The trouble with virtually all structured products, including with-profits and other types of lock-in funds, is that if markets go against what they aim to achieve, the downside tends to be severe or, at the very least, an unwelcome surprise.
The balance of judgement that needs to be made before recommending one of them is whether the hoped-for performance on which the product’s upside objectives are based is sufficiently probable to offset the risk of loss.
As Peter Hargreaves has suggested, far too many guaranteed growth and/or income bonds have been sold without proper consideration for the balance of probabilities that they could result in bad losses, although to rubbish the entire product category simply because of the exceptional failure of Lehman Brothers is too sweeping.
I side with Skandia’s philosophy of constructing carefully balanced, risk-graded and individually tailored portfolios of simple unit trust funds while making absolutely clear to the client that a unit trust is not – as so many people blithely assume – some sort of turbo-charged cash account that will only ever go up and up in value.
Almost all unit trust funds offer the valuable virtues of transparency of charging structures (whether or not you agree the levels of charges are reasonable or not is another matter) and penalty-free access at any time. These two parameters are notably absent from just about any structured product you care to name. And all those conditions in the small print are a real turn-off.
There are no magic recipes for building a successful portfolio and pretending otherwise is a recipe for disappointment. If the security these days, even of cash, is dubious, then for any client who finds the prospect of investing in anything linked to investment markets to be intimidating, the best advice cannot be to look to complicated structured plans.