“Of course structured financial instruments can be sold to the retail client” says Warren Edwardes, ceo of financial product innovation and risk consulting firm Delphi Risk management. “Product development must be a customer driven approach and the financial markets must be tweaked to fulfil the needs of the retail client. But I believe that great care must be exercised in selling derivatives and other highly structured products direct to Joe Public. There is always the danger that the investor may claim, truthfully or otherwise, not to have understood the product and declare that it was mis-sold.

Edwardes recalls that “NatWest Bank justifiably demanded the replacement cost when its fixed rate mortgages were repaid early. But ill-informed pressure groups hounded the bank to give in.”

“Selling structured products through intermediaries can be fraught with difficulty. I am currently working on a case where the London branch of an international bank sold USD 1m of distressed debt on a margin basis to a Latin American investor with net assets of USD 200,000. Whilst the initial margin was a mere USD 80,000 a variation margin call was triggered a week after the deal was struck making the client insolvent. And this deal was sold via the bank's New York branch through an agent based in the investor's home Latin American country. Even if less highly structured transactions are sold cheaply over the telephone then financial institutions must ensure that their telephone sales staff are adequately trained to cope with searching questions. Perhaps a contradiction? The internet could prove ideal in that the bank selling the product could even provide a several thousand word explanation of its products at negligible cost. No staff training would be required as customers would be expected to read the literature and understand the product themselves. Questions could be answered not by lowly-paid and hardly-trained telephone-sales staff but via e-mail which would allow a considered answer which would then be posted up on a "frequently asked questions" page ready for the next potential customer.” says Edwardes.

In Edwardes opinion, the most successful products are those that can be explained in a 30-second television sound-bite. “Whilst these have the inherent problem of being easy to replicate by competitors, anything much more complicated could lead to complaints years down the line over mis-selling and misrepresentation”.