IFA Howard Bullock explains why structured product providers need to stop guarding their offerings like a special sauce if they want to win over advisers.
I have never been a fan of structured products. I've always considered them to be too rigid and opaque, offering little insight on charges or how returns are generated.
To a certain degree I was correct in my appraisal.
Try as I might I could not find out what was going on under the bonnet of these things. I already knew they normally contained a mixture of zero coupon bonds and options, but I could not get any specific details. I spoke to several providers and got nowhere.
I even emailed a question to a webinar of structured product experts and was told I didn't need to know how they worked.
WHAT? How do you think a client would react if you patronised them in that way? Are the secrets to structured products locked in a vault along with the recipes to Pimms and Kentucky Fried Chicken?
If the structured product industry (and now the FSA) want IFAs to consider these investments more seriously, why not open the doors and let us in?
On Friday I went to Incapital's Structured Product Masterclass at the lovely Greenwoods Hotel in Stock. Managing director Christopher Taylor was doing the talking and he quickly demonstrated his experience and credibility.
I'm pleased to say he went further in his explanation than any of the providers I had previously spoken to, but still not far enough. I want the nitty-gritty.
For example, if a structured product offers a potential return of 50% after 5 years if the FTSE 100 is above the starting level on the 5th anniversary, I want to know that:
- the provider will look to buy a zero coupon bond set a x% above LIBOR;
- then buy a call option with a strike of xxx at a premium of £aaa;
- and if the product has one of those 50% barriers they will sell a put option with a strike of yyy at a premium of £bbb.
After throwing some questions at Mr Taylor he of course agreed to get such information to me, which I hope to receive next week. By which point it will have taken me a year to access the information I want.
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