Improve education, standardize nomenclature, say investment advisors as issuer risks gain prominence

By Kenneth Lim

Boston, April 9 - Issuers need to improve education resources, standardize nomenclature and address concerns about credit risk, a panel of investment advisors said at the fourth annual Structured Products Association Conference in New York on Wednesday.

Steve Braverman of MyCFO Harris Bank, Frederick Wright of Smith & Howard Wealth Management, Tom Balcom of Financial Planning Association, Tony Proctor of Proctor Financial and J. Scott Miller of Blue Bell Private Wealth Management spoke to conference attendees shortly after winning in the first SPA LeadingEdge Advisors Awards.

Echoing sentiments mentioned by several other speakers at the conference, the advisors mentioned education as a key priority for issuers in reaching out to the advisor community. Many advisors remain unaware of structured products, the panelists said.

Many investors are also unfamiliar with structured products. For example, a common misconception is that a structured product is a win-lose battle between buyer and issuer, where a buyer's loss is an issuer's gain, Wright and Proctor said.

"I think there's a need to address that skewed perspective," said Proctor, who quipped that less education would actually keep his competitors away, on the sidelines of the conference. "The issuer is not taking a position...it's not like in Vegas, where the house always wins. They [issuers] need to explain that we are simply providing a transaction."

But getting issuers involved in education can be tricky, Miller said.

"Most of the education is done by someone who has something to sell," he said. "And RIAs [registered investment advisors] are a special group of people, they all think they are smarter than everyone else."

'Too cute by half'

One way to ease the learning process is to standardize and simplify nomenclature.

"Keep it simple," Balcom said.

"Some of these are too cute by half," Proctor said of the product names. "We are coming up with all these acronyms."

Proctor added later: "One firm may call the buffered securities BUYS, another may call it something completely different. It makes our jobs so much more difficult...It's not like just because you call it BUYS investors are going to want to buy it."

The panelists nevertheless praised issuers for stepping up education efforts and helping to raise awareness of structured products.

"Now when I tell people about structured products, people are not saying that I have three heads," he said.

Marketing material improves

Proctor also noted the growth in more-accessible marketing material.

"I think the issuers are creating client-friendly brochures more than they used to," he told Prospect News.

Bear raises credit concerns

Issuer risk has reemerged as a key concern especially after Bear Stearns almost collapsed, the buysiders said.

"The biggest fear that I have...is the credit risk," Miller said. "Thank goodness we have always been concerned about credit because we did own Bear."

Miller said he was going to Hawaii when news broke that Bear Stearns credit was in trouble, and almost canceled his trip. But his clients' credit exposure had been diversified beyond Bear Stearns and the bank was eventually bailed out, so Miller stayed in Hawaii. But he said the important lesson for advisors is to spread their eggs.

"There is no worse feeling when you are trying to hedge risks for your client," he said.

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