Editor's letter

The structured products market is still in its youth, but it is no longer a child. Consequently, there are some unfortunate consequences for product providers and potential benefits for investors. Any complex financial instrument is only ever produced at a premium by banks. And that means higher fees. You don't always see these fees, but you do hear that they are embedded in the structuring. This is all well and good, and everyone needs to be paid for the work they do and the risks they take.

However simply you breakdown and classify structured products, they involve more work than a corporate bond or a share issue.

But not being a kid means that things such as fees are eroded as the techniques of creating products become commoditised. In addition, simpler and vanilla products demand less financial technology. Moreover, those in the business pass on their wares and expertise to other, 'cheaper' financial technicians. The pay is less because the expertise is no longer unique.

Another crucial driver behind lower fees for structurers is the sudden awareness that distributors are taking some of the rap for the carnage inflicted by the default of Lehman Brothers. Distributors have generally taken a back seat when it comes to making good on deals they have sold that have subsequently gone bad. This is not always the case, and each circumstance tends to be relatively unique, but it is fair to say that the issuer of the product is often the first port of call when things do not work out as promised.

With the markets so ravaged by crisis, and with distributors in Singapore and Switzerland starting to recognise their role in dealing with moral hazard, it must be time to take the more familiar products and offer them on a cheaper basis. No-one wants to take lower fees, but that's what happens when markets develop. Providers will still make good money, and so they should. But they need to recognise that they, as well as the structured products market, are maturing, with all that entails.

Richard Jory

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