UKSPA launches structured product classification system

UK trade body for the structured products industry issues code-based guide designed to help retail investors and IFAs categorise and compare different product structures

Zak de Mariveles, UK Structured Products Association

The UK Structured Products Association (UKSPA) has introduced a standardised system of product codes to help identify product structures. The reference guide, which is aimed at retail investors and independent financial advisers (IFAs), aims to cut through the terminology used by different distributors to allow a transparent comparison of competing structured products.

The main variables identified by the trade body's guidelines are whether a product offers capital protection and whether it is a growth product or provides an income stream. This method for distinguishing between products follows the example of the European Structured Investment Products Association (Eusipa), which has operated a similar system of categorisation since 2010.

Products are grouped into four main categories: protected income, protected growth, non-protected income and non-protected growth. These categories are then divided into subcategories distinguished by a series of four-digit codes. Within the protected income category, for example, 1140 refers to a protected conditional income product, 1180 denotes a protected range accrual income product and 1198 is any other protected income product.

The guide aims to combat the fact that competing distributors market similar products under different names, making it difficult for advisers and non-professional investors to make like-for-like comparisons between two products.

Each discrete four-digit code has an information page that contains the ideal performance of a particular structure mapped out graphically. Each page also contains further clarification of how much capital is at risk and under what conditions it could be lost – such as through counterparty default or poor performance of the underlying index, for instance. Information on how income is calculated over the product's term and an investor profile outlining the kind of investor each product type is most suited to is also included.

We're trying to help the adviser community become better educated, as many issuers use different terms to describe the same product

Future product brochures from UKSPA members will feature the organisation's logo together with the relevant four-digit code and directions to further online information.

"We're trying to help the adviser community become better educated, as many issuers use different terms to describe the same product," says Zak de Mariveles, president of the UK Structured Products Association. "We're just clarifying some basic facts, such as whether something is a growth or an income product, and whether it is capital protected or not. The next step is to start providing some performance statistics and for each of these product types to have their performance historically profiled."

Ian Lowes, founder of Lowes Financial Management, welcomes the initiative but queries the wisdom of adopting the Eusipa categories. "I'm sure this is something that, ultimately, will have a benefit. But as there are rarely more than forty or fifty products out at one time, not many will fit into each individual category," he says.

"While some of these codes will cover a lot of products, others might only get a few a year so they will be a bit redundant. [The UKSPA] is following the European lead, but Europe has a lot more structured products than the UK. Knowing the difference between protected range accrual growth and protected capped growth may be of more benefit to providers than advisers. Obviously as the market matures, having sector analysis and the ability to see how the 1150 sector performs, for example, may be a good way to go."

The product codes are available on the UKSPA website.