Navigating the Investment Landscape with Structured Products!

IFAs are having to navigate inclement weather in the present Investment landscape. With cash/gilts delivering about 4.00% p.a., bonds not as reliable and equities stuttering, traditional model portfolios aren’t always delivering the outcomes that clients are looking for.

Let’s examine the case in favour of structured products performing a more significant role for your clients and why they should be happy to hear what sort of returns can be delivered.

Firstly, what are clients most focused on? Surely it is about avoiding capital loss and/or sharp downward movements in their portfolio values. Behavioural finance is a subject matter, worthy of an article itself, when looking deeper at the decision making on investing and the thought processes that clients demonstrate. Without hindsight, clients will tend to place most value on securing capital and are far more likely to focus on the anxieties on falling markets/values than the happiness gained on the reverse! That has led to many clients losing the composure required for successful investing and panicking by selling investments too early and missing out on future recoveries and gains.

What makes a client happy?

Source: Société Générale Corporate and Investment Banking.

Secondly, why is an industry so underused, when it has a 96% success rate in delivering positive outcomes for clients, exactly what the  FCA seems to be after. The evidence in favour of a more mainstream use of structured products is perhaps highlighted best in the 5 year maturity statistics below:


With a move from some investors to cash alternatives in the bank and building society, away from asset classes like bonds and equities, why wouldn’t clients be grateful for being made aware of the strong arguments in favour of using structured deposits for example? Even taking the one headline that ‘on average structured products delivered 6.51% p.a. last year’ it feels like a perfect investment solution is being missed. With an experienced IFA, used to this market, adding value by selecting the most appropriate plans, an upper quartile average of 9.91% p.a. is very achievable.

If we assume that a typical balanced portfolio delivers around 5% p.a. after charges, the statistics around structured products look very compelling with a very high likelihood of returns averaging 6.5% p.a. after charges.

It’s fair to say that after the Lehman Bros default, structured products were under the spotlight, however even a rare collapse of a small investment bank, didn’t necessarily lead to large losses as client monies were recovered eventually and only a very low number of products were backed by Lehman’s at the time. It is also worth highlighting that credit risk is an integral part of bond investment generally. Don’t forget structured deposits have FSCS protection of up to £85K per investor per institution.

When using structured products, the decision making  process can be simplified by remembering that they are effectively legally binding contracts with a bank. Therefore as long as the bank remains solvent, the terms and conditions laid out in the brochure hold true, unlike when an investment firm blames market conditions for poor performance.

So firstly, clients need to be comfortable with the bank’s creditworthiness. Secondly they need to consider the return profile and chances of that being delivered. Finally, the level and nature of the capital protection, for example whether that is full protection or whether it is conditional, for example on the underlying index being no worse than 35% below its starting position at the maturity date.

At IDAD we offer a range of products suitable for many investors and details are available via your Independent Financial Adviser.

IDAD Limited is Authorised and Regulated by the Financial Conduct Authority FCA FRN 740499. IDAD Africa (Pty) Ltd is an Authorised Financial Services Provider with FSP no: 50937. No part of this publication may be reproduced, copied or distributed without the prior permission in writing of IDAD. All investors should seek advice from a suitably authorised financial adviser and investment must be made via an authorised counterparty.

Past performance is not a reliable indicator of future performance and should not be used to assess the future returns or risks.