Why we recommend structured products

Four advisers explain why they attended Morgan Stanley’s bespoke educational training sessions about structured products.

Alistair Creevy, Independent Advisers (Scotland)

As part of a clients’ diverse portfolio, structured products are useful in providing income for a set number of years where the client is prepared to take some risks.

They are often used for pension assets under SIPPs to protect growth. I tend to allocate about 10% of a client’s total income in this way where it is appropriate to do so.

In the case of pensions, assets might be higher where people want exposure to the FTSE. This is great because even in the worst case where there is no growth over five years or so, my client still will not lose capital.

I think the structured product providers should get together as a group to offer a national qualification, which is accepted by the FSA. Not everyone should be able to advise on structured products because there is a certain level of technical knowledge required.

We as a firm are moving our proposition to fee-based advice for 2013 and are changing our investment process to ensure consistency in recommendations. We are also making sure all our advisers are qualified up to level 4 diploma status.

I would have taken on training regardless of RDR as we feel we have to show we are developing our knowledge and training courses confirms that we are.

Structured products are a hot potato and we feel we have to demonstrate we know what we are talking about.

Daniel Cawley, 121 Financial Services

I used to work at Barclays Capital so I had a reasonable understanding about structured products already. Clients there did understand structured products and favoured them compared to other products with capital risk associated.

However, I felt that in the current regulatory environment and with concerns from my colleagues and network regarding counterparty risk, FSA guidelines and how much of a client’s portfolio should be allocated to structured products, further training would be helpful to build up my knowledge.

The training gave me the information I needed to advise my clients and partners with confidence.

It was also good that this contributed towards my CPD points, and in that sense it made a positive contribution to my RDR planning. Everyone here is working towards the diploma in preparation for RDR.

Harry Katz, Norwest Consultants

I’ve recommended structured products in the past, when interest rates were not looking great and clients were looking for income. I didn’t bang everybody’s last penny into them. To be honest, I wasn’t particularly enamoured with what was on offer. Structured products became too complicated.

I asked Morgan Stanley to come in because I like to explain products to clients and I find this a bit of an effort with structured products. They use terms like ‘kick out plans’ – are we talking football here or finance? But you can’t just ignore products. I want to be sure I am doing the right thing for my clients. And I was uncertain how to assess the risk of a structured product and apply it to my clients.

You have to know about all the products in the financial universe and not be closed – minded. With interest rates pretty dire and real inflation at 5.5 %, I have to get 7% or more. So I needed to know more about some of these structured income products.

What is the client’s profile for structured products? They are usually coming out of cash and by nature more risk averse, and they want income. In general, they are the less investment savvy clients, so explanations of structured products need to be simple.