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Firms hit back at Hargreaves

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’
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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There are 16 comments at the moment, we would love to hear your opinion too.

  1. You must be joking 5th February 2010 at 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.

  2. 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.

  3. 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

  4. 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.

  5. 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.

  6. 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.

  7. 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.

  8. 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!!!

  9. 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.

  10. 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!!!!!!!

  11. Peter Hargreaves is entitled to his very many opinions, some I agree with.

    These ‘structured products’ were designed for the ‘direct offer’ crowd who mailshot all and sundry, R J Temple for example, I was told it was Mr Temple who insisted that the likes of NDF and others manufacture products with headline rates of 10% plus when the cost of providing the traditional guaranteed growth or income bonds pushed them out of the market.

    If the regulators knew what they were doing they wouldn’t spend all their days with a bucket and mop cleaning up after the event and more importantly innocent ‘consumers’ whouldn’t be losing their shirts every now and then.

    Society is in dire need of regulatory balance, I see none.

  12. Chris Taylor, CEO Blue Sky Asset Management 5th February 2010 at 3:05 pm

    The ignorance displayed in the comments of advisers seemingly proudly stating that they don’t use and have never used any structured product is astonishing. In fact, such ignorant comments do nothing but highlight the calibre of the advisers making them, as opposed to saying anything accurate, meaningful or useful about structured products, especially today. Bear in mind also that whilst some advisers do state that they have never selected a structured product in their long careers, this is not something HL can state : they have used structured products in the past – and some of these have been amongst the most successful products of their time (there are most certainly commercial drivers (lack of trail) mixed up with the misguided investment views they proffer that misguide other advisers today).

    Sweeping statements about counterparty risk are nothing more than good examples of woeful cop outs. Counterparty risk is not hidden by structured product providers – in fact there is a wealth of information and education available for anyone who needs or is motivated to understand it properly. The fact is that structured products can exchange a multitude of investment risks (stockmarket volatility, active fund management risk , etc) for counterparty risk, ie a counterparty will contractually state, via the terms of a bond or security that they issue, precisely what the risk and return parameters of a product will be and the investor only needs to consider whether that counterparty institution is likely to go bust or not. If they remain solvent they must pay the returns stated in the bonds that they issued. For many investors it is far easier to form a rational view on whether a major global bank, such as HSBC, Barclays, JP Morgan, BNP Paribas, Rabobank, etc, are likely to be in business in 5 years time than it is to consider all the variables of ‘traditional’ investment funds, where despite the providers and advisers assertions that diversification of portfolios and investment horizons of 5 years or more is all the ‘risk control’ that investors need, the facts are that these assertions been been shown/proven to be insufficient strategies for genuinely controlling risk and defining returns for investors.

    Quite clearly not all structured products are good. But neither is all of anything, including mutual funds and investment advisers. Good investment advisers identify the minority of mutual funds that add value and avoid those that don’t. All investment advisers should do the same with structured products. Blanket statements about disliking all products are quite obviously a result of not having the knowledge to spot a good one, when one exists – and being too dogmatic and misguided to think that looking for value adding propsoitions might be client-centric and worthwhile.

    Hopefully, however, the investing public , that is looking for viable returns and defined exposure to risk from stockmarkets that are currently more difficult than ever to predict, know how to spot a decent investment adviser when they see one – and avoid the ones who are and intend to remain ignorant of an industry that can irrefutably add value in investment portfolios and is going from strength to strength.

    Pragmatic, client-centric advisers who may hold negative views of all structured products, but who are balanced enough to wish to investigate their views, and check that they are actually valid, before continuing to hold them, are welcome to contact Blue Sky. We will provide education and the knowledge needed to properly understand how structured investments work today and how to use them appropriately in balanced, diversified portfolios, for the benefit of investors. The simple fact is that the advisers making dogmatic comments do not have – and cannot with their ‘hand on their hearts’ claim that to have – the knowledge needed to back the views that they hold. To make this more interesting if any doubting adviser engages with us and remains objectively unconvinced that ‘best of breed’ structured investment providers and products can add value, if used intelligently, Blue Sky will make a contribution to charity.

  13. Peter Hargreaves hit on a very successful business strategy back in the early 1980’s and is now a multi-millionaire. Good luck to him. But he has never really been in the advice marketplace – rather, he has sold to the cheapskates who are not prepared to pay for advice, and taken the trail. Yes, he does send customers (I deliberately didn’t use the word client) regular magazines extolling the virtue of one fund or another – and then waits for the new money to roll in. If that recommended fund goes down the pan, no matter – there’s always another one to recommend next month. He doesn’t have to take the flak since he hasn’t proffered client-specific advice.

    I think I have the intellect of the average 15 year old. I suspect I have an intellect as good as PH (2 degrees with high levels of maths and statistics, near charter status and 18 years as an IFA) so I would have the temerity to question his negative generalities concerning ctructured products. I believe that some structured products (I said some) might actually help in diversifying/de-risking a well-rounded portfolio.

    As for not understanding such products – in many cases the product terms are simplicity itself and the possible outcomes easy to ‘fix’ – the problem is that the FSA hasn’t been bothered to ensure that the issuers of the underlying promises (counter-parties) are financially sound enough to do so.

  14. Peter disagrees with any product that is not on his Vantage platform, hence Peter only agrees with investment funds and SIPPs.

    For anybody intersted check out a performance comparison with the very good own brand Hargriefs managed funds and the alternatives he so enthusiatistically criticises!

  15. Peter Hargreaves is a complete joy.

    This likeable guy comes down to Bristol from – where is Clitheroe? – and tells all the other pr***s how to do it. Whats not to like? Peter you are still just a bucket shop discounter! You also have my utmost respect.

  16. Its quite sad to see people have a go at the HL model.

    Admit it…for most clients, it is rather good. They provide excellent information and actually serve the modern day chaps who like to research and take decisions themselves. To call those clients “cheapskates” is simply ridiculous. Very soon you will find the majority of youngsters acting in this way where they dont want advice, rather to make an informed choice.

    You can’t compete with HL. Just get over it. Serve your own clients and advise them accordingly.

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