Steer clear of structured financial products

Posted on: 12 May 2009 by Gareth Hargreaves

Independent financial advisor Peter McGahan advises against investing in structured financial products.

I'll once again begin by reiterating my distaste for these so called 'investment' products. This one really is close to the bottom of the pile though. It’s a six year investment offering an investor the opportunity to gain from any growth in the housing market.

On the face of it that might be a good idea i.e. if you thought property would return to favour as quick as this so that you could therefore gain on it, plus 22.5% on top. That’s a big assumption. In 1989 we had the last property crash.

Property values remained depressed for over seven years. Somehow, some people are forecasting that house prices will, after a much bigger bubble than 1989, respond quickly and positively.

I have covered supply and demand in this article very recently, which is available on the website, so there is no need to cover it again, but in short, optimism does not stop runaway trains. Think as positively as you want but it won't change a thing.

Many of these arrangements appeal to people who have a closed mind to what's happening around them. It's probably no surprise that this arrangement has been named the bricks and mortar plan, appealing to that old fallacy that 'bricks and mortar' are safe investments.

For the most part they are a place where we live. In certain times they surge in value and that is where most of the gains are made but it is in no way true to say they are safe as the above period showed.

Look also at Switzerland for example. This is one of the richest countries in the world yet two thirds think owning a home is not a good idea and prefer to rent.

Compare to the UK where it’s the complete opposite. And so arguably the western world's most prosperous nation think it’s a bad idea, and we think the reverse. Mmmm? One of the key reasons for this is that ownership of property in Switzerland was never offered favourable tax treatment.

In the UK its clear the government want people to own property. Perhaps it's so they can control the masses this way? Who knows? The more people are in debt and you are controlling how much they pay the more you control them. How cynical.

This plan seeks to take advantage of any growth we are expecting in the next six years. I can't see any. There are too many empty properties to make it an attractive investment so I will wait for the next surge which I am sure will be after the end of this plan.

Be careful in buying such an arrangement in any event. Security of capital is provided by an external provider and they say that this is always A+ rated.

Mmmmm again! Lehman's was rated higher than this before it popped. The outcome? You have no protection under the financial services compensation scheme as the large company rule applies. A further click or two through this company's website will show you that they have offered six plans using Lehman's as security.

Don’t allow the sales bits to appeal to those who like cheap investments. If you pay peanuts you know that monkeys are the inevitable outcome. This plan states clearly there are no up front charges or ongoing charges. As with most of these schemes this is contrived nonsense.

When the company buy the securities they factor all their charges into the scheme at that point. If you read on later into their document you will see this. For example if there were no charges at all the upside return on the housing market would be much greater. And so ends my latest onslaught on these arrangements even though I said I was sick writing about them!

If you require investment advice or have another financial query you would like Peter to answer call 0845 230 9876 or e-mail


I know you are often asked to write on guaranteed products and structured products but I have seen one offering full capital protection plus 22.5% more than any growth in house prices or 22.5% if house prices remain unchanged.

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