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Structured choice

Hargreaves Lansdown needs to understand structured products – differentiation is not just key but also the raison d’etre for wealth managers.

The recent attacks on structured products by Hargreaves Lansdown have been a cluster bombing that the US would be proud of, inflicting maximum damage on the “whizz kids that manufacture them”, collateral damage on the “incompetent brokers that sell them”, with some friendly fire for the apparent benefit of “uneducated investors buying them”.

The US, however, occasionally has to justify its actions, whereas Hargreaves Lansdown has declined to accept an invitation to participate in an open assessment of wealth management solutions for investors – a charity challenge put forward by BSAM.

This is disappointing, as the views put forward are extremely strong but also unsubstantiated and, so far, uncontested. There is no desire on our part to be confrontational. However, the UK is behind the curve in understanding how far structuring has advanced in recent years, at the leading edge, and a case study could prove highly illuminating for many in the industry.

There is certainly nothing disingenuous in the timing of our challenge – as suggested by Hargreaves Lansdown.

Our main contention is that there has been no differentiation whatsoever between providers or “products”. This strikes me as bizarre – as the entire structured products industry is being judged by the lowest common denominator while the mutual funds world is valued because of the highest common denominator.

Why should any wealth manager treat the entire structured products universe as one – when there is a world of difference between research- backed “intelligent structured investments” developed by providers, who aim to open up value-adding investment opportunities for investors, and “easy structured products” designed by providers who simply want to maximise sales.

Most wealth managers understand that at least 80 per cent of the mutual funds world is duff but they use their expertise to differentiate. Hargreaves Lansdown itself has a Wealth 150 List but not a Wealth 1,500 List.

Recent events prove, not disprove, why structured investments provide value for investors – five-year returns are now negative for the second time in a decade – and the future looks more challenging than ever.

Structured investments can define, reduce or even remove investment risk while traditional fund managers (and wealth managers who rely on nothing but them) can only promise techniques to “manage” risk, which clients may increasingly have difficulty understanding or believing. Check the performance statistics of the IMA sectors (and the best mutual funds) to see the efficacy of the claimed techniques.

We feel strongly that, in the current economic environment dismissing, an entire investment universe out of hand (and encouraging anyone that will listen to do the same) is far from in investors’ best interests. We have therefore tried to take this debate to an investment planning/portfolio planning level rather than continue a ding-dong of points that are, so far, missing drilling down to any substantive points.

The obvious fact is that there are superior structured investment providers and value-adding structured investments – just as there are stellar mutual funds. We operate a client-centric, research backed, investment-led approach at BSAM and we believe that investors need their advisers to identify and position the best wealth management funds and propositions available, in optimal portfolio planning processes, without dogma or divide. We hope to have the opportunity to highlight this to Hargreaves Lansdown.

Chris Taylor is chief executive of Blue Sky Asset Management

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