Advisers shouldn’t shun structured products, says Catalyst

October 22, 2009

Advisers should not be put off investing in structured products despite providers NDF Administration (NDFA) and Defined Returns being placed in administration last week, according to Catalyst Investment Group.

Andrew Wilkins, executive director at Catalyst Investment Group, said structured products would continue to face prejudice until the Financial Services Authority’s investigation into Lehman-backed products was concluded.

He said: “We cannot expect to see full investor confidence return until a line is drawn under the affair and there is better guidance on the disclosure of counterparties, product structure and marketing, and financial compensation.”

Yet, Mr Wilkins said the products were useful for investors who wanted to take the risk out of traditional investment portfolios.

He said: “The painful boom and bust of the investment cycle over the last two years is proof of the need for more stable alternatives. “The question is one of quality, and the transparent structuring of these products so they are suitable and easily understood by retail investors.” Mr Wilkins said dismissing structure products would be “capricious”, adding that investors would never dismiss every single mutual fund. He said the Lehman-backed products had been mispriced and misunderstood and did not reflect the huge range of products available. “The reality is that the quality of structured products available to retail investors has already improved considerably, and will be strengthened further by likely consolidation within the industry,” he said. “Lessons have been learnt to the benefit of all. Intermediaries have become more alive to the creditworthiness of those backing a fund and are looking beyond the brand names.” He said providers had also improved by disclosing more detailed information about counterparties on structured products.

Published originally in FTAdviser by Rob Langston, Monday , October 19, 2009