Structured investment products have been sold in their tens of thousands over the past ten years, but crucially often to the wrong people.
Many banks, building societies and insurers targeted cautious investors, promising them stock market linked returns with a guarantee of at least the return of their original capital. However, what they often did not explain was how the returns would be calculated and that the word “guarantee” didn’t have the everyday meaning an ordinary man in the street would expect.
Guarantee in the case of a structured product often actually meant the original capital was only safe if the stock market performed within the parameters set in the product’s terms and conditions.
In return for agreeing to tie-up your money for a set term (three, five or six years were most common) you are promised a set return at maturity. The movement in the stock market during the period will govern this return.
For example, a typical three-year product would offer a 25% return if the stock market was higher at the end of the three-year period than at the beginning.
If the stock market ended lower after three years, you would get back your original investment but no profit.
The problem with the above example (which is typical of how the product was explained) is that it is too simplistic. Often the marketing literature would give such an example, but leave out the risks.
For example, many products specified that if the stock market fell by a certain percentage during the period (even if later recovering) then your capital might not be returned in full.
The impact of commission payments to the selling agent (usually a bank) and the high charges levied under the product were rarely explained and in many cases have had the effect of substantially reducing the profit.
Also, many people sold these policies by big banks that they were familiar with, giving them a feeling of security, weren’t told that actually their money was being placed with another firm, often one they would not have heard of before. And worse, their money wasn’t safe in their hands.
In order to provide the capital guarantee and the promised return, the bank would buy complex financial instruments from other institutions, known as “counterparties”. As you, the investor, have no direct contract with the counterparty, should that firm fail it would mean you could not claim your money back or seek compensation through the Financial Services Compensation Scheme. Many thousands of people have found this to their cost, when their counterparty failed in the financial crisis.
In my view, anyone that considers themselves a cautious investor (and certainly anyone of retirement age) was not a suitable candidate for a structured product.
Conversely, there are many investors with a moderate risk profile of working age that were sold such products when a more straightforward stock market investment (such as an equities-based ISA) would have been a better long-term investment.
In addition, the sellers of structured products are required to give you key information covering the risks, how the product works, the charges and any rights you may have if a counterparty fails. If they failed to do this, your product may have been mis-sold.
If you think you may fall into one of these categories or have any other concerns about having been mis-sold a structured product, then please contact me for a no obligation, informal chat. My aim will be to ensure you receive every penny to which you are properly entitled if mis-selling occurred.
Please contact me now or take the 60 Second Mis-selling Test
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