Rethinking Structured Products: Time to Take a Fresh Look

UK advisers are not short of things to worry about: Consumer Duty, PROD, IHT reform, consolidation, PI renewals.  Yet as soon as someone mentions “structured products” or “structured deposits”, the anxiety level seems to spike.  The conversation stops being about clients and planning, and turns instead to horror stories, old headlines and questionable survey statistics.

A big part of the problem is the way structured products are framed.  Every few months, a large fund house or insurer releases a glossy “insights” report.  Buried inside is a familiar set of numbers: only a small minority of advisers say they use structured products, very few clients have exposure, and many advisers cite FCA scrutiny as a concern.  These findings are then used to “prove” that structured products are inherently dangerous.  In reality, they mostly prove that the firms paying for the survey don’t manufacture them, don’t market them, and so advisers rarely see them.  If no‑one shows you a tool, it’s hardly surprising you don’t use it.

From there, the logic becomes circular.  Advisers are understandably wary of regulatory scrutiny.  The FCA has criticised some poorly designed, poorly sold structured products in the past.  The conclusion many people draw is that anything with the word “structured” on it is a regulatory landmine.  At the same time, the same industry quite happily uses multi‑asset funds, smoothed funds and complex bond strategies that, in practice, are at least as intricate.  The difference is cultural and commercial, not purely technical – one set of products sits at the centre of most big manufacturers’ ranges, the other does not.

This is reinforced by a persistent 2008 hangover. For some commentators, every modern structured product is still the Lehman‑linked note from the financial crisis.  That ignores how far design has moved on.  Today, well‑designed products come with clearly defined coupons, transparent linkage to major indices, explicit capital barriers or full capital protection in the case of structured deposits, stress‑tested scenarios and full disclosure around counterparties and costs.  None of that makes a product automatically suitable, but it does mean the entire category can’t fairly be written off as a relic of a different regulatory era.

There’s also the culture of the comment section.  Post any article mentioning structured products and you can almost time the responses: “this is mis‑selling waiting to happen”, “what about 2008?”, “clients don’t understand these things”, and a link to a complaint case from years ago.  That chorus helps to cement the idea that structured products are uniquely controversial, even when the particular example in question is quite straightforward and being used in a clearly defined way.  It’s easy for advisers to absorb that tone and file the whole area under “not worth the hassle”.

Structured deposits illustrate the perception gap neatly.  On paper, a deposit with FSCS protection (up to the usual limits), where the return is linked to an index, but the capital is protected, is seen as “complex”.  Yet a 60/40 multi‑asset fund with full market risk, blended underlying holdings and no defined payoff is seen as “plain vanilla”.  In practice, the actual risk/return profiles can be very similar – or the “structured” option can be more predictable – but the label does a lot of the damage.

Consumer Duty is often invoked as the final nail in the coffin – “we can’t touch that now”.  Yet the Duty doesn’t ban any particular product type.  It asks for good design, fair value, clear target markets, understandable communication and ongoing monitoring of outcomes.  Those requirements can be met or failed by any product, structured or not.  In many ways, defined pay‑offs and explicit scenario diagrams can make it easier to explain what is supposed to happen and to evidence that clients understood the trade‑offs.

The sensible position is neither “structured products for everyone” nor “structured products never”.  It’s to accept three realities: some historic products were badly put together and deserve their reputation; some were sold badly and that’s a suitability issue, not a product category issue; and many current products and deposits are transparent, fair‑value tools that can play useful roles in income planning, risk management and specific retirement jobs like bridging, gifting or protecting a future annuity pot.

For advisers, the key shift is to stop letting old myths and noisy narratives make the decision before the fact‑find has even started.  Start instead with the basics: what is this client trying to achieve, over what time frame, with what capacity for loss?  Then consider the full toolkit – funds, annuities, DFMs, cash, structured solutions, deposits – and ask which combination does that job best.  If a well‑designed structured product or deposit clearly improves the plan for the right client, it deserves a place on the shortlist.  If it doesn’t, leave it out for good reasons, not because of someone else’s survey headline.