Hybrids misunderstood by retail sector

Financial planners’ lack of knowledge about hybrid fund structures is filtering through to retail investment clients, requiring more education and better research, according to Martin Dobson, authorised representative at Avenue Capital Management.

At the recent Hybrid Securities Forum, a number of industry representatives from fund managers, dealer groups and research houses gave their views on the opportunities and threats presented by hybrids.

The consensus view was that while the sector was experiencing widening credit spreads, and not providing as much value as it has in the past, strong returns are still on offer.

However, it was acknowledged that finding value in the different products can prove fairly difficult, particularly for retail investors who often have little understanding of the sector’s intricacies.

Most panellists agreed that the retail financial market needed to develop a deeper understanding of hybrid investment products in order to unlock their value.

“It’s a case of information overload . . . you have to tease out the relevant parts for your client.

“The biggest challenge I have is wading through the information contained within the product disclosure statements [PDSs],” Dobson said.

He also voiced concerns about the dearth of hybrid products making their way onto advisers’ approved product lists.

“If you can only use what is on the approved product list, this is often more conservative than the client wants,” he said.

One possible solution to the lack of knowledge around hybrid security structures was a revamp of PDSs, with Dobson suggesting the regulator could look at creating streamlined templates outlining exactly what needs to be included, cutting through the marketing spin that often characterises the documents.

This received a mixed response from other panellists, who thought the divergent nature of hybrid security structures meant it would be almost impossible to standardise the information into a template format.