Retail investors fuel Asian structured products boom

The structured products market in Asia will continue to grow over the next 12 months, especially among the region’s retail investors. But the potential for mis-selling means that banks need to ensure they do not offer structures that are too complex and inappropriate for retail customers, according to senior industry figures at a conference in Hong Kong today.

“What’s driving the market is still very low interest rates from the retail banks,” said Philippe Dirckx, head of fixed income, Asia, for Fortis Bank. However, it is imperative for market participants to make retail investors fully aware of the risks associated with products they purchase, he said. “We need to make sure people in the street understand these products.”

Dirckx pointed to a recent investigation by Asia Risk magazine, a sister publication of RiskNews, which found that explanations of products, payouts and risks by Hong Kong’s leading distributors were, in some cases, misleading and inaccurate.

However, other speakers emphasised that banks can only go so far. So long as the product is clearly explained and the retail investors is assessed to be suitable for the product, then banks have done enough, said Daniel Pun, senior relationship manager at Shanghai Commercial Bank.

“We are serving a purpose in giving customers a choice as whether they will stick to fixed deposits or whether they will choose structured products to enhance the yield on their assets,” Pun explained. “We leave that decision up to investors.”

Christopher Lee, chief executive at SHK Fund Management, added that simpler products will ultimately prove easier to sell. “If my mum doesn’t understand this [structured product], it’s probably not going to sell,” he said. “If you want a product to do well – keep it simple.”