On the back of a review into the product distribution chain that resulted in widespread losses when Lehman Brothers collapsed last year, the Financial Services Authority announced that several plan managers and advisory firms would be liable to compensation claims. The UK regulator also hinted that clients of all firms that have sold structured investments may be entitled to redress if flaws in product design and marketing are subsequently discovered. 

However, according to Andrew Wilkins, executive director of Catalyst Investment Group, basing a claim on ambiguities in the language of advice could make policing the market difficult.

“The likely reality is that compensation will remain a difficult and drawn-out process…A substantial component of financial advice is based on verbal explanation and assurances given by a disparate number of small, independent firms. This introduces a degree of ambiguity,” said Mr Wilkins.

According to Catalyst, the onus of responsibility is most likely to fall on providers - which designed and distributed the products - rather than the advisors that made the final sale to investors.

“Policing the gap between financial promotion and what is said to investors by intermediaries is no easy task, meaning that the spotlight will likely remain on the product providers themselves. It is far easier to assess the legitimacy or culpability of providers’ marketing communications than the character of financial advice,” said Mr Wilkins.

In general, however, the investment firm welcomes the FSA’s pronouncements on the issue, marking greater information about counterparties and the structure of their investment plans as key areas that will require constant scrutiny.

“The structured product market has been opaque for years, and this has allowed some manufacturers and distributors to take advantage of investors who did not have enough forensic stamina to really understand what they were buying. This has gone on too long…I am delighted to see the FSA intervene in this market, where regulation is really needed," said Simon James, partner at Gore Browne Investment Management.