Structured products that fail to return capital if the FTSE drops below 50 per cent of its starting level haven't lost investors' money for twenty five years, according to research from Gilliat Financial Solutions.

Many structured products guarantee full capital protection only on the condition that the FTSE 100 index does not fall below 50 per cent of its starting level throughout the whole of the product’s life cycle.

A series of research papers released by Gilliat, the structured products distribution firm which is part of Arbuthnot Banking Group, show that since 1984, the FTSE has never dipped below the 50 per cent “barrier” during a five-year term.

“As there has been a lot of misunderstanding in the marketplace about capital protection barriers, we think it is important to equip financial advisors and their clients with the facts,” said Adrian Neave, managing director of Gilliat Financial Solutions.

The research into American and European capital protection models reviewed 50 per cent, 60 per cent and the 70 per cent capital protection barriers. The 70 per cent barrier would have lost capital in 16.3 per cent of cases, while direct investment would have returned a loss in 22.21 per cent of cases.

However, while the research suggests investors in 50 per cent products can feel secure in the FTSE's performance, capital can still be lost if the underlying bond issuer, or counterparty, goes bust. Last year, clients of product distributors NDF Administration and Defined Returns Limited lost all of their investment when Lehman Brothers, the investment bank backing the products, collapsed.

Structured product providers now claim that increased levels of due dilligence, regulatory changes to the banking system and innovations such as collatoralisation - whereby cash or liquid assets are posted into a separate account by the provider to be held against the product - all contribute to the safety of structured investments.

Products offering full capital protection down to the 50 per cent mark currently include the ARC Capital & Income Fixed Income Plan, the Barclays Wealth Defined Returns Plan and the Gilliat Income Series 1. It is typically the case that if the index does drop by 50 per cent or more then investors' capital is lost on a 1:1 basis with the index.