Trade of the month: fees, profit and risk in structured products

The success of any structured product issued in the retail market is partly determined by the fee structure, in which fees are generally taken in three ways – first in the commission level paid to the broker or adviser, second in the the fee charged by the distributor or product provider, and finally the profit margin charged by the investment bank

Commission is not always taken on a product, and the UK Financial Services Authority has declared in its Retail Distribution Review that commission will be prohibited after 2012. At the moment, the commission level and the distributor fee are generally disclosed. These are fixed amounts provided for by the choice of the product structure and ‘left over’ after the proceeds from the investors are paid to the investment bank to purchase the derivative or other assets.

It is probably true that the