For the majority of advisers, structured products are still a relatively niche asset class. Their perceived complexity, combined with the criticism that the structured products industry has faced in the past certainly divides opinion in the adviser community. Over the last 10 years we have seen the industry go through a significant positive transformation, which has contributed to making the structured products of today some of the simpler investment options available in the UK retail market.
What Is A Structured Product?
A structured product is an investment with a defined term whose return is linked to an underlying asset; usually a major stock market index such as the FTSE 100. Unlike funds, structured products also feature a defined return profile depending on how the underlying asset has performed. Using Investec’s FTSE 100 6 Year Deposit Plan 16 as an example; if the FTSE 100 has risen (by any amount) over 6 years, the product pays growth of 42%. If the FTSE 100 has not risen over 6 years, the product pays no growth and only returns the initial deposit. In other words, this product only has two return outcomes: growth of either 42% or 0%.
This is different to a fund, whose future return is unknown. The defined nature of structured product returns is one of the reasons why advisers find them so useful when planning for their clients’ future.
Structured products can be split into two categories: Deposit Plans and Investment Plans.
Deposit Plans are the same as a fixed term deposit account. However, instead of paying a fixed rate of interest, a Deposit Plan pays a potentially higher rate of interest that is conditional on the performance of the underlying asset.
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