Advocates of structured products are constantly enraged that they are harshly treated by their critics. They are aggrieved that the post-millennium precipice scandal is still used to bemoan the plans, even though the structured product industry has moved on from the badly geared and unrealistic assumptions that caused misery for thousands of investors.
What really gets their backs up is any mention of Keydata.
“That was not about the mechanics of the plans, it was about the link to secondhand American life insurance policies,” they cry.
The latest fury is over the collapse of Lehman Brothers, which had consequences for investors in plans from L&G, Arc and DRL. “Lehman was a once in a lifetime event,” they say.
I suspect structured product providers are not best pleased with the revelation that Santander has written to investors to say it was wrong to label them “guaranteed”. Remember, these guaranteed structured products were used to woo interest rate-starved cash investors to its super Isa paying market-leading rates.
The bank now admits that “the fact that the return on your investment or policy was described as guaranteed does not necessarily mean we can pay you compensation equal to the return you were promised”.
As is a matter of course with financial institutions, the Spanish-owned bank does not think it has done anything very wrong. It boasts it is the only provider that has written to clients, while the rest of the industry still says Financial Services Compensation Scheme cover may apply and refers customers to the FSCS’s website.
It says it is a highly-rated bank that is pretty much safe from insolvency, even hinting that no government would let a bank of its size go under anyway.
All of which misses the point.
Savers did not give two hoots about the FSCS three years ago. The credit crunch changed all that and many consumers now need reassurance that, even in the worst-case scenario, they will get some money back. As one adviser said to me at the height of the financial crisis, clients were not so worried about the return on their money but the return of their money.
There are about 2,000 investors who expected to be covered by the FSCS when their DRL plans went to the wall. They, too, would not have expected a prestigious bank such as Lehman’s to go under but their claims have been rejected. This is despite the plan literature explaining that Lehman Brothers had an A+ credit rating from S&P and AA from Fitch, among the most secure ratings that can be issued and that “in the unlikely event that DRL becomes insolvent, you should contact the FSCS”.
Many investors claim that was enough to persuade them to invest. One Telegraph reader lost £150,000 as a result and is hoping a class action might rescue the situation.
Santander’s conscience is clear because it says few people have phoned in to complain. It has been lucky that its products are performing according to plan. Let’s face it, there have been plenty of plans that have disappointed in the past and had that been the case with its recent issues, the phones lines would have been hot.
The problem is that when a financial heavyweight such as Santander cannot work out when a guarantee is a guarantee then what hope do mainstream investors have? And the structured product fan base wonders why the sector is forever fighting the critics.
Paul Farrow is personal finance editor at the Telegraph Media GroupMoney Marketing