Structured products: between promise and reality of returns

Because behind the sales brochure, the reality is more nuanced. The “capital protection” may be only partial and evaporate if the benchmark index dips beyond a certain threshold. The “guaranteed return” is often conditional. And the duration of blocking of funds, sometimes eight to ten years, is rarely highlighted. “A structured product is not an investment that you choose for its displayed coupon. Before looking at the promised return, we must ask ourselves what happens if the unfavorable scenario comes true”warns Thaïs Castang, partner at L&A Finance.

Promises framed by very precise conditions

There 100% capital protection sounds like comprehensive insurance. She is not. Most structured products offer so-called “maturity” protection, only if you hold the product until its term, generally six to ten years. Resell before? You are exposed to the current market value.

“Many think they can resell their structured product at any time, but in practice early exit can be expensive. It’s an investment that should only concern money that you are sure you won’t need before maturity.”underlines Thaïs Castang. As for the promised coupon, it is performance-indexed of an index with precise trigger barriers that the markets must, or not, cross.

Discreet fees that weigh down real returns

What the brochure never displays in detail is the cost structure. Structured products include entry fees (up to 3%), annual management fees, and a margin taken from the construction of the product by the issuing bank, sometimes 2 to 5% invisible from the start. “Fees are often much less visible than performance promises. Between the costs integrated into the assembly and the commissions paid to distributors, the saver does not always measure what he is really paying”confirms Thaïs Castang. A product announced at 6% can thus deliver a much more modest real return than a simple euro fund.

How do you know if this product is right for you?

Three questions to ask your advisor before any commitment: what is the maximum loss scenario? What are the total costs, including the bank’s margin? Can I exit before maturity and at what cost? A fourth, less obvious, also deserves to be asked. “We often forget that a structured product is above all a claim on a bank. The quality of the issuer is as important as that of the underlying. Even capital protection is no longer worth much if the establishment carrying the product encounters difficulties”recalls Thaïs Castang. The AMF also requires any advisor to demonstrate the suitability of the product to your risk profile; this is a legal obligation.