Watchdog warns of 'confusing' investments

Structured products need to be more transparent, says FSA.

The Financial Services Authority this week hit out at investments that offer confusing guarantees and complex structures. The City watchdog warned that the way investments known as "structured products" are marketed could lead to widespread mis-selling.

Nausicaa Delfas, the FSA's head of conduct supervision, said: "Structured products are rising in popularity in today's low interest rate environment." She said that the watchdog was "concerned that the growing number of structured products, as well as increasing product complexity, is placing a strain on firms' systems and controls".

Delfas warned that the strain could "increase the risk of poorly-designed products and lead to mis-selling", and accused firms of "focusing too much on their own commercial interests, rather than the outcomes they are delivering to consumers".

The problems centre around the use of the word "guaranteed" in relation to the investments. Many offer guaranteed returns of capital, for instance, plus the potential for further returns linked to the stock market.

However, unwary investors could mistakenly believe that the guarantee refers to the stock market-related returns, which they may not get.

Structured investments use investors' cash in a variety of ways, but they are often too complex for buyers to understand.

Firms have, in the past, been fined for mis-selling the products, Lloyds TSB being the most high-profile of these. In 2003 it was fined £1.9m for mis-selling Scottish Widows bonds. The FSA has not ruled out the possibility of further fines.

Meanwhile, the Financial Services Compensation Scheme has warned that investors may not be able to use the fund if their structured products investments do not provide the expected returns. The only way they may be able to claim compensation is if marketing literature is proven to be misleading. This warning highlights the importance of understanding the risks involved.

Adrian Lowcock, senior investment adviser at Bestinvest, said: "I am not a big fan of structured products, although they have their place. They are more complex and riskier than they appear, the charging structure is more complicated and opaque, with a lot of hidden charges, and ultimately they play on investors' fears, offering a guaranteed return and protection after markets have fallen.

"Using them in investment management is one thing, as the manager can continue to monitor them and sell out at the right time. Buying and holding them is not necessarily the best strategy, but that is often how they are presented to investors."

Lowcock says there should be more control over the marketing of structured products. "Stress testing new products and ensuring there is a monitoring process in place will help reduce the chances of a mis-selling scandal. Investors also need greater transparency on charges and how products are profitable to the business running them."

The FSA this week published guidance for companies offering structured products. It said providers should pre-test new products and monitor their progress throughout their lifecycles. If firms do not comply, there may be further crackdowns.

While firms debate the issue, investors should be wary of putting faith in structured products.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Collections Agent

    £14000 - £16000 per annum: Recruitment Genius: This company was established in...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + competitive: SThree: SThree are a global FTSE 250 ...

    Reach Volunteering: Trustees with Finance, Fundraising and IT skills

    Voluntary and unpaid, reasonable expenses reimbursable: Reach Volunteering: St...

    Day In a Page

    Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

    How Isis profits from destruction of antiquities

    Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
    Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

    'If we lose touch we’ll end up with two decades of the Tories'

    In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
    Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

    The Arab Spring reversed

    Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
    King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

    Academic claims King Arthur was real - and reveals where he lived

    Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
    Who is Oliver Bonas and how has he captured middle-class hearts?

    Who is Oliver Bonas?

    It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
    Earth has 'lost more than half its trees' since humans first started cutting them down

    Axe-wielding Man fells half the world’s trees – leaving us just 422 each

    However, the number of trees may be eight times higher than previously thought
    60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

    60 years of Scalextric

    Model cars are now stuffed with as much tech as real ones
    Theme parks continue to draw in thrill-seekers despite the risks - so why are we so addicted?

    Why are we addicted to theme parks?

    Now that Banksy has unveiled his own dystopian version, Christopher Beanland considers the ups and downs of our endless quest for amusement
    Tourism in Iran: The country will soon be opening up again after years of isolation

    Iran is opening up again to tourists

    After years of isolation, Iran is reopening its embassies abroad. Soon, there'll be the chance for the adventurous to holiday there
    10 best PS4 games

    10 best PS4 games

    Can’t wait for the new round of blockbusters due out this autumn? We played through last year’s offering
    Transfer window: Ten things we learnt

    Ten things we learnt from the transfer window

    Record-breaking spending shows FFP restraint no longer applies
    Migrant crisis: UN official Philippe Douste-Blazy reveals the harrowing sights he encountered among refugees arriving on Lampedusa

    ‘Can we really just turn away?’

    Dead bodies, men drowning, women miscarrying – a senior UN figure on the horrors he has witnessed among migrants arriving on Lampedusa, and urges politicians not to underestimate our caring nature
    Nine of Syria and Iraq's 10 world heritage sites are in danger as Isis ravages centuries of history

    Nine of Syria and Iraq's 10 world heritage sites are in danger...

    ... and not just because of Isis vandalism
    Girl on a Plane: An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack

    Girl on a Plane

    An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack
    Why Frederick Forsyth's spying days could spell disaster for today's journalists

    Why Frederick Forsyth's spying days could spell disaster for today's journalists

    The author of 'The Day of the Jackal' has revealed he spied for MI6 while a foreign correspondent