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Product providers hit back at Which? criticism over risks

Structured product providers have hit back at Which? Money’s recent list that ranked structured products among its top 10 useless financial products for consumers.

The list features structured products alongside mobile phone insurance and payment protection insurance, branding them as “confusing, complex and costly products” people could be wasting thousands of pounds on each year.

The UK Structured Products Association says the report’s comparison of structured products with an Isa is confusing and argues they should be considered as part of a diversified portfolio.

A spokesman says: “In most cases, structured products achieve the returns investors expect and contribute to the performance of a diversified portfolio.”

Blue Sky Asset Management chief executive Chris Taylor believes the report’s broad-brush indictment of all structured products is unfair.

He says: “Unbridled and sweeping comment from publications that is potentially ill-informed is as much of a disservice to investors as bad providers and bad products. The key word is differentiation – not all providers or products are the same.”

Which? Money acknowledges not all structured products are the same but is concerned about the ways that they are marketed to consumers.

Which? Money editor James Daley says: “The true risks of structured products – such as counterparty risk, inflation risk or risk to capital – are too often downplayed or not mentioned at all. We will continue to advise all but the most sophisticated investors to give these products a wide berth.”

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. Structured products are vulnerable to mis-selling because of their inherent complexity, the counterparty risk, and lack of FSCS cover when the counterparty fails. How many of those people who have used these products in the past really understood the risk they were taking? Even now, 2 years after Lehman collapsed causing thousands of UK savers to lose their money in these products, the key facts such as counter-party risk and FSCS cover are still not being properly explained by some intermediaries and providers. It’s no coincidence that many PI insurers don’t want to cover IFAs for structured product- related claims.

  2. Sweeping statements are a problem. Not all structured products have counterparty risk and lack FSCS cover. We have used structured products which are deposit based and hence ARE covered by the FSCS limit of £50k (now) if held to maturity.
    One problem can be when clients originally have a structured deposit product which at maturity lulls the client in to a false sense of security with the marketing firm concerned, for instance Keydata who had the “Relax” deposit based ISA which paid a handsome return at maturity with NO counterparty risk and many people then rolled over the matured monies in to the “secure income plans”, which had no counterparty and little FSCS protection but relied on a model which now appears flawed (or fraud, we still don’t know which) as people are now finding to their cost.

    Which and other journalist don’t always get it right historically and it is easy to be wise after the event. I well remember Which’s endowment and with profit best by tables as well as the journalist from the times who wrote a glwoing report of Keydata’s life settlement plans which was sent to IFAs as part of the marketing.

    As with most things, the important thing is to spread risk and get a sensible asset allocation avoiding structured products is just playing to the crowds when what should be happening is ensuring people don’t put all their life savings in any one institution whether it be a bank deposit or a structured (non deposit) product as either way if you put more than £50k and they go bust, your money is at risk as there is no FSCS protection….. And what people seem to forget is that if the do a deposit based structured product with their bank and have cash on deposit too, they need to be added together when calculating the 50k limit. It is these issues which should be more focused on i.e. encouraging people NOT to allow their bank to hold everything with no protection and to spread risk/assets wider…

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