Counterparty risk, charges and complexity have conspired to give structured products a bad name, but there are signs advisers are turning to them once again.

The death knell for many structured products was sounded on 27 October 2009.

That was the day the FSA announced “tough” action to help investors who received unsuitable advice or misleading literature when they bought a structured product backed by Lehman Brothers, which had collapsed a year earlier.

It was the first time some investors had heard of counterparty risk and, for some of their advisers, it was reason enough to stop recommending them altogether.

But advisers were already wary of the products. Some believed the commission offered on some structures was too high – an average of 3% – while others had barely touched them due to their complexity and illiquidity.

Back in favour?

However, there are signs sentiment towards structured products is shifting again as advisers re-familiarise themselves with the products’ plus-points: protection against market downside, diversification and the offer of high yields in a low interest-rate environment.

Director of investment solutions at Barclays Capital, Richard Henry, says structured product sales have been noticeably strong in recent months as advisers begin to educate themselves about the products.

“We are seeing a vociferous demand from IFAs for education – a desire for education which was not there before,” he said. “We do sessions for advisers to try and get the message out - there is no substitute for explaining things to people.”

Better and more accessible sources of information are helping debunk some of the fears associated with structured products, according to Provident Solutions managing director Paul Smith.

“One of the issues in the early days with trying to get an understanding of the products was all you had was the product provider’s material and I think we have seen on numerous occasions that is potentially a road to disaster,” he said.

“Now there are information sources like Synaptic and StructuredProductsReview.com. Products are being launched, discussed, reviewed.”

Vital role

Smith said he, like many advisers, was initially cautious about using structured products but now believes they can play a vital role in some clients’ portfolios.

Kenny McKenzie, managing director of private client services at Intelligent Capital, was also among those early sceptics, but he says taking the time to learn their advantages and disadvantages has led to him recommending the products.

“A few years ago we reviewed a number of products, saw that certain types are appropriate and deliver value and it was on that basis we decided to use them. It worked very well for our clients and the business.”

McKenzie said he has developed a good working knowledge of the structures and thinks more advisers would use them if they understood them better.

“I think they do a very worthwhile job and advisers need to recognise that.”