http://www.thefinancezone.co.uk
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Mike Jordan | 5 Feb 2010 10:29 am
I agree with Peter that it would definitely be better to ban a product than have situations where clients lose their hard earned money and advisers find themselves with a problem.
The FSA seem very able to retrospectively look at these products and make a decision on which ones were suitable or not. I think that they should be braver than this and actually, together with the FSCS, investigate these products themselves when a new one first becomes available and then, if they're happy that it meets their criteria in that it would be covered by the FSCS in all circumstances then they effectively give it approval.
This would have a number of effects. First of all it makes it very clear which are the more risky products from the point of counter-party risk not being covered by the FSCS.
It will also probably mean that product providers will design their products to meet the "approval" criteria.
Some people might say that it's impossible for the FSA and FSCS to do this however, they expect us to do it and they're also very happy to tell us, with the benefit of hindsight, that we picked the wrong product on the basis that a competent adviser wouldn't have done so. I'd therefore like to see them do this "simple" task in realtime. We would then have a much better marketplace in relation to these products for clients, IFAs, FSCS and FSA.
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John Whipple | 5 Feb 2010 10:31 am
Banning them is somewhat extreme but I do understand his stance on these they are deliberately opaque in construction and internal charges and fees etc. They are marketed fiercely by Banks and their subsidiaries to mostly older people who need higher income than deposit rates are currently able to compete with and have cautious, guaranteed plastered all over them. Which of course they are not. Everyone wants money for nothing and these appear to give that. Everything that glisters is not gold.
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Julian Stevens | 5 Feb 2010 10:47 am
Peter Hargreaves seems to think that because he's built a successful business and is now a very wealthy man, whatever he says should be received by the Great Unwashed, i.e the rest of us, as words of ultimate wisdom.
There are however plenty of intelligent people of integrity who beg to differ from Mr Hargreaves' opinions on structured products (amongst other things).
Let Mr Hargreaves spout his views where he may. I shall consider them but feel under no obligation to adhere to them.
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Anonymous | 5 Feb 2010 10:48 am
Interesting that most 'posts' state that they've never sold a structured product. I have been an IFA, adviser on and purchaser of, Structured Products over the years. I don't use them exclusively, what fool would? But, I see them as a tool for my client portfolios. To ban them because the mass of IFAs haven't got the intellect of a 15 year old as previously stated, would be rather silly.
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Anonymous | 5 Feb 2010 10:56 am
I agree with above post.
With drawdown and "asset decumulation" growing some form of downside protection will be critical. BUT it needs to be properly understood and used (sold).
An adviser must have the competency to be able to decontruct and understand a product before using it. The same goes for product providers!!!
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Peter Herd | 5 Feb 2010 10:56 am
I my view structured products are in the same class as with profit funds and that is poor value for clients with too many clauses that have the potential for clients to lose money even though there meant to be guaranteed or low risk. I have never sold a structured product in 15 years and never will. In my early career I did sell With Profit funds and had the unpleasant experience of having to justify the reasons why companies used MVR. It is now coming to light that some of the structured products are going wrong for clients and that they are not without risk even though they are meant to be guaranteed. With third parties going bust e.g. Leamon Brothers.
A lot of these products are also only return the capital due to fluctuations in the FSTE 100 which in my mind is poor value for money to clients. A managed fund you can choose when to encash and the same for a tracker.
The fact is that if a client wants a guarantee then they should be encouraged to invest in deposit-based savings and national savings certificates. The role of an Independent Financial Adviser is to both give advice and educate the clients in the different asset classes and indeed recommend when to switch from one fund to another. Too many advisers are either poorly trained or are too lazy to give clients regular portfolio reviews. Structured portfolio products were seen as an easy way for IFA and indeed Banks to earn commission without really giving the client's good sound portfolio planning advice.
It's interesting to note that I have had an awful lot of conversations with different IFA over the years where they state it is not their job to recommend when a client buys and sells a managed fund. My response back is always been that why are they in the industry as that is exactly what a good IFA should be doing giving sound advice to client and proforming regular portfolio reviews.
This situation has not been helped with the fact that banks and indeed tied agent working from insurance companies had been pressurised to sell these products. I personally have experience of both working major Banks and Insurance companies where the pressure to sell these products is very intense even though you know it is bad advice. I choose to stick up to my principles and refused to sell them and indeed ended up leaving to setup as an IFA in 2007.
I think the FSA really does need to close down these types of products and also look at how the banks and insurance companies give advice. Maybe it's time that advice is only given by IFA's and that Banks and product providers are exactly that product providers only.
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Peter Jones | 5 Feb 2010 11:13 am
Surely if we treat our clients as adults and explain fully the benefits AND pitfalls including the counterparty risk, there should be a place for structured products in a clients overall investment planning. Surely we cannot continue living in the past.
Interestingly there is no trail commission on these products MMMMMMMMMM!!!!!!!
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