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I have been around the structured products world for over 15 years. There was a period, after precipice bonds, when providers retreated into their short heritage to become not structured product providers but purveyors of guaranteed equity bonds, almost all exclusively based on the FTSE 100 index.

One or two providers tried to keep innovation at the forefront of their proposition but in the main, the product offering quickly became stale and uninteresting. Consequently, IFAs lost interest.

But these bad product times have been banished and innovation is again at the forefront. Rather than mimic one another, providers are offering genuine alternative solutions to those offered by the fund and life companies.

Perhaps more so today than in recent times at least, the USP for structured products – providing full or conditional capital protection – remains central to product marketing. But what is significant is that it is by no means the primary product message.

What takes top billing now is the investment proposition. Pick up any marketing brochure and capital protection will typically be less prominent than you might think. In tandem with this change has been the almost exponential growth in payoff styles and expansion into new and now accessible asset classes. All this has been done while preserving the USP.

It is hard to decide whe-ther increasing the range of payoffs or the breadth of the underlyings will have greater effect. I tend to follow the latter. Typically, when we launch a new product feature, sales increment but with the introduction of a new asset class, new sales seem to be generated, albeit probably at the expense of a fund-based product elsewhere. I have no doubt that the big shift in product delivery has been towards bringing alternative asset classes within the protected vehicle market and that this trend will continue for the foreseeable future. This shift in product gives two core selling points to the IFA, who can now recommend exposure to new asset classes within a protected format.

However, it is not just a case of here’s the new index (linked to the new asset class) and here’s the capital protection, it is more that the structures accessing new asset classes are additionally encompassing fund-like strategies while retaining capital protection.

For example, there is a product currently available which determines investors’ daily exposure to an asset class in line with changing risk conditions (in this particular case, as measured by changes in volatility). This strategy applies particularly well to volatile assets so it is no surprise to see this being used to give smoothed exposure to emerging markets. Intuitively, this gives investors the risk/reward characteristics they would like to see in overall management of their investments affairs, that is, exposure to the asset is reduced when risk is higher but increased when times are calmer.

There are many other examples of fund-like strategies appearing in the market, some with their roots firmly based on quants and other institutional techniques. I strongly believe that these are the sort of products which will feature heavily in the years to come. But, as with most good things, these new strategies will take time to permeate their way down to advisers and longer still for them to gain traction with investors.

You can see where this is going. The traditional fault line between structures and funds is shifting, in some places quite visibly with the advent of 130/30 funds, lifestyling and specific retirement funds. It surely will not be long before the edges are altogether blurred.

As advisers embrace portfolio modelling tools and get a better handle on understanding risk, then structured products – either as funds or as term-based protected investments – will become central to portfolio planning and to offering credible alternatives to the traditional fund-based solutions currently being offered.

Colin Dickie is director of Barclays Wealth

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