You may think that structured products are heading the way of the dodo, but smart advisers are realising that they have a major role to play in a client's investment portfolio, argues Instreet MD George Lucas.
Structured products often get a bad press, even when they have performed in line with expectations. But it’s not deserved. They can play a significant role in an investment portfolio, and smart investors –and their advisers – who understand the risks appreciate this.
The problem is that structured products are seen in isolation – and critiqued as a stand-alone investment solution. This is wrong. What good advisers do is devise a client’s total investment strategy and then work backwards to see if a structured product can be part of it.
This approach takes time and effort, but, as the survey commissioned by the SMSF Professionals’ Association of Australia (SPAA) and the index fund manager Vanguard recently highlighted, investors are prepared to pay for good, strategic advice. In fact, more and more they expect their advisor to offer sophisticated strategies to justify their fees – and advisors who fail to do so could find their client base dwindling.
So what does this entail for advisors, and how do structured products play a role?
It means engaging with your clients to determine their investment goals? What is their risk profile? More importantly, how much risk do they want to assume? Do they need to generate yield? The list is almost endless.
But it is only by engaging in this exercise can the adviser develop the appropriate strategy with all the known risks factored in. Then – and only then – should advisors consider recommending these products as part of an overall strategy.
But before looking at their role in more detail, a general comment about this market is warranted. The relative decline in the Australian structured product market is being cited as evidence that these instruments are headed the way of the dodo bird.
After all, in the six months to 30 June 2012, only 74 new and existing products were on offer raising inflows of $685m, a pale imitation compared with six months to 30 June 2011 when 157 products generated estimated inflows of $1,474m.
Go to page :