While advisory firms are getting to grips with RDR-friendly business models, many are also taking a more pro-active view on the integration of wraps and platforms into their client relationships. With the increased regulatory attention on capital-at-risk products, it would be sensible to make use of technology and online capabilities to meet RDR’s more stringent requirements, while increasing turnover and attracting investment capital from clients.
This was flagged clearly in a recent comment from Mark James, head of distribution at SPwrap.com: “Extending the ability to hold, purchase and monitor structured products on a platform will help level the playing field between mutual funds and structured products and, with empirical evidence indicating growing interest in structured products among financial advisers, this can only see the structured products market grow sizeably in the next few years, benefiting advisers and investors.
So will the increased interest in the use of structured products benefit clients and investors? We should remember that historically many structured products were arranged with clients on a “commission” basis and the charges and costs for the plan were implicit – that is, buried in the overall cost of the plan. I am not clear on how this will pan out – for advisers with a fee proposition, product providers will need to market their offerings on a clear charging basis. This approach fits nicely with the RDR requirements, but I suspect in the short term, some structured product offerings will remain on a commission basis and will therefore prevent a move to a level playing field for clients.
With all the regulatory noise and changes, is anything really different in terms of value to clients from the use of structured products in an investment strategy? Consider some of the information contained in the marketing for a current structured product and consider the potential benefits to clients. The plan is described as:
“A structured investment proposition that provides investors with pre-defined equity-linked returns, transparency, daily liquidity and protection from counterparty risk.”
So this is selling a return in the future, based on market forces but set at a level agreed at the outset of the term. Taking it at face value, the risk the client is taking appears to be managed and known from the outset. This may appeal to investors who take a cautious view.
“Share class A is aimed at institutional investors and requires a minimum investment of £100,000. Share class B is aimed at the retail market and requires a minimum investment of £3,000.”
Share class A is clearly relevant for advisers working in the discretionary space but not, I would suggest, appropriate for advisory businesses that should not be committing £100,000 of a client’s money to one product.
