Structured product experts hit back Go compare with our comparison table

Structured product experts hit back

14 June 2010 / by Rachel Mason

Experts have hit back at the bad press thatt structured products have received as a result of the Which? article Danger Money in the latest edition of Which? Quarterly.

In the article, Which? brands structured products "confusing, complex and costly" and not always as safe as they seem, it uses the collapse of Lehman Brothers as an example of why investors should not go for structured products, and suggests ISAs as an alternative.

But experts argue the piece was far too crude about structured products and confusing in the way it suggested ISAs as an alternative.

The UK Structured Products Association says it is "genuinely concerned that any investment product should be compared to a tax wrapper as this is confusing.

"ISAs are a tax wrapper, so you don’t invest ‘in’ an ISA, what you are invested in is ‘wrapped-up’ in an ISA. We’re rather disappointed that Which? would confuse products and wrappers in this way," said a spokesman.

Julie Smith, head of structured product research at Fair Investment Company agrees, saying "To suggest ISAs as an alternative to structured products makes no sense," she said.

"ISAs are a tax efficient wrapper, and there are many different types of investment products that can be held in an ISA, including structured products. You cannot suggest a tax efficient wrapper as an alternative to an investment product, it is not comparing like for like."

The UK Structured Products Association also feels it is unfair to use the Lehman Brothers example as a reason to steer clear of structured products while not mentioning any of the other investments that were affected:

"When Lehman’s collapsed most investors were affected – stock markets fell, banks were in trouble and the credit crunch took hold. Some structured products were also affected but of the top 20 complaints to Financial Ombudsman Service, structured products are not even on the list."

While the UK Structured Products Association and Ms Smith are not suggesting that all investors should be investing in structured products, both argue that it is unfair to blacklist structures based on one bad example without looking at any of the success stories.

"Across the board it is essential to understand the inherent risk with any type of investment; and with structures, whether its capital protected or capital at risk, one of the first things to look at is who is backing the plan, i.e., the counterparty," explains Ms Smith.

"Knowing the financial strength of any counterparty is one way of assessing the risk of default; the higher the financial strength of the counterparty, (in the main) the less chance of default. Some providers are even offering their products with a choice of counterparty to give that extra choice for this very reason."

She concludes, "everyone is entitled to their opinion and it goes without saying that structures are not for everyone; however, the actual danger here is that a balanced argument is not being given and the focus is primarily on the risks associated with some products and not all."

©Fair Investment Company Ltd

 

 Product NameISA OptionMaximum Potential ReturnTermMore Info
FTSE 100 Enhanced Kick Out Planyes

10%

per annum

Up to
6 years
More Info >
Structured investment plan with the potential to mature after years 1, 2, 3, 4, 5 or 6. If the plan matures early it will return 10% times the number of years the plan has been in force. Also available for Stocks & Shares ISA and ISA transfer.
FTSE 100 Defensive Kick-Out Planyes

8.0%

per annum

Up to
6 years
More Info >
Structured investment plan with the potential to mature after years 3, 4, 5 or 6. If the plan matures early it will return 8% times the number of years the plan has been in force. Also available for Stocks & Shares ISA and ISA transfer.
Kick Out Deposit Planyes

3%

per annum

Up to
6 years
More Info >
Capital protected deposit plan with the potential to mature after years 3, 4, 5 and 6. If the plan matures early it will return 3% times the number of years the plan has been in force. Also available for Cash ISA and ISA transfer.
FTSE Defensive Kick Out Planyes

7.50%

per annum

Up to
6 years
More Info >
Structured investment plan with the potential to mature after years 2, 3, 4, or 5. If the plan matures early it will return 7.5% times the number of years the plan has been active. Also available for Stocks & Shares ISA and ISA transfer.
4 Year Deposit Planyes

12%

at end of term

4 yearsMore Info >
4 year capital protected structured deposit plan which aims to return 12% if the FTSE 100 is higher. Also available for Cash ISA and ISA transfer.
6 Year Defensive Deposit Planyes

24%

at end of term

6 yearsMore Info >
6 year capital protected structured deposit plan which aims to return 24% if the FTSE 100 is higher than 95% of Initial Level. Also available for Cash ISA and ISA transfer.
FTSE Step Down Kick Out Planyes

7.0%

per annum

Up to
6 years
More Info >
Structured investment plan with the potential to mature after years 2, 3, 4, or 5. If the plan matures early it will return 7% times the number of years the plan has been active. Also available for Stocks & Shares NISA and NISA transfer.
Mid-Term Kick Out Deposit Planyes

10%

after 3 years, or 18% after 6 years

Up to
6 years
More Info >
Capital protected deposit plan with the potential to mature early after year 3. If the plan matures early it will return 10%. Also available for Cash ISA and ISA transfer.
Retirement Deposit Planyes

3.75%

per year, plus 22.5% at end of term

6 yearsMore Info >
6 year capital protected structured deposit plan which pays 3.75% annually from capital with a potential 22.5% at the end of the term if the FTSE 100 is higher. Available for Cash ISA and ISA transfer.

The value of investments and any return from them can fall as well as rise and you may not get back the full amount invested. Please ensure that you read the Important Risk Information below.