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Structured products: Demand for more clarity on structured investment charges

by Rachael Revesz on Nov 05, 2012 at 16:47

While providers develop RDR-friendly charging, some advisers, like Kevin Forbes (pictured) and James Clancy, believe they should go further in disclosing the various costs involved in structured investments.

Structured product providers have already launched or are gearing up to offer commission-free structured investments ready for the retail distribution review (RDR), but some advisers are still calling for more transparency and breakdown of costs.

Nev Godley, vice-president of the institutional equities division at Morgan Stanley, said it was unlikely a provider would fully break down costs in terms of custody and administration fees, and said advisers would not particularly care.

‘If you look at a brochure now, a typical six-year product, say, will say charges are already factored in, including any commission for the adviser,’ he said. ‘Whether they [advisers] realise or are interested in the different people behind the scenes to pay, I shouldn’t think they particularly care about that.’

Godley (pictured below) said Morgan Stanley had spent time examining whether the client would be better off with RDR pricing and came to the conclusion that any difference would be marginal.

‘To be honest, there’s not a lot in it,’ he said. ‘It depends on what the pay-off is, what the underlying assets are, how they work already and the terms of the product. Sometimes they can be marginally better off, but it nets out as about equal and probably won’t make much difference.’

Morgan Stanley has yet to launch its commission-free structured products but Godley said they would be easy to implement.

Breaking down costs

Barclays Wealth is attempting to break down costs more instead of having an aggregate number, according to its director of investor solutions, Richard Henry.

‘If that’s [a cost of] 5%, commission is 3% to the intermediary [pre-RDR], but there isn’t an explicit break down,’ he said. ‘What we have done is attempt to get closer to that. All the information is on there but we are trying to make it more explicit.’

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1 comment so far. Why not have your say?

Dave Knight

Nov 15, 2012 at 11:23

One of the great fallacies of the RDR is that better informed clients will be able to make better decisions. Many clients will be presented with product particulars listing a whole host of charges and deductions relating to the plan recommended, each of which creates yet another element in the chain to cause misunderstandings for clients unless explained to the Nth degree.

One of the beauties of Structured Products is that "You get what it says on the tin" in relation to the returns.

Simple, straightforward and uncomplicated.

When you start having to itemise not only the adviser charges, but also the product provider charges, the cost of protection, the counterparty charges, the cost of making the brokers coffee every morning etc etc etc then the client becomes overburdened with info they either do not want or do not need.

And eventually decides this is too much like brain-ache and does nothing.

I firmly subscribe to the KISS principles (look it up if you are new to financial services) and fear that RDR will just make Structured Products (like fund supermarkets) APPEAR to be expensive bolt-ons rather than cost-effective solutions to the problem.

If only the FSA had heard of KISS!

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