Structured products have matured from being instruments for simply taking advantage of market opportunities to becoming a key component of investment strategies that help investors to realise their retirement goals.

So argues Brian McMillan, head of Structured Products Sales at Investec Corporate and Institutional Banking. Speaking at a recent panel discussion hosted by S&P Dow Jones Indices, McMillan said that the investment class has gained a great deal of acceptance among investors and financial advisers alike, for their ability to provide access to different global indices, themes and currencies.

In particular, noted McMillan, financial advisers are increasingly looking to vehicles like structured products and investments to implement the strategies they’ve designed on behalf of their clients. 

Using structured products under Regulation 28

McMillan noted the role of structured investments as a way of implementing an investment strategy under Regulation 28 of the Pension Funds Act. Regulation 28 sets the asset allocation guidelines for pension funds, retirement annuities and living annuities, and is designed to ensure investors have the right allocations to suit their long-term investment goals.

For example, a retirement annuity provided by a linked investment service provider (LISP) can include structured investments to satisfy the offshore diversification requirements under Regulation 28. He expected that the use of structured investments within retirement vehicles under Regulation 28 was likely to grow.

“The use of globally recognised indices (like the S&P 500), that these products are linked to, gives peace of mind to the intermediary who doesn’t want to select specific offshore shares or funds,” said McMillan.

“It makes it easier for the intermediary to advise and manage the overall investment on behalf of the client. The intermediary’s client gets immediate offshore access and diversification, while the intermediary maintains the ability to service the client’s needs holistically, without having to pass on the investment to a third party investment house.”

The case for investors was a strong one, said McMillan. “The costs of a structured investment stack up well when compared with other offshore investment products. And, as long as structured products / investments within retirement products like living annuities deliver on their outcomes, they should grow in popularity,” he said.

“I expect regulation to also adapt to this growing demand and application of structured investments,” concluded McMillan.

The information contained in this communication does not constitute an offer, advertisement or solicitation for investment, financial or banking services.  It is for informative purposes and is not intended to constitute advice in any form, including but not limited to investment, accounting, and tax, legal or regulatory advice.

Corporate and Institutional Banking, a division of Investec Bank Limited. Reg. No. 1969/004763/06. An Authorised Financial Services Provider and registered Credit Provider. A member of the Investec Group.