Structured products: FSA promises action on 'confusion'

UK financial watchdog the FSA is promising action to ensure that financial firms offering structured investments do not confuse investors with their use of three terms - secure, guaranteed and protected - when they sell products to the public.

The FSA is planning to make firms explain exactly what the terms mean in product literature and advertisements as reported here on this story  and analysis from the Financial Times.

But the personal finance editors of the national newspapers are unconvinced that the watchdog has gone far enough.

Daily Telegraph editor Paul Farrow, who has been writing about problems with the products for  well over a decade, says he doesn't know whether to laugh or cry at the latest FSA action.

He writes: "You have to question why the FSA is being so slow to react. It is almost a decade since tens of thousands of investors, most of them elderly, piled into precipice bonds because they promised juicy levels of income at a time of falling stock markets and low interest rates."

He then points out that another swathe of investors lost out in the last financial crisis with the Lehman's failure.

On the Telegraph message boards, nowhearthis writes:  "It was clear some time ago that the individuals in government and other public positions and bodies we rely upon failed to regulate business properly and still do. The only difference is that now they talk big and give assurances but I do not believe any of it. Honour among thieves, politicians and public servants, that's all this is."

However, Cliff D'Arcy on Motley Fool says the regulator has got tougher in the last two years.

On adviser trade website Missold Investor sums up many investors' frustrations.

He writes: "Something certainly needs to be done. Thousands of inexperienced and risk-averse savers lost their money in structured products around the early part of the millennium ('precipice bonds'), 1800 of whom with NDFA products for example had to be rescued by FSCS to the tune of £21m.

"Thousands of similar investors lost their money (£107m) with Lehman-backed products in 2008. The FSA investigated in 2004 and again in 2009, reporting widespread misselling. For whatever reason, ordinary savers have been getting their fingers badly burned and the FSA seems to have done little more than investigate and consult."

Here is a link to the FSA's quarterly consultation paper which outlined its plans.

The financial industry has until August to give its views.

Which? reports very critically on the products here.

However for a less sceptical view, this is a myth buster from the Structured Products Association here.

A more partisan (in favour) view also comes from David Rumsey, head of the multi asset product team UK, at HSBC Private Bank.

He says structured notes: "Can provide different degrees of capital protection, enhance returns in low growth, low yield markets, enable investors to implement their risk reward profiles; and provide access to some markets that are not available through ‘traditional' investments."

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