But the products are controversial. Jane Heyman, a chartered financial planner at McCarthy Taylor, says: "We see little value in those products and have concerns over their use when the market they are linked to is at the higher end of its range. Now is not the time to be buying structured products. The higher the starting index level for a structured product the more likely it will fall."
If you really cannot stomach the risk in equities, with the UK market nearing a high it makes sense to hedge your bets and reduce your risk a little. Here is where structured products can come into their own. They are 'have your cake and eat it' products, often marketed in a way that implies the risk-return trade-off inherent in any investment can be eliminated. In reality, you are swapping one set of risks for another - the capital risk in a structured product is replaced by counterparty risk, where the security of capital is dependent on the financial strength of the provider backing the product.
So consider any potential purchase of structured products carefully. Here are the questions you should ask before buying.
1.What is the maximum and minimum outcome?
Take the Morgan Stanley FTSE Defensive Bonus Plan 10, which will provide a 6.75 per cent gain on the net investment for each year held, payable on any anniversary from year two onwards (the 'observation' dates), provided the FTSE 100 closes at a level no more than 5 per cent below its initial level on 29 May 2013. For this particular product the two extremes of investment outcome are as follows:
Maximum return: A return of capital plus 40.5 per cent growth at the end of a six-year term.
Minimum return: Capital only partially returned at the end of a six-year term. No dividends to lessen the blow.
2. What are the different outcomes in-between the extremes?
The same Morgan Stanley product can turf you out after two years with a fixed return of 13.5 per cent, or at three, four and five years with higher returns if the FTSE 100 index has not fallen more than 5 per cent. If the FTSE 100 closes at a level of more than 5 per cent below the initial level on all of the observation dates, the investor would just receive a return of capital - not great if you take into account inflation over the six-year period.
However, if the FTSE 100 Index closes at or below 50 per cent of its initial level at any point during the six-year term, your capital is at risk: In this case, if the FTSE 100 Index level at maturity has fallen more than 5 per cent since the start date of the plan, your investment will be reduced by that same amount.
4. What could go wrong?
Note that, although this product is marketed as a defensive product, there is no protection under the Financial Services Compensation Scheme in the event of a default by the counterparty. This means you need to check the credit rating of the plan manager - Morgan Stanley has a credit rating of A- from Standard & Poor's.
5. What am I paying for this?
Investors won't see any explicit initial or ongoing charges as the costs to investors are wrapped up in the product. However, Morgan Stanley says the total charges are expected to be around 6 per cent of your original investment.
