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What can we learn from the Lloyd’s structured product fine?

19 June 2017

It’s not structured products that mislead investors – they do what they say on the tin – it is the way some financial institutions promote them, which do the industry and investors an injustice, says Ian Lowes, founder of StructuredProductReview.com.

Last month Lloyds Banking Group Plc announced it was preparing to compensate customers holding structured products with Lloyds itself and its investment arm Scottish Widows, after a case of mis-selling came to light. According to various reports, over 7000 consumers were affected, with the bank facing a payout of over £80m.

The case highlighted the Acorn Market Linked Deposit Fund and the Protected Capital Solutions Fund which we understand were sold in branch between 2008 and 2010, by staff incentivised to meet targets.

These investments ultimately turned out to be somewhat more convoluted and less attractive than investors were led to believe.

Regulators agreed the bank “was in breach of the principle of providing fair, clear and not misleading promotions, because it provided the consumer with a misleading impression of the likely return.”

Over the years, we’ve seen some poor value and complicated structured products. We’ve publicly warned about some of these and written privately to the Regulator about others because we’re passionate about structured products and hate to see cases like this, potentially damage the reputation of the sector.

The regulatory action will serve to improve the situation for those effected, as well as reduce the potential for a re-occurrence and these are obviously good outcomes. But if the headlines serve to deter investors away from sound, well-constructed, fairly charged structured investments, then the wider consumer outcomes are not all positive.

Whilst past performance is not a guarantee of the future, the average return from all of the structured products in our database that matured last year was 5.48% per annum, over an average term of approximately four years, four months.

Whilst still being respectable, the returns were lower than in recent years. Our ‘Preferred’ products fared somewhat better.

Many of us who utilise these investments in our portfolios are at a loss to understand why others don’t.

Far too often it transpires that it is headlines like those that the Lloyds story commanded which serve as a deterrent because the investor fears they must be missing something.

An important point to appreciate from this story is that Lloyds failed to comply with the requirement that its promotions were “clear, fair and not-misleading”.

From this, you can be sure that no provider will risk such a breach and more importantly that your client, as a consumer has a right to expect any structured, or other investment promotion, or literature, to be clear fair and not misleading.

They will do exactly what they say on the tin and those outcomes should not be convoluted.

All in all, we consider this disappointing turn of events part of the evolution of the sector but if it reiterates one very crucial thing, it should be a reminder of the importance of utilising an independent financial adviser, who will research the whole of the market to find a product most suitable for the client.


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