Firms hit back at Hargreaves
Share
Providers and advisers have rebutted recent comments made by Peter Hargreaves, the Hargreaves Lansdown chief executive, that structured products should be outlawed.
Peter Hargreaves
Speaking at a Money Marketing, Fund Strategy’s sister publication, structured products round table, Bill Vasilieff, chief executive officer of Novia, disputed Hargreaves’ view that structured products had not “delivered the goods”.
He said: “If delivering the goods is delivering what you said you would I think they have, so I do not see where that comment comes from.
“He seems to be alluding to the fact that you get more with equities from not having a guarantee. But that does not address the point that people are willing to give up some return for a guarantee.”
Colin Dickie, managing director of Barclays Wealth, said: “It has ignored the good experience clients have had from structures by and large. In this environment there is something pleasing about getting money back when the alternative would have been to lose it which is the reality, particularly if you are putting money on a fund platform that is going to be equity-based.” (article continues below)
But Bruce Wilson, managing director of Helm Godfrey, said: “I support Peter’s view but not whole-heartedly. My challenge is that these things are sold, they are not advised primarily.
“I think in this respect he is stuck in the past”
Ian Lowes
“It is all about the guarantee and if the guarantee stands, that is great, but a lot of the products are triggered on events happening. However, you cannot just ban them they have their place.”
Ian Lowes, managing director of Lowes Financial Management, said: “I have an immense amount of respect for Peter Hargreaves but I think in this respect he is stuck in the past.”
Readers' comments (4)
Glen McKeown | 5 Feb 2010 12:45 pm
I have a good deal of sympathy for what Peter Hargreaves is saying if he is talking about guarantees, but a little less so if he is referring to other structured products.
Guarantees a) cost money and b) tie investors down for, generally, a significant period.
If a client has a sizeable portfolio, there seems no real reason for those guarantees since underpins can be factored into a portfolio by decent management.
For people with smaller pots, for whom the guarantee could be useful, I still have reservation because most of the guarantees are built on highish risk assumptions, that are often unsuitable for the client. And the tie in periods are longer than I am comfortable with.
There are other structured products that do not related to guarantees e.g. absolute return funds, ETFs etc that fall under a different discussion.
But even here I am unconvinced about the returns that are being produced at the retail level, especially when related to the risk level. I suspect that the implicit costs are taking away far too of the return that can be found at the wholesale level. Its not that they don't work; it's more that they provide a better return to the providers and packagers than to the client.
The one factor that will tend to be missing in a financial services debate is concrete evidence - we all love our ego-centric opinions. Wouldn't it be nice if the investment industry were to support a University Department that could objectively look at the factors underpinning these discussions, so comments are not merely expressions of prejudice.
Unsuitable or offensive? Report this comment
Anonymous | 7 Feb 2010 1:04 pm
I think Glen Mckeown doesnt appreciate that even with decent management you cant eliminate or even reduce risk over and above sudden external factors? this last 18 months had crippling effects on the markets have turned a predicted cautious investors fund, which by definition would suggest they did not want to lose any capital, into anywhere from a 5%-20% loss? Absolute return funds; lets not even go there with their 'cash' plus 3-5% returns? Wasnt that the wonderful story being told not that long ago? I suspect that even some of Mr Hargreaves recommended funds on his platform would have ended up much lower than were expected?
Arent we also missing the point in that these investors in structured products want targeted returns and fixed returns which they can work around (assuming the FTSE doesnt drop below 50% of its starting level and doesnt return by the end of the 5th year etc?) whether it be a European or American barrier I personally would be quite happy with a 50% return (after their big charges) almost guarnteed in 5 years time, as long as the counterparty didnt go bump? I doubt half the 'pure' equity/bond/Fixed interest combo's with their B/O's and their 2% AMC's would do much better - and havent!
Theres a place for these for the right investor who understands the risks and inherent charges who want a bit of the cake and eating it?
Unsuitable or offensive? Report this comment
Anon IFA | 7 Feb 2010 6:02 pm
I do see Peter's point of view however, it is not up to us. Sometimes you can talk about balance,risk,time etc with certain clients until you are blue in the face. They just don't see it our way at all. They tend to see the guaranteed products (not so much structured products that have no guarantee)as an acceptable alternative to cash. They are fully aware that the levels of return may not be as good as a well mamaged portfolio over long period of time. 'You can lead a horse to water....'
Unsuitable or offensive? Report this comment
Chris Taylor, CEO Blue Sky Asset Management | 9 Feb 2010 1:18 am
It’s disappointing that Peter’s occasional hobby of bashing all structured products fuels and perpetuates divided opinions, based on inadequate working knowledge, amongst some advisers, investors and journalists,
who assume Peter must know what he’s going on about.
Personally, however, I think Peter issues
his occasional outbursts about ‘all things structured’ purely because they’re an easy opportunity to wind a few people up and have a laugh. I simply don’t believe that he takes much of it seriously at all – but he laughs all the more because other people do.
Of course, anyone ‘in the know’ knows that HL has used structured products in the past – and some of these have been amongst the most successful products of their time. The fact is that there are commercial drivers (lack of trail – the principle basis of HL’s business model) mixed up with the misguided investment views they proffer today, that misguide their clients, some advisers and some commentators.
However, the structured investment industry is enjoying year-on-year growth (47% in 2009) because there is an ever increasing audience of increasingly well qualified, knowledgeable, and pragmatic investment advisers who do what Peter and HL do all day long in the mutual funds universe but fail to do when it comes to structured investments … ie use their knowledge to differentiate between all the offerings, sorting the wheat from the chaff, to identify and embrace
‘best of breed’ providers and propositions that can add value for their clients.
With regard to comments about counterparties, guarantees, portfolio diversification, etc, counterparty risk is not hidden by structured product providers – in fact there is a wealth of information and education available for anyone who needs it or is motivated to want to understand it properly. The fact is that structured products can exchange a multitude of investment risks (stockmarket volatility, active fund management risk , etc) for counterparty risk, ie a counterparty will contractually state, via the terms of a bond or security that they issue, precisely what the risk and return parameters of a product will be and the investor only needs to consider whether that counterparty institution is likely to go bust or not. If they remain solvent
they must pay the returns stated in the bonds that they issued. For many investors it is far easier to form a rational view on whether a major global bank, such as HSBC, Barclays, JP Morgan, BNP Paribas, Rabobank, etc, are likely to be in business in 5 years time than it is to consider all the variables of
‘traditional’ investment funds, where despite the providers and advisers assertions that diversification of portfolios and investment horizons of 5 years or more is all the 'risk control' that investors need, the facts are that these assertions been been shown/proven to be insufficient strategies for genuinely controlling risk and defining returns for investors.
Quite clearly not all structured products are good. But neither is all of anything, including mutual funds and investment advisers. At a time when the economic backdrop and investment outlook has rarely, if ever, been more challenging, ‘balanced avisers’,
'fulfilling their client-centric responsibilities’ as ‘independent advisers’, are seeking out and utilising the widest possible range of investment options to mitigate investment risk and create viable investment returns. This includes ‘best of breed’ structured investments, which can help provide viable returns and defined exposure to risk, from stockmarkets that are currently more difficult than ever to predict.
Unlike HL, investment advisers should ensure they do not remain ignorant of an industry that can irrefutably add value in investment portfolios, and that is going from strength to strength.
Unsuitable or offensive? Report this comment