The CompareStructuredProducts.com Team - 13/05/2015
CompareStructuredProducts.com is committed to providing easily accessible information on Structured Products, and as such, conducts frequent reviews of the website to assess its functionality. During the course of our latest assessment, it was suggested that whilst the site contains extensive glossaries and full descriptions, the way in which we have presented capital protection barrier information has differed from many industry participants – but for good reason.
The capital at risk barrier level represents the level at which the underlying index or relevant shares that a product is linked to may fall without triggering loss or, potential loss of capital at maturity. Historically these have varied, but the most common barriers seen in the industry today are presented as 50% and 60% barriers. This is where we have traditionally differed.
Ask yourself which capital protection barrier portrays itself as the safest / providing the most security; one at 40%, 60% or 80%? In our opinion the simple numbers could be interpreted as 40% being a low barrier and 80% being a good barrier. The barrier is either explained as being a percentage fall in the index from the initial level (top down) or a percentage of the initial level (bottom up). Therefore a barrier at point ‘A’ in Fig.1 is 60% of the initial level and is also 40% down from initial level.
In order to present barriers in the fairest and least potentially misleading way, because a 50% barrier is better than a 90% / 10% barrier we have always discussed barriers in terms of how far the underlying index can fall from its initial level to highlight the risk of a plan in a more transparent way. This top down approach meant that the lower the number the less protection the barrier affords.
However, whilst some industry participants did it one way, and others another, most have now moved to one standard and we believe that in order to limit any potential for confusion we should fall into line, albeit taking extra steps to ensure no potential mis-understanding.
CompareStructuredProducts.com will now display barrier information as a percentage of the initial index level – a bottom up approach. However, we still believe our concerns are valid and as such we will not only be adding the words ‘of initial level’ after the stated percentage but will also be introducing a new graphic to visually communicate the extent of the barrier protection.
The graphic will plot the level at which the index or relevant underlying has to fall from its initial level on a scale to clearly showing where the barrier sits. It is worth noting that the way in which we explain the capital at risk barrier in the ‘Further Info’ and ‘Summary Table’ sections of the site will not change, as we feel that it is still the best and clearest way to explain in simple terms.
For example: 60% of Initial Index Level
Through introducing these improvements, we believe that CompareStructuredProducts.com will be more in line with industry norms while continuing to lead the way in educating and informing users on Structured Products in clear and understandable terms. For us, simplicity and clarity of language is key and we want to continue to provide the most comprehensive and reliable Structured Products service available.
The CompareStructuredProducts.com Team
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