Why you should avoid structured products - MoneyWeek Investment Tutorials

Tim Bennett evaluates structured products as an investment, using clear concise wording and easy to understand analysis.

[empireconsultinggroup]

I really like this guys videos but am very disappointed about the generic blanket attack on structured products. If well put together they can offer a perfect risk-reward solution to clients.

[merrol]

The main problem with structured products is that greedy brokers take advantage of naive people that trust them. Everyone is responsible for their actions, ALWAYS take enough time and read the fine print linked to ANYTHING you put your money in. Having said that, you can't just pick up an example of a crappy SP and say they all suck.

[shelde]

Doesn't understand the breadth of products available annual strike rates etc They are good products to give a very high probability of fixed returns of 6 % plus

[mrzack]

would IUL indexed universal life insurance be similar to a structured product? They compare months to see which is better.

[RandomWhatever]

I agree with the video. There's always a better risk-return profile in buying the derivatives that make a note than the note itself. Just check the prices and see for yourself. It's mostly financial engineering to appeal to our behavioral side and lower the cost of capital for the issuer. I view calling Structures an asset like calling an APPL + GOOG combo a different asset than AAPL and GOOG bought separately - except that the latter doesn't have extra costs embedded in the combo.

[MoneyWeekVideos]

IncapitalSP - are you by any chance a structured products provider?

[claymable]

I would like to thank you for making this topic so simple. simple concise and relevant!!!

[dcj]

Okay--Full disclosure I am a financial advisor and I do use these...Notice I said USE. Not Sell. Let's go through his reasons why these are bad--

Before we get to his first "bad" sign--When explaining the benefits, he only talks about a downside protection called a barrier. In a Barrier 50% down market=0% down account. 55% down Market=55% down account. A buffer means 50% down market=0% down account. 55% down market=5% down account

Commission. Well first not all of these tools pay a commission. Most of the time when I use them they are in a fee based account. Second when commission does apply, in the tools I use it does not come off the initial invested capital. When the product is priced the commission is figured into the terms whereby the cap on the upper end and the buffer on the downside are price in the issuers profit and sales comp. (which by the way this would be a much better video if he explained how the company makes their money). Third the example commission is roughly correct but the commission is based mostly on the term of the lockup.

Which leads to the second bullet point. The lock up is certainly a concern--but you can get these products with 3 month lockups or 17 year lock ups. So to say this is a reason why they are "bad" is really oversimplifying. It is a consideration to weigh against the benefits. By the way a 3 month lockup will pay a commission of less than a quarter point.

Money back guarantee--in the states if you are invested in a structured CD it is FDIC insured up to standard limits if held to maturity. If it is a structured note it is based on the paying ability of the issuer (just like every other investment in the world). I would agree that if you are holding this because of fear of a massive doomsday event, you should consider if that issuer would be able to pay under such stress.

Missing out on interest? Again a consideration to weigh against the benefits. But low interest rates are exactly why some people want to use these tools. They cannot get 5% on the market without undue risk.

Dividends--Solid criticism of the tools here. This is often overlooked and not spelled out by sales people. I think the tools still make sense but it needs to be spelled out carefully.

Minimum investment. Totally stupid thing to mention. Nothing about the minimum investment is unique to the structured nature of the product.

[dasale]

I suggest you educate yourself fully on SPs before you try to educate others. Structured products do what they say they do and should be used as part of a balanced portfolio. If you do not understand how they work then please do not use them and especially do not try to educate others on an area you have no expertise in. I would also like to add that a fixed term product linked to RPI with a deposit wrapper is a Structured Product!

[TheMehoolio]

Thanks! This is the right level to teach

[MoneyWeekVideos]

simonclews - I have yet to see a structured product that convinces me and I frequently find people are confused by them even having spoken to an IFA. The marketing language use by some of them remains a disgrace even after efforts by the FSA to tighten up on this. So we agree to disagree I am afraid.

[ianmukunya]

i wanted to ask, does this also apply to products offered by insurance companies? what your describing seems similar to investment schemes given by insurance companies.

[jeromemao]

Hi Tim Bennett, you realised if someone wanted to invest in the UKX and he wanted downside protection rather than full upside participation, this will be an excellent product?

Mainly because if he were to buy the index direct, he will be subjected to a -49% loss if it ends at 51% in 5 years time.
However, if he was in the product, he would still be at wherever he was, at a 100%. Win Win.

[ThrallsBoys]

So basically the opportunity cost of using one of these is too high when compared to other investments?

[ThePurpleSnork]

Came here to hear about why I shouldn't consider structured products, and left thinking they might be a better choice than ever. The commissions are gone from the products nowadays in fee accounts. Also, you're not comparing apples to apples when considering the opportunity cost. If you're going to make an investment in the FTSE 100 anyway, maybe forgoing the dividend is a wise choice. Also 4, 000 or 5, 000? I'm thinking about 25% of a portfolio - much more than the minimums. And never put money into something like this is you think you'll need it. 5 years isn't very long, and many of the structured products available today are much shorter than 5.

[atop]

When you pull an all-nighter cramming stuff you don’t understand and then you have to talk about it in class

[lionelpaulchng]

Your simplistic view of what is a structure product is misleading.

[vinnerzucc]

Structured products don’t offer only your capital at maturity date. You get the max of 2% interest and the performance of the underlying security

[oconnelld]

Five years later the FTSE was over 7000 = payday of 50%, the one he explains is far better vs. owning the index for the five years.

[jeffsadino]

As a series 66 advisor, your explanation of the downsides of structured products is ridiculous. Getting $5, 000 back after 5 years is a great investment if the FTSE is down. Getting a 10%/year return is great and way outpaces the stock market. I get half the commissions from structured products than I do with other products, but a majority of my sales are structured products because they are in the best interest of the client. The only valid point in this video is the very last one about counter-party risk and the company going bankrupt.