Advisers say commission-paying structured deposit products are a “grey area” which are “muddying the waters” of the RDR.
Structured deposits are a type of structured product which offer returns linked to the performance of an underlying measure such as the FTSE. Unlike structured investments, they are capital protected and covered by the Financial Services Compensation Scheme, and do not fall under the RDR.
Investec and Societe Generale, do not pay commission on structured deposits.
Legal & General currently offers a six-year growth deposit bond linked to the FTSE 100 which pays 3 per cent upfront commission, with no ongoing commission. L&G says it “makes sense” to continue offer commission where it remains payable.
Gilliat does not currently offer commission on structured deposits, but plans to do so in future. Both providers give advisers the option to sacrifice commission, which would be rebated to the client, and charge a fee instead.
Informed Choice managing director Martin Bamford says structured deposits are a “grey area”.
He says: “Since the RDR came into force there are certainly loopholes and areas the FCA may have missed, and with products still being promoted on a commission basis there is a worry about commission bias.”
The FCA says structured deposits are excluded from the RDR because they are considered to be banking rather than investment products.
But Aurora Financial Planning chartered financial planner Aj Somal says: “These products are investment-linked and still carry an element of risk. The current rules muddy the waters.”
D&W Management Consulting director Richard Leeson says: “Structured deposits compete very much in the investment arena.”
Last week, L&G’s head of structured solutions James Harrington was made redundant, following a decline in structured product sales over the past year.
L&G’s structured product sales fell by 75 per cent between 2011 and 2012, from £102m to £25m. A spokesman says there has been a “further slight decline” since then.