Historically low interest rates are behind the increase in popularity of structured products in France, according to the French regulator Authorité des Marchés Financiers (AMF).
In a report summarising the risks of the financial market, the AMF looks at the reasons why structured products have become more popular in France recently and what the impact is on the retail market.
Apart from the low levels of interest rates, to which classical retail banking products are linked, the AMF states growing disaffection felt by non-sophisticated savers with the share market as a reason demand for structured products is rising.
However, the AMF warns that a lack of transparency often leads to investors not knowing about the costs involved.
Pascal Hunaut, project manager at Caisse Nationale de Prévoyance (CNP), agrees. “With the eight-year decreasing trend of euro funds rates, we need to find alternative solutions to improve the return”, he said.
Euro-croissance contracts – life insurance products which saw their genesis in the Berger-Lefebvre report and invest some of the money collected in small and medium enterprises – were created to offer higher returns than classic euro funds while offering a capital protection after eight years of investment.
Transparency
Although the AMF concedes that structured products have managed to meet savers’ needs in terms of return, risk and liquidity, it points the finger at the complexity of investment products brought into the retail market.
Small savers do not always understand the offers they are subscribing to because of their lack of transparency, the AMF concluded in the report.
Risk
The complexity of products became an element of differentiation between the different market competitors, according to the AMF. This contributed to making these investments even less transparent.
“Even though structured products look very appealing, the lack of visibility regarding their fees and the payoff calculation are also part of the cost paid by the investor,” Oliver Eon, project manager at the AMF, told SRP. “The risk is supposed to be reduced but the investor does not really know the cost in terms of potential gains.”
The French regulator finally reminds us that European Commission’s Prips study to unify pre-packaged investments via a standardised key investor document, also intends to increase retail investors’ protection by setting up suitability tests.
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