Getting educated about structured products

The FSA’s final RDR paper has made it clear IFAs must have ‘sufficient knowledge’ of structured products to remain ‘independent’. So how can IFA firms ensure their RIs get up to speed?

In June 2009, the FSA stated that under the proposals for the RDR, financial advisers who wished to be deemed ‘independent’ and to trade under that description, would have to include structured products within the universe of retail investments they researched and could offer to clients.

The wording of the FSA’s proposal was this: “We would expect that if a structured investment product would best meet the client’s needs and risk profile, then an independent adviser should have sufficient knowledge of these products to be able to recognise this and make a recommendation to buy this product.”

In its March 2010 RDR paper, in which it finalised the bulk of the proposals, the FSA confirmed this would stand. The result is all IFAs must now have that ‘sufficient knowledge’, even if it is to rule out structured products as investment vehicles they would include in client portfolios.

Educational initiatives

So how does an IFA firm ensure its advisers start to get to grips with structured products?
Alongside formal qualification courses that include modules on structured products, such as from the CII, there is a growing number of educational initiatives, including conferences, workshops and seminars and other related material, being offered by the industry.

As a first step, there are numerous educational booklets and features available, which provide varying levels of information on structured products. The in-depth guides provide information and data on all aspects, from the building blocks and how, for example, derivatives are used within structures, to counterparty risk and effective use of the products in diversifying and mitigating risk in client portfolios.

A good starting point is Barclays Wealth’s Guide to Retail Structured Products. The guide is complemented by The Role of Structured Products in Portfolio Planning, both of which are free to intermediaries. Barclays Wealth won the Professional Adviser Protected Product Review 2010 award for best educational campaign.

However, a quick way to access the range of educational material in the market is via
www.structuredproductreview.com, an IFA-built structured product research website. Alongside its product comparison facility, it has an education section with links to the booklets from the likes of Barclays Wealth and Blue Sky Asset Management, as well as to educational features, and FSA key statements and guides on the use of structured products.

Future Value Consultants (FVC), the structured product research, analysis and valuation specialist, is a third-party provider that publishes a similar booklet: The Structured Product Handbook. This covers the key elements and the major product types in accessible language and based on its analysis of the products.

With the rising demand for structured products – retail sales for 2009 were up by 47% on 2008, with about 1,000 products issued, according to structuredretailproducts.com – it has become far more feasible and cost effective to produce conferences, workshops and seminars. There is a growing number of these being offered on a national basis.

FVC is running a series of free conferences in May, covering Manchester, Birmingham and London, bringing together nine of the key industry names to speak at the conference, as well as running workshops, showcases and interactive sessions.

A series of free workshops has been set up by structuredproductreview.com and Hoare Capital Markets. These will be held nationwide in April and May, with the cost of them being met by the website and a number of co-sponsors: Morgan Stanley, Walker Crips, Meteor, Citigroup and Legal and General. These workshops cover construction of structured products, selling and valuation, risk dynamics and evaluation, and comparison of structures.

Structuredproductreview.com has also joined with Legal and General and Barclays Wealth to negotiate a discounted rate for the Wizard Learning course on structured products of just £10. The training programme provides IFAs with online study notes, audio-visual presentations, revision tests and a final multiple-choice assessment. Details of the workshops and the courses are available through the website.

Structuredretailproducts.com also hosts conferences and undertakes training. It has a one-day training DVD available for £250.

Product promotion

Not surprisingly, given the tough time and reputational damage the structured product market has experienced in the past 18 months, product providers are keen to become involved in the education process and to promote the products and their capabilities in the IFA space.

“We take the opportunities presented to talk to the market through features and focused comment on the major topics of the day,” says Marc Chamberlain, executive director at Morgan Stanley. “And we are heavily involved in the growing number of conferences and seminars that are being run to get IFAs up to speed on structured products.”

Barclays Wealth and Investec are both regular presenters at workshops and conferences nationwide, as well as prolific writers of features and blogs. They make use of online technology to deliver focused presentations and access to debates and masterclasses undertaken with the likes of Interactive Financial Adviser (www.ifaonline.co.uk) and Asset TV.

Gilliat Financial Solutions entered the structured product market in June 2009 and has looked to make its mark among IFAs with the recent launch of its educational programme. The content and research is based, it says, on months of surveying IFAs on the output they would want from the programme, which includes webinars, workshops, newsletters and video broadcasts.

Adrian Neave, managing director at Gilliat Financial Solutions, says with a fast-changing market and increased focus from the regulator, it can be hard for advisers to stay abreast of the most current thinking. “The aim of the programme is to provide a simple, no fuss, accessible education and information service to advisers on all aspects of structured products and market issues.”

Getting into training

RBS has also focused on producing dedicated training sessions for IFAs. It has done this in conjunction with its distributor, SIP Nordic, in the form of the SIP Nordic Academy, which now has some 20 trainers on the road presenting face-to-face to IFA firms around the UK.

SIP Nordic provides two levels of training. The first, the SIP Nordic Academy eLearning, is primarily a self-learning exercise aimed at giving IFAs a broad knowledge of structured products. It prepares the IFA for a test of 15 to 20 questions. If they pass the test they gain a basic accreditation.

The more comprehensive SIP Nordic Academy Programme, which thus far has been delivered to medium-sized IFA firms and networks, has three elements: preparation, workshop and follow-up. It requires IFAs to undertake preliminary reading, but this is followed by a more detailed test, taken online, which helps to clarify their knowledge prior to joining the workshops, according to SIP Nordic managing director David Northrop.

He says: “The Academy itself provides a three- to four-hour workshop, course work, and work books. It covers structured products in a generic, rather than product specific way, and looks at the full range of topics and issues, such as building structures, the impact of interest rates, volatility, credit default swaps, credit ratings, and the different types of investment structures.

This is followed up about eight weeks later to see how the firms have been applying the training in the field and whether there are any areas that need refreshing or additional training.”

The more the IFA market becomes familiar and comfortable with using structured products, the more professional and comprehensive the service it will be able to provide to clients, providers argue.

With structured products firmly on the agenda for all IFA firms, and with the 2012 RDR deadline rapidly approaching, now is the time to take advantage of the many free and low-cost training courses and workshops available around the country.