The Structured Products thread

mania112

After a discussion about Structured Products in another (unrelated) thread, I thought I would open up this forum for those who know about / or would like to learn about Structured Products.

These aren't necessarily new financial products, and you can find out the definition on Wikipedia http://en.wikipedia.org/wiki/Structured_product

But i'd like to learn the opinion of IFA's as well as people who have / or are thinking of investing in a Structured Product.

What are the pro's and con's?

Which providers are recommended?

Is it the best use of ISA allowance?

What are the alternatives?

Would an IFA recommend a structured product?

All input greatly received

dunstonh

These aren't necessarily new financial products

About 20 years now they have been mainstream.

Would an IFA recommend a structured product?

Yes but only if the terms were worth it, the market counterparty was strong and no more than 25% of the assets were in structured products and no more than 10% with any one market counterparty.

atush

I'd add: Which ones are FCSC protected to 85K, and which ones are effectively loans to the financial institution?

cg21

atush - products classed as "capital at risk" and "capital 'protected'" are loans to a financial institution, UK "deposit-based" products are usually covered by the FSCS but the literature is always clear on this - or at least it has been for the last few years.

This article that was published today seems to be a good starting point for the debate: totalinvestor. co.uk/a/blogs/show/1200 (remove space after totalinvestor. - I can't post links yet).

atush

I realised that, but some have been discussing capital protected products and have said they were FCSC protected.

mania112

Capital Protected: Deposit Plans, money in a bank - covered by FSCS

Capital at Risk: Investments, no FSCS coverage - but I believe there are other (lesser) protection schemes?

VT82

mania112 wrote: »

Capital Protected: Deposit Plans, money in a bank - covered by FSCS

Capital at Risk: Investments, no FSCS coverage - but I believe there are other (lesser) protection schemes?

I don't think 'capital at risk' refers to whether or not there is FSCS protection, I think it refers to whether or not the product has a minimum return of the original capital in full at maturity.

MPP12

Structured products can be divided into two: structured deposits and structured investments. To try to capture them both in a nutshell: The deposits usually have full capital protection, because they are deposits they come under the protection of the FSCS, but for the same reasons the returns are not as high as you might get through structured investments.
Structured deposits are usually linked to a stock market performance in most cases the FTSE 100. They run for 5-6 years and generally, if at the end date the FTSE is at or above where it was when the product started then you get your money back plus the return. If the FTSE is below that point you get your money back.
Structured investments, both 'capital at risk' and 'capital protected' work in a similar way, although neither, as a general rule, have FSCS protection. Most 'capital at risk' plans usually aim to protect your original investment from falls in the underlying index to a certain point. For most products that is until the FTSE falls by more than 50%. This has happened in the past but top to bottom this year for example the FTSE has fallen nowhere near that figure despite the market turmoil in August. At the 50% mark your capital is eroded on a 1:1 basis with the fall in the market. However, because the cost of providing the protection is less, the gains can be higher. A 'Capital Protected' plan aims to return capital in full at maturity, no matter what the FTSE does, unless the counterparty defaults. In most cases FSCS protection will not apply, so it is even more important to consider the institution that is counterparty to the investment goes under, the risk is you could lose all your investment.