Structured Products

Why Structured Products Aren’t Yet A Mass Market

David Wood 4 October 2022


Structured products have enjoyed mixed fortunes over the past two decades; the author of this article considers what can be done to make the market more mainstream.

A part of the wealth management toolbox is the structured product. The sector waxes and wanes: it was hit hard in the 2008 financial crash (firms such as Lehman Brothers were large players in writing these entities). They seek to give users access to asset classes within certain pre-set constraints, such as upside exposure with controls to cap capital losses, and so forth. Using instruments such as options and futures, the language of structured products can be daunting to the uninitiated. 

So where do structured products sit today and why haven’t they attracted a more mainstream audience? To try and answer some of these points is David Wood, managing director of international business at Luma, a platform for structured products and other entities. 

The editors are pleased to share these ideas and invite readers to jump into the conversation. The usual editorial disclaimers apply; email

A decade ago, the structured product sector was beset by problems. Regulators in the US and UK had providers in their sights for governance failures, resulting in fines, while the low interest rate environment threatened their ability to build products with attractive returns.

What ultimately resulted from that period, in the wake of the global financial crisis and Lehman Brothers bankruptcy, was a significantly changed regulatory environment that fundamentally altered the structured product sector. The introduction of MIFID II and PRIIPs [Packaged retail investment and insurance products] regulations had a profound impact on the way products are designed and sold.

Perhaps the most consequential outcome of these rules has been that suitability of product has been placed front and centre, both in terms of manufacturing and distribution. Where regulatory scrutiny once fell on the lack of a needs-based approach to product design and sale, that has become a thing of the past, with providers and distributors duty-bound to ensure and subsequently prove that a product is right for the investor. As a result, we no longer see the type of regulatory enforcement action that blighted the early 2010s.   

The other major benefit has been better education. Whereas headline rates and returns were once the overwhelming focus of attention, advisors and their clients now have a very clear understanding of all the relevant elements of a product. Credit risk, for one, is now widely understood in all its forms (albeit the demise of Lehman also provided a brutal lesson in its importance). But other risks, such as leverage and liquidity risk, are equally well understood today. Regulation has played a large role in moving the industry to a much better place here.

Not all plain sailing
While regulation has been broadly positive for structured products, there are notable exceptions. In the UK, the Retail Distribution Review [of 2013] has had a major impact on the wealth market for structured products, impacting volumes over the past decade compared with European countries. 

Comparable data across countries is difficult to collect, but a European Securities and Markets Authority (ESMA) market report showed that France’s Structured Product volume alone was over four times the size of the UK, leaving the UK with the smallest market of any major EU country. Preventing fees being taken from products led a lot of firms to focus on other asset classes, which effectively restricted structured products to highly advised or high net worth investors. 

Where structured products continue to be supported more widely by firms, the offering is typically vanilla, tracking a range of major indices. While there is nothing wrong with that, it leaves no room for products to be tailored to mass affluent individuals, something that has become a major selling point of the asset class in other markets. 

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