Structured Product 6%

Jonbvn

dunstonh wrote: »

Some of those are on the list of not to use under advice.

Any idea why?

payless

dunstonh wrote: »

Some of those are on the list of not to use under advice. .

Please clarify - do you mean they can not be sold by advisers OR that your network's research dept have not approved them ?

dunstonh

Please clarify - do you mean they can not be sold by advisers OR that your network's research dept have not approved them ?

I dont normally use network research. However, they have been asking for us to temporarily get pre-approval for structured products or use ones pre-approved whilst the issues of solvency etc are all up in the air. The information they have given to date has unusually been quite good.

Any idea why?

An adviser carries liability for the recommendation of products. There are concerns that it will be the advisers that carry the liability to pay out if a structured product fails. As all structured products are not equal in their protection or who underwrites them and supplies them, some are less safe than others. So, you are finding that the compliance departments at IFA networks are getting a nervous about them. When you buy direct, you bypass the adviser and you dont get FOS protection for the suitability of the product bought (unless there is a mistake in the marketing which gives you a loophole - e.g. the AXA sun life cashbuilder plans. Although that sort of thing doesnt happen that often).

payless

Advisers should not carry the can for the failure of the product - rather only if they failed to recommend a suitable product for the clients circumstances ( "suitable" will of course be different for different people ) or fail to explain the risks.

Dunstonh is correct that advisers should have quality research to back their recommendation, however I see it as a failing of the system if IFAs who are network members ( rather than direct) are not allowed to consider regulated products from properly construsted providers as their "compliance bods" won't let them as they are seen as too risky - surely this is stating that a certain range of products are not suitable for anyone ( regardless to how much/ little risk they are willing to take)- IMO only the regulator should be able to "ban " products

I currently have no axe to grind- not working a product provider, not even an investment adviser ( although have been in past - under guises of employee- tied and independent , network member and ran a DA firm - albeit as manager/director but not owner )
I've often considered re-authorisation , but personally would find it difficult to operate under any extra layer of "red tape" that a network / employer would impose.

dunstonh

Advisers should not carry the can for the failure of the product - rather only if they failed to recommend a suitable product for the clients circumstances ( "suitable" will of course be different for different people ) or fail to explain the risks.

The events of the last 18 months have highlighted that providers themselves didnt know the FSCS limits. You have pension providers using the investment FSCS protection on their literature when insurance should be used. You have "guaranteed" equity bonds failing when no-one even knew about the counter-party risk possibly not being covered by the FSCS. You have offshore bonds that gave the impression that you had protection on your deposits subject to normal limits only to find that the limit was per institution and not client.

In a number of these cases, it will be the adviser that could be paying out because the risk warnings given were not correct.

however I see it as a failing of the system if IFAs who are network members ( rather than direct) are not allowed to consider regulated products from properly construsted providers as their "compliance bods" won't let them as they are seen as too risky - surely this is stating that a certain range of products are not suitable for anyone ( regardless to how much/ little risk they are willing to take)- IMO only the regulator should be able to "ban " products

I currently have no axe to grind- not working a product provider, not even an investment adviser ( although have been in past - under guises of employee- tied and independent , network member and ran a DA firm - albeit as manager/director but not owner )
I've often considered re-authorisation , but personally would find it difficult to operate under any extra layer of "red tape" that a network / employer would impose.

I agree and disagree. The term network is over used now to reflect any compliance services provider and what they do and what they insist on will vary enormously. I couldnt work for a network that imposed who I could and couldnt use in all areas. I know some networks are almost panel based and others that leave you alone totally. I like the balance mine gives as they dont tell you who you cannot use apart from a few rare cases. Prior to this recent structured products request for pre-vetting, the only provider/product in recent times they explicitly told us not to use was Lifetime (Aviva's wrap product). And they turned out to be totally right on that front when it became an absolute disaster. Apart from that, they have an option research list which you can choose to use or not. In reality, its not detailed or personal enough in my opinion to use individually but their bulletins and focused reports are much better quality. So, you can pick and choose what you want to use.

On the structured products basis, which is only temporary, if I put in a product for vetting and my reasons why I want it, they will check it out. If they say no they will give the reasons why not. I will argue those reasons if required and if at the end of the discussions its still no then it will be no with a heck of a lot of reasons considered. All of which can be documented. In my eyes, its just adding an extra layer of protection for both adviser and consumer in an area that is very grey at the moment. If it ended up remaining in place long term or spread to other areas then I would change network.

payless

You have "guaranteed" equity bonds failing when no-one even knew about the counter-party risk possibly not being covered by the FSCS

In 2004 I raised this on these boards when a Nvesta product was mentioned by Martin himself , ( both he and Nvesta rep both implied I was being OTT ) . however if I ( a non investment adviser ) was aware of this risk surely the IFAs, salesmen and providers were.
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networks- ( as opposed to compliance services) unfortunately IMO many advisers find themselves forced to use them ( as DA would be behond them), rather than than some that have made a balanced decision thats its their preferred route

jamesd

payless wrote: »

Advisers should not carry the can for the failure of the product - rather only if they failed to recommend a suitable product for the clients circumstances ( "suitable" will of course be different for different people ) or fail to explain the risks.

I can't see much hope for an IFA who recommended a structured product to a customer with low risk tolerance if the product didn't have an FSCS covered counterparty. Except perhaps to diversify away from other counterparties, with reasoning for doing so given.

The products swap market risk for counterparty risk so it pretty much has to be discussed IMO.

payless

so that would throw out most structured products then ? as far as I see it there's only a few "deposit based" that are FSCs covered

jamesd

If the customer is after low risk, what choice is there?

100% of their capital, less any interest paid, is lost if the counterparty defaults, far more than with most stock market or bond investments. If the counterparty isn't that safe then the stock market and bonds come in at lower risk and have to be preferred, unless you can see some contrary reasoning for the single product case?

It's possible to put together structured products with multiple counterparties so that a default of one or two would produce lower losses than expected from bonds or stock markets. That sort of combination seems like one that could do the job for low risk.

I can also see the possibility of an IFA explaining this and putting together a package of products that makes similar use of diversification to come in at overall low risk even in the face of defaults by counterparties.

Either of those products could also be more attractive to those who are willing to accept higher risk and who know the value of diversification.

Networks that insist only on Barclays as counterparty might have an interesting time explaining an all eggs in one basket policy that eliminates the potential for diversification, if the investment exceeds the FSCS limit.

payless

Jamesd- not disagreeing - although whast the FSCS limit got to do with barclays as a counterparty - as far as I can see failure by the counterparty ( whoever it is ) is not FSCS protected.