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Clear as mud

A dictionary definition of the word transparent: “Free from pretense or deceit, easily detected or seen through, readily understood and characterised by visibility or accessibility of information especially concerning business practices.”

Does this conjure up visions of the structured product industry? Perhaps not if my experiences with certain provider press offices this week are anything to go by.

This week, Blue Sky Asset Management reluctantly confirmed that recent breaches to HBOS shares in its protected income plans will transfer to a combined HBOS/Lloyds stock in the event of a merger between the two banks.

After a long and frustrating series of enquiries to Blue Sky’s press office, it could eventually confirm recent breaches to HBOS shares on the first two issues of its PIPs will not be negated if a replacement stock is introduced into the plan and will pass on it the combined HBOS/Lloyds TSB stock.

The company would still not confirm what stock will replace HBOS but suggested it is likely to be the next biggest UK registered bank, Standard Chartered.

Currently HBOS has to return to 645p in the original plan and 557p in the second plan by maturity in 2014 for client capital to be repaid in full, following breaches triggered by the Lehman collapse. If it fails to do so, capital is lost on a 1 per cent for 1 per cent basis in the value of the individual worst performing stock from its original level.

Blue Sky says that in the event of a tie-up between HBOS and Lloyds, the merged stock will have to return to “an adjusted strike price” by 2014 in order for investors to regain their full capital.

Going into precise detail about possible plans and calculations for how future provisions would actually work before the Lloyds/HBOS merger had completed would be ‘meaningless’, explained a Blue Sky spokesman. Unfortunately these are exactly the questions clients and advisers are asking.

He continued: “These calculations aren’t going to help anybody. I know loads of other funds which have fallen. It’s not that bad. This seems like a personal vendetta against Blue Sky, as if it’s the worst thing. This is as clear as it can be.”

Well it’s not clear enough. Structured products have always faced criticism over transparency, an issue providers have tried to address recently, so you would hope after the events of the last couple of weeks they would be doing their utmost to communicate changes to the IFA community.

You have to ask if the firm cannot provide a clear flow of information to advisers how is the sector ever going to regain the public confidence that it lost during the precipice bond era.

Just to clarify, as more investors find themselves exposed through structured products underwritten by Lehman Brothers, Money Marketing has sought answers from providers as to how they were allowed to end up there. This is no ‘vendetta’.

On the other hand, given the limited information available from Lehman Brothers administrators PricewaterhouseCoopers at the moment, structured product providers affected by the issue that Money Marketing have been constantly pestering over the last week or so, such as NDFA, have been pretty helpful.

According to Nexus Independent Financial Advisers director Kerry Nelson, something must be done if we are to alleviate the question marks that hang over the future of structured product plans. Otherwise, she says: “People will and still buy them for the wrong reasons and expose themselves to too much in a particular area. They are marketed to the less sophisticated investor but unless you’re a rocket scientist how can we expect all advisers who have little time on their hands to really understand the fundamentals of how a structured product works.”

Email your thoughts to hannah.stodell@centaur.co.uk

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