4 Misconceptions About Structured Products
Nathalie Osphare
And yet, preconceptions support the idea that complex investments are reserved for well-informed clients...
1. Structured products are risky.
Structured products are generally no riskier than other financial instruments. Indeed, a large palette of structured products is capital guaranteed. Although some products may involve a risk of capital loss, such risk can be adjusted according to each investor’s degree of risk aversion.
2. Structured products are opaque.
For every structured product using an investment vehicle of the EMTN or certificate type, a term sheet, summarizing its terms and conditions, is given to the investor. This term sheet explains how the structured product works and sets out all its features. The mechanism is explained by a mathematical formula, known as the redemption formula. For most structured products, the issuer is obliged to publish an issue prospectus, detailing the structure of the product.
3. Structured products are technical.
The technicality of each structured product, from the simplest to the most sophisticated, is adapted to the profile of its investors. It is this « adjustable » technicality that lies at the origin of the immense flexibility of structured products since it means that their main features (risk/return profile, amount, maturity, strategy, etc.) can be adapted to meet the different needs.
4. Structured products are illiquid.
Daily valuations are given for most structured products, depending on different factors (time, product behaviour, market trends). A secondary market exists that, under certain conditions, can allow investors to buy or to sell structured products during the product’s life span at prices determined according to market conditions.
For more information about structured products, please read our brochure available on our Voice of Wealth App.