The structured products are complex and difficult to understand.
I appreciate the inner details of the products are complex and difficult to understand, but at a 'general customer' level, I understand they are generally straight forward
- the use government bonds to purchase a guaranteed payment in a future date. This normally equates to around 75-80% of the deposit
- a percentage is paid in fees - normally relatively high
- the remainder is used to purchase an option on an underlying asset for a future date (matching the above bond payment date). If the option value is positive a return is paid, otherwise the bond returns your capital investment.
For a few (relatively conservative) people I know, these products managed to 'save their skin' in the equity market when they invested in 2006-07. The subsequent stock market crash would have seen them lose considerable capital if they had not some level of capital guarantee. These products seriously cushioned these losses, effectively only losing opportunity cost.
I think they have a place for a general conservative investor who does not understand how future's & option's work. They are also a reasonable means of giving exposure to more risky assets such as commodities and emerging markets etc.
But I do agree the charges on these products tend to be too high for what they are. I have a small exposure to these type of products from Barclays Capital when I was an ex-pat. Some of them were very attractive at the time with relatively low cost/fees associated to them.
In defence to Barclays Capital at the time, they were very happy to explain how the investments worked, the pro's and con's of them and all charges associated to them. I have no idea if others are as open and transparent.
Plus your money is locked away for the entire investment period. You are likely to just get your money back, which for giving someone use of your money for 5 years, it a pretty bad return.
Yes the fixed term of the investment is an issue, but if it is used as a means by retail investors to access markets they may be willing to take considerable risks in, at strategic points in time, then I see nothing wrong with them. They may be good for people in pension funds close or after retirement who are concerned around capital preservation etc. Not many people would feel comfortable dealing with futures and derivatives in this area.
I see nothing wrong with someone using one of these products to get exposure to a level of equity markets with a 3rd level education fund for example say 5 years out from when the fund is needed. We all agree that equity exposure is best with 7 plus years horizon - these products may assist bridge this gap
I don't believe any product is bad, but some are definitely unsuitable for use to certain people at certain times in their lives. I believe CFD's for example should be very controlled. These are no where near as bad as CFD's
Article from the Telegraph on them also, which may be better reading
https://www.telegraph.co.uk/finance...ed-products-are-they-a-risk-worth-taking.html