FI Analysis 46: Poor profitability for consumers from autocalls

Structured products refers to a broad product area that includes multiple products unsuitable as investments for most consumers. In this new analysis, FI has analysed how Swedish consumers invested in a specific type of structured product called autocalls during the period January 2018–June 2024. It is one of the most common structured products in Sweden sold via advisory services.

In simplified terms, autocalls make regular coupon payments and a pre-determined prepayment available to investors if certain market conditions are met. Normally, the product is linked to the development of several underlying assets, often shares, and is often sold to consumers via advisory services.

Autocalls are normally marketed as a way to improve the return or protect savings from changes in equity prices. However, under the surface the products often have high fees and high risks and are difficult for most consumers to understand.

Direct investments often more profitable

Around 20,000 people invested in autocalls or other closely related products during the period. The average investment was approximately SEK 186,000 per investment. The analysis shows that autocalls in many cases generate lower returns than if the consumer had purchased the underlying shares directly. In 67 per cent of the cases that FI has investigated, investors received a higher return from directly investing in a comparable weighted portfolio consisting of the underlying shares to which the autocall is linked.

"Autocalls are often marketed as a product that should be beneficial in stagnant, rising and sometimes falling markets. But autocalls are associated with high risks, and our analysis also shows that in most cases they are unprofitable compared to a direct investment in the underlying shares," says Mathias Lien Oskarsson, an analyst at FI.

Unusually high costs in Sweden

FI has highlighted in several reports that structured products are difficult to understand and often associated with high fees. This analysis shows that an investment in autocalls on average cost around 6.9 per cent of the invested amount, or 3.2 per cent per year during the term of the product. In addition, there are often additional fees such as distribution and advisory costs.

"The fees are very important factors for how long-term savings develop. Autocalls and other structured products often have high fees, which over time could amount to many extra thousands of kronor compared to, for example, directly investing in the underlying shares. From a European perspective, we can also see that the costs in Sweden for these types of products are among the highest in the EU," says Mathias Lien Oskarsson.

Autocalls are primarily sold to older age groups

Firms that sell and provide advisory services regarding investments should only offer investments that are suitable given the individual's preferences and needs. FI's analysis shows that the average investor of autocalls is 63 years old, which is significantly higher than the average age among investors in equities.

"The high risk associated with structured products in general, and autocalls in particular, may be unsuitable for older investors since the products recommended to them are normally those with lower risk. The fact that so many of those who have purchased autocalls are close to or over retirement age raises questions about the extent to which the actors selling these products have prioritised the best interests of the consumer," says Mathias Lien Oskarsson.

This analysis will be used as a basis for FI's ongoing supervision of financial firms.