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Structured Products



Protection

Regulation and investor protection
We have already touched on regulatory regimes in the UK and offshore jurisdictions. The Financial Conduct Authority has a wealth of information on its own and the established offshore legal environments. Contact details for the FSA are set out below.
Beyond this, there are certain protective measures embodied in the structured products themselves, and the existence or extent of these is something else the investor should consider.
Soft protection:
>Many products set a predetermined level - typically between 20% and 50% - at which the downturn in an income- or growth-generating asset can threaten to eat away at the original investment.
Hard protection:
This is a 'backstop' level underlying the soft protection break point, below which the income- or growth-producing asset must not in any event be allowed to drop. With full capital protection, this safeguard should still enable the original investment to be returned in full, albeit that there would be no earnings above that.

This makes the pricing method and the interval at which it's carried out worthwhile subjects for further enquiry. Some methods will take average intra-day prices, others will use a single close-of-business valuation. In a choppy marketplace, the timing sensitivity could mean the difference between breaking the protection level or not.
If there is any ultimate security, it lies in the capital protection terms, and it's important to be clear about what these are. 'Protection' is not the same as a guaranteed return of capital invested, and even 'guarantees' can be conditional. For investors taking income from the plan, it may be that the payments already received are taken into the calculation of what is the balance required to return the original investment.
Finally, as innovative, useful and attractive as structured products can be, there is no substitute for consulting with informed financial and tax professionals before committing to one of them.

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