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Julian Gibbs

High-income products have come under increasing scrutiny following warnings from the FSA over the true levels of risk and high-profile examples of products falling through their protection barriers early in the term.

The FSA is to be applauded for its stance. The attitude towards risk is one of the first questions that needs to be answered by every client and should form the basis for all investment advice.

High-income products have been criticised for being difficult to understand because of their structure but the message that investors need to understand is simple – you usually get what you pay for.

If an investor wants double-digit income, then they have to be prepared to balance that against a higher risk to capital.

Investors who use their capital to create income tend to be older, more cautious and with more money on deposit. With interest rates so low, they have seen the level of income from deposit accounts fall dramatically.

Structured products are attractive because of high levels of income coupled with capital protection. Bearing in mind the type of investors attracted to these products, I welcome the approach of Deutsche Bank, which has just launched its first retail product in partnership with Keydata Investment Services.

Its product, the Income and Growth Generator, is a structured fund with a coupon of 8 per cent over three years. Not a world-beating rate but it does operate two safety barriers and uses an index, the Eurostoxx 50, instead of the recently more common share basket to reduce risk.

It is refreshing that products are being developed to cater to the lower-risk market and give investors the most valuable of investment decisions – choice.

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