Educate advisers on structured products, says FSA

The FSA has told structured product providers their adviser training sessions should not be about “pushing products” but instead should educate advisers about how products work and highlight the risks posed.

The regulator has published its final guidance on structured products, following a guidance consultation in November.

Between November 2010 and May 2011 the FSA carried out a review of seven major structured product providers, which found weaknesses in the way providers design and approve structured products.

The FSA found providers were assessing their distribution channels based on sales volumes rather than treating customers fairly, and that most providers could not explain when they would stop using a particular distribution channel.

In the final guidance, the regulator says providers should take “particular care” in using non-advised channels where products have complicated features that are difficult to explain to consumers.

It also reminds providers to carry out initial due diligence on their distributors and ongoing reviews and analysis of unexpected spikes in sales to ensure products are reaching the target market.

Providers should also consider how they pay in-house sales forces and whether the reward arrangements increase the risk of misselling.

The FSA says providers need to offer sufficiently detailed information to advisers on how structured products are set up, implicit charges and the market conditions needed for certain returns.

Likely training needs and other support for advisers also need to be assessed.

The FSA says: “Training is a powerful tool in helping distributors to understand products. The primary purpose of training should be educational and it should not be used as a marketing tool, or product ’push’.

“The content of training presentations should be sufficient, appropriate and comprehensible and should not diminish the risks of a particular product by focusing on features that are designed to offer protection.”