A structured product is a financial product created by a financial institution and sold to the retail investor. The issuer writes the terms of the product and keeps a margin to pay its expenses and make a profit.
The disadvantage to the retail investor is that the margin is usually not disclosed and not transparent and may take away too much of the projected yield, leaving little to the investor for the risk that they carry and the period that the investment has been locked up. (Imagine trying to gamble against an expert in the card game who is allowed to set the rules of the game! )
These structured products come in a variety of names, and are known generally as capital protected, capital guaranteed, dual currency investment, mini-bonds, pinnacle notes, etc.
Retail investors should avoid all types of structured products, unless you are savvy to be able to read through the legal documents and understand the complexity of the transaction. Do not trust the words of the marketing person blindly. Do not assume that the regulators have checked the products to be safe and fair - as they do not consider it to be their duty. Just avoid all of these products.
For more insight, read "Structured Products" in www.tankinlian.com/ask.aspx and Practical Guide on Financial Planning.
I have not invested in any structured products since the collasp of HN5. After the HN5 incident, I strongly believe banks treat their customers as fools.
ReplyDeleteInternally in the banks, you are not seen as customers, at least not in the normal meaning of the word. Most banks' mgmt sees the mass of retail customers as merely sheep & cows to be milked and sheared for wool, a certain percentage to be slaughtered for their meat too. The banks just feed you enough so that most of the sheep & cows don't rebel and run off the farm. Singaporean sheep are the cheapest to keep --- measly 0.125% interest and sense of "security" is all that is needed.
ReplyDeleteThe people that banks' mgmt see as the true customers are companies, especially big ones, coming to them for deals such as M&A, IPOs, raising capital, structured swaps, commercial financing, etc.