Over the past 12 months, the structured investment market has seen a significant increase in sales volumes. Many have attributed this change in investment spending to the global economic downturn as some investors seeking protection from turbulent market volatility have turned to these products for refuge.

by Sean Casey, Synaptic Research Analyst

Structured products by their very nature are investment vehicles intended to provide the best of both worlds; often combining exposure to equity performance with an element of protection. These plans can offer higher potential returns for clients willing to be exposed to risk as well as providing the peace of mind of capital protection for more cautious investors.

Advisers are continuously faced with the difficult yet integral task of diversifying client portfolios in line with their attitudes towards risk and the FSA's move towards principle based regulation has increased the need for advisers to be able to demonstrate research findings, including possible alternatives and potential returns alongside any accompanying risk. This is no mean feat for any adviser, especially in such financially unstable times with client expectations higher than ever.

The current financial climate has also fuelled much uncertainty and perhaps a lack of consumer confidence in a number of institutions once considered financially stable. It is, therefore, important for advisers to be able to consider the financial stability of an associated backer as well as explaining the risks associated with a structured product’s investment strategy also forming part of an advisers TCF duty.

The popularity of structured products over the course of the last year has increased in line with their availability and this has been demonstrated by a rise in the number of structured providers within the market.

This increase in choice, accompanied by the varying nature of these investments means that finding a suitable product to recommend can be like finding a proverbial needle in a haystack. As these are mostly tranche products, available for a limited time only, it can also be difficult for advisers to keep up with the latest structured releases.

So, how can advisers find the most suitable product and provider for their client and demonstrate their findings?

At the heart of good advice is good research.

In 2008 Synaptic took measures to enhance the way in which these products can be researched and recommended. Through collaborating with structured providers and advisers alike, we were able to develop an area which is both streamlined and comprehensive, which allows our users to select and recommend the most appropriate plan available to their clients.

We have not only increased our coverage of active issuers but have also added a number of features and conditions which can be used to filter products (based upon specific client criteria), demonstrating consideration of a client's attitude towards risk and preferred investment strategy. Features that can be filtered include plan types, investment terms, client types (i.e. single, joint, trusts, etc.), underlying index/investment and suitable investment channels.

The FSA's call for transparency regarding these products has also been at the forefront of the changes we have implemented and our condition fields allow advisers to view a number of essential criteria including pay-off types, associated charges, percentage of original investment guaranteed and tranche open and close dates.

We have also made changes relating to the industry wide push for structured providers to disclose their counterparty backer; adding fields which capture this data for those that choose to release this information. We are hopeful that institutions not currently committing to disclose this information will do so shortly.

Once selection has been narrowed down by inputting client details and specification; products remaining in the research process can be 'ranked' before a full suitability report is produced for the selected plan and provider. A full audit trail can also be viewed at any time to allow advisers to view how and where, in the research process, a product and provider has been eliminated.

How to research structured investment products

Step 1 – Login to Synaptic Product Research and select Structured Investment Products under the Investment tab.

Step 2 – Enter the personal details of your client(s) including their investment amount.

Details entered in the client entry screen can be used to form part of a final suitability report.

Step 3 – Using the features, filter available products by entering your clients’ specification. At anytime, you can view a feature description by right clicking on your mouse. You can also view underlying data by selecting features and conditions to be included in the data grid. A full list of the features and conditions available on Synaptic Product Research can be found below.

You can see how many contracts have been eliminated from the research process above the contract names and as always you can view a full audit trail to determine where products have been ‘filtered out’.

Step 4 – Advance through to ‘Ranking’ using the tab along the top of the screen (above the data grid).

You can rank on potential investment returns (once the relevant term has been picked in the features selection), desirable features or a combination of the two. Once the desired ranking criteria has been selected click ‘Calculate’.

Step 5 – Synaptic Product Research will conduct a series of calculations based upon the selected ranking criteria sorting the remaining products…

Individual scores for each ranking criteria can be viewed by clicking on the appropriate coloured tab. You can now advance to the report selection page by clicking on the ‘Report’ tab.

Step 6 – You will now be able to select the product that you wish to recommend accompanied by the type of report that you would like to produce.

Features and conditions available to research

Here is a list of the features and conditions that can be selected in order to help you find and recommend a suitable product for your client:

Time is on your side!

Research conducted using Synaptic Product Research can be saved and revisited at anytime and a comprehensive help file is available by pressing F1 throughout. Company descriptions and contact details can also be found by clicking on the company name at any point of the research process.

Synaptic Product Research enables a time efficient, yet in-depth research capability; increasing comparability with easy-to-use functionality, reducing the amount of time YOU spend on paper based administration.