Do investors really need Structured Products?
I recently started working for a new client and was also providing advise on financial assets he has invested through banks. There is one particular Structured Product he entered into. Due to the complexity of the product and knowing that the client, who is in the medical field, has little knowledge about financial markets, I asked him what went on during the purchase process and how he arrived at the decision.
As expected, he cannot recall very clearly what was communicated and how the decision was made. However, what he remembered clearly was that the capital for the investment was protected and that the 1st year interest is guaranteed. Here’s the term sheet and the description. 20-yr JPY Swap
Now, my thinking are these. Firstly, it is my thinking that as the market gets more sophisticated, structuring teams of banks use their creativity to row out Structured Products clients can invest in. As the bank employees have increasing interest and ” sense of achievement” in mastering complex information and products, there was a disconnection between where developments are heading and what the client really needs. Do a client really need to enter into a Interest Rate Linked Structured Deposit tied to 20-yr JPY swap rate?
Secondly, why does the banker recommend this product? Now, I am not discussing if the decision on the product was a good call. No one can predict that. What I am driving at is, how is the client going to make informed decision on the product which he placed thousands of dollars in if he does not understand it at all? Surely the banker will know that the client does not understand what is the 20-yr JPY swap rate, much less if and how much the 20-yr JPY swap rate will change. How many clients actually has a view on that? By the way, the 20-yr JPY swap rate is about 2.2% now.
Moral of the story, do what you need to. If there is no need to invest in what you DO NOT understand, don’t. If not get the Adviser to educate you till you do. Now, how many Advisers are willing to do that?
I do independent advise on bank only structured products. If you have a query, feel free to email me at marco@managedwealthsingapore.com.
Leave a Reply
