The total cost for investors of a structured product in Germany is 71bp a year, DDV

The annual costs of an investment in structured products in Germany are 0.71%, or 71 basis points on average, according to the Deutsche Derivate Verband (DDV). Even if the hedging costs (cost of purchasing the product components) are included, the costs do not exceed the 1% mark per annum, according to the trade association.

'The costs, which we found to be surprisingly low, show that transparency and strong competition within the structured products sector have led to efficient price structures,' according to Christian Koziol (pictured), member of the academic advisory board of the DDV, which conducted the survey, and chair of finance at Eberhard Karls University of Tuebingen.

Performance and cost are also expected to be studied at a broader, European level, according to Thomas Wulf, secretary general of the European Structured Investment Product Association (Eusipa). "The association is discussing cost and performance analysis with its members," said Wulf. "Eusipa is looking at the upcoming regular Esma (European Securities and Markets Authority)-led performance and cost analysis of retail financial products, for which the European regulator was mandated by the European Commission at the end 2017," said Wulf.

The findings of the DDV study are good news for investors, as it allows them, for the first time, to understand the cost of certificates in detail. In the past, product producers disclosed the issuer estimated value (IEV) of structured products in product information sheets.

With the advent of the Key Information Document (Kid), the IEV is no longer disclosed to German investors. "The decisive factor is that investor protection is satisfied," said Lars Brandau, managing director of the DDV. "Ultimately, all changes must first of all prove themselves in practice, so it is too early for a final judgment."

Of the overall 0.71% pa costs, the expected issuer margin is 0.3%, sales commission 0.32% with front-end load fees at 0.09%. The average lifetime of the products analysed was 4.8 years, with the average overall costs calculated by multiplying costs by the weightings of individual products.

The study further revealed that there is a difference between primary and secondary market products on cost, with primary market products averaging 0.67% and secondary at 1.09%. The lower costs for primary market products can be explained by longer lifetimes, of around 5.3 years, against the 1.3 year in the secondary market.

Furthermore, there is a difference when it comes to product categories. The higher the risk and the shorter the lifetime, the higher the costs tend to be: an uncapped capital protected certificate averages 0.6% pa, credit-linked notes 0.39% pa, autocallables 0.74% pa, reverse convertibles 1.19%, with the bonus certificate at 1.5% pa, according to the survey. The costs spread for hedging transactions is between 0.15% and 0.45%.

Brandau does not expect the costs to get any lower. "We expect structured securities to become more popular, especially in the increasingly difficult capital market environment, and to increase in sales and volumes," said Brandau. "Especially in turbulent markets, investors can use certificates and warrants to hedge their deposits."

The study of the market in Germany is the second of a series from the DDV designed to improve transparency in the structured products market and was based on 24,830 products with a sales volume of €8.169 billion issued by DDV member banks in the first half of 2016. The trade association published the results of its issuer margin study in 2013.

DDV: SP provide very good value for money, a firm promise to deliver