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Vive la différence

To continue the structured product debate following Peter Hargreaves’ article, the first thing I will say is all that investments are different.

They differ in terms of risk, features, penalties, charges, potential benefits, tax, income, etc. The only true test of the advice is in the outcome. Advisers have a vast array of different solutions at their disposal. Certain combinations of different solutions will be appropriate, others will not.

I think we all appreciate Peter’s knack for being deliberately controversial, so I am not going to rise to the statement that “none of the people selling these products would have known that Lehman Brothers was backing them”. Suffice it to say that good advisers make it their job to know who backs each plan. Some firms even took steps to withdraw from Lehman-backed plans and submit cancellation notices on March 17.

His other arguments each have some merit in isolation when ignoring other factors, but that is not how financial planning works. Structured products do not have to act as the be all and end all of a fund but are part of a whole.

A maturity date does not mean the end of a client’s investment exposure. It is simply an event that has been expected as part of the financial planning process and that at worst triggers a new assessment of where to reinvest the proceeds.

As for the fact that the client is tied into a fixed term, structured products can be encashed mid-term, although it is rarely advantageous to do so. However, a portfolio that includes structured products and has been appropriately planned at the outset and regularly reviewed, should not suffer from any resulting lack of flexibility for encashment of a particular facet of that fund.

The cost argument is not as simple as Peter indicates. For example, structured products do not pay trail, and 0.5 per cent fund-based renewal from a different investment is an additional cost to the client of more than 3 per cent over a six-year term – this does not come out of thin air.

As for the loss of dividends, you get nothing for free. Investing in a structured product means you give up the dividends and commit to a fixed term in exchange for added potential benefits, such as downside protection, and a good adviser assesses risk and reward and advises appropriately.

After all of those years in the industry, Peter is understandably sceptical but I think he will accept that throughout his career not all advisers have been the same – this holds as true today as it did in the 1980s.

I am the first to admit that some structured products are poor and should be avoided. That said, appropriately constructed portfolios that include good structured products selected by advisers who have completed appropriate research, outperform over the long term those arranged by advisers that neglect to advise in this area. Therefore, all structured products cannot be poor and many of those advising in this area must be doing right by their clients.

Those who dismiss any particular investment area that proves appropriate and successful for many investors simply because they have had a bad experience or lack the relevant understanding, are not doing themselves, or their clients, any favours.

Those that publicly state “all structured products are poor”, “all structured products should be banned” or, as one commentator put it, “all structured products are pants!” are doing nothing to help our industry.

Ian Lowes

Managing director

Lowes Financial Management


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