Financial Products and Services
Characteristics Over Labels
Candidates must understand products by their economic characteristics: risk, return, liquidity, term, leverage, and complexity. Cover deposits and savings, credit and lending, mortgages, payments, investments (equities, bonds, funds), derivatives, insurance-linked products, and structured products. Know the difference between principal-protected and non-protected products, between advised distribution and manufacturing, and between retail and professional client classification.
Traps
Examiners test whether a product is complex for appropriateness purposes, and whether a client classification change is valid. A common trap is assuming a product is simple because it is widely sold; complexity depends on structure, not popularity. Another trap is confusing the manufacturer's product governance obligations (target market, review) with the distributor's obligations (identify the target market and ensure distribution is consistent).
Rule of thumb
Ask: what can the client lose, how quickly can they exit, and do they understand the payoff? If any answer is uncertain, treat the product as complex and apply the higher standard.
Worked example
A structured note offers capital protection only if held to maturity and the issuer does not default. It is not a simple deposit: it carries issuer credit risk and early-exit risk. The distributor must confirm the target market and warn the client about early redemption costs.