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Woodbridge warns of hidden danger in structured pricing

Chelsea Financial Services adviser Matthew Woodbridge is warning advisers to be aware of the effect of intra-day strike prices on structured products during volatile markets.

Woodbridge says not all advisers are aware that the performance of structured products is often based on intra-day pricing rather than the closing price of an index or stocks.

He says this means there is increased risk of a product breaking its performance barrier than if it were based on closing prices.

If a product falls beneath the barrier, it must usually return to the initial index level or price by the end of the term to prevent any loss of capital.

Woodbridge says: “Most providers are up-front but following intra-day strike prices for breaches is a difficult task, meaning the possibility on losses not being spotted until maturity is greater.

“Some of these products also track two indices, with the losses based on the worst performing of the two. It is important that these things are not overlooked, particularly with volatility as it is.”

Barclays Wealth director Colin Dickie says the firm recently undertook research which found that only 71 out of 1,282 products linked to the FTSE that have matured in the past 10 years have breached their barriers using intra-day pricing compared with 56 based on the closing price.

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