Structured financial products not for everyone

● A leading financial planner says she has never had reason to use a structured product in a financial plan, while another says he uses them but they make up less than 2% of the investments he recommends.

“I’ve never seen an investor who has been happy with a structured product as few of them are profitable,” says 2018 Financial Planner of the Year Janet Hugo of Sterling Wealth.

She says she has not had to recommend a product with a guarantee for anyone because she matches cash-flow needs to the investment strategy and because offshore investments, with both market and rand exchange rate risks, are usually in the seven-to-10-year strategy, giving these investments long enough to work through expected market cycles. Therefore paying insurance for something like that makes no sense, she says.

The complexity of these products makes them difficult to fit into any plan, and if you need insurance for a specific concern such as US dollar or US market weakness, it would be better to hedge that concern, she says.

Good hedging

The Financial Planner of the Year for 2017, Mark MacSymon of Private Client Holdings, says he does recommend structured products at times as they are an alternative asset class with good hedging. But he will recommend these investments only to investors who will not need access to their capital.

And he concedes that understanding the cost structures is challenging and each product has to be evaluated for the payoff and guarantee it offers at the time it is offered.

They can be useful when an investor is concerned about the risks of investing in the market, although most of time it is possible to find comfort for investors with an appropriate mix of asset classes for the investor’s investment time horizon, he says.

Lance Solms, director of iTransact, says the structured products are designed to lower investment risks but their performance will not “shoot out the lights”.

He says they are suitable for any investor with a shorter-term horizon, but iTransact will sell them to you only if you have a financial adviser helping you to ensure the investment is appropriate.

Henk Appelo, Liberty’s product development actuary, says the products are intended for a small portion of your investments — not your entire portfolio — and only for those with at least R150,000 to invest.