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Structured thoughts

When economic times change, it always fascinates me to see how different areas of the financial services industry respond to meet the changing demands of clients and customers while also being sure to make a decent profit.

With the UK economy in the doldrums and looking likely to remain that way for quite some time, the focus for many is on wealth preservation and security.

One area that is fully in tune with this and seems to be blossoming on the back of it, particularly over the last six months or so, is the structured products market. Since the beginning of the year, we have seen new and increasingly innovative products come to market from a seemingly ever growing list of suppliers and providers eager to get a piece of the action. This is happening at such a pace that some journalists are asking if is this going to be the year of the structured product. I think 2008 will be remembered as the year when the housing market finally went into reverse, primarily as a result of the credit crunch that also affects the guarantees which stand behind the products.

There is no doubting, however, that structured products are a hot area of the market right now and one that I am sure will only get hotter as providers vie with each other to attract the attention of IFAs and their clients.

As ever, when this happens, there will be winners and losers and it will be interesting to see which of the providers are still standing or even just operating in this market in a few years time.

I have never been the biggest fan of structured products. With so many other products and solutions on the market they can be, and are, easily overlooked and dismissed as among other things complicated and opaque – something a number of my high-profile contemporaries seem to take great pleasure in pointing out as often as possible.

What is more, the memories of the past, when precipice bonds filled the pages of the press for all the wrong reasons, have not entirely faded away.

I am happy to admit that the products today are very different to those served up back then but an enormous amount of damage was done to their reputation as a product class and this should not be underestimated.

Having said that, I have and do recommend them to clients as and when circumstances dictate.

When properly understood, they are capable of playing an important role in everyday portfolio planning and as greater numbers of people in the UK shift from wealth accumulation to wealth preservation, structured products could become increasingly central to advisers’ lives.

At the bespoke end of the market, they can offer genuinely innovative solutions that are capable of meeting the individual, and sometimes unique, needs of specific, and typically wealthy, clients.

The killer phrase for me in the above is “when properly understood”. As advisers, it is imperative that we not only completely understand the products and solutions we recommend to clients but also the providers that have created them and also the ratings of the investment banks that make it all possible.

I believe that with the sins of the past in mind this is particularly important.

The majority of structured products hitting the market at the moment are billed as sleep-easy solutions – the three-pillow approach is how I once heard it described.

But I see little point in having a product that lets you sleep at night when the provider responsible for it has the potential to give you nightmares.

Bruce Wilson is managing director of Helm Godfrey

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