Most commentators attribute structured products' current popularity to the capital protection they offer. But I think it's something else...
No doubt protection is central to their appeal, but I would argue advisers are also attracted by the ease with which products can be matched to investors' specific requirements.
Fixed rate products are particularly popular at the moment, as investors fret over market uncertainty and the low return offered by deposit accounts.
Income products are also filling a gap in the market as investors concede that, in order to get above cash returns, they need to accept a degree of risk to their investors.
However, even with the myriad permutations of products available in the market, there are some requirements which providers will not be able to pre-empt, and that is where a tailored solution can be requested.
Tailored solutions take the natural specificity of many products one step further. Sometimes, we can be asked simply to tweak an existing product, so it matches even more closely the needs of a particular investor.
This can take many forms. Most products are essentially trade-off vehicles - investors receive a certain pay-off for a particular level of risk/capital protection - and thus bespoke products sometimes just require a minor alteration to this risk/reward profile.
Say we have a digital product offering 100% capital protection and a return commensurate with that level of risk, an investor (or, more likely, their adviser) might request less protection - 80% or 90% perhaps - for an enhanced payoff.
Sometimes, however, the request might involve something as fundamental as a change of index. Like all providers, our off-the-shelf product range is dictated by the market - I'd imagine demand for an investment linked to the Uzbekistani stock market would be somewhat muted - and that leaves gaps in some areas.
For instance, we offer a product offering exposure to 22 emerging markets, but we do not offer one linking to any single developing nation. An investor might therefore approach us to link to, say, China or the Russian RTS index.
A recent change - one which has now been rolled out to the wider market - was to a kick-out product which offered conditional capital protection.
Our challenge was how to re-engineer it so it provided full capital protection; the answer - a classic trade-off - was to alter the terms of the kick-out so that the early maturity was delayed until the third anniversary and six-monthly thereafter.
As structured products become increasingly established in mainstream portfolios, it is likely that we will see rising demand for tailored products where an advisor has identified a specific need amongst a number of his clients.
Colin Dickie is a director at Barclays Wealth
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