SPA Conference: Distribution trends show growing importance of technology, bespoke sales

By Emma Trincal

New York, March 21 – How to make structured investments more mainstream? That was the topic of a morning panel called “distribution trends for structured notes,” at the Structured Products Association’s 14th annual conference held in New York on Tuesday.

“What do you do to grow the pie?” asked the panel moderator, SPA chairman Keith Styrcula, who organized the event.

Both panelists specialize in structured notes distribution but from different perspectives: one is in the traditional distribution channel, the other delivers technology in an effort to reach out to first-time users and compress costs.

Two ways

“Selling structured products can be done in two ways: you either have a Cusip strategy or an investment strategy,” said Rob Sowinski, managing director, structured products at Advisors Asset Management.

For Sowinski matching the investment idea with the client’s goals is a more desirable approach than just growing notional size through the “Cusip strategy.”

“You have to contemplate the pros and cons of a product. You have to understand your clientele and find out if it makes sense for an advisor to pitch a structured note to a client,” he said.

Advisors Asset Management caters to independent broker-dealers and advisors.

Bespoke

Leveraged buffered notes remain one of the top products for advisers, Sowinski said.

“It’s a great story. Simple trade. If the markets are toppish you still have exposure to the upside but you have downside protection.

“That seems to be working well,” he said.

Using these popular trades in conjunction with a more hands-on approach was another important factor driving progress.

“When it comes to growth you have to engage in the bespoke business,” he said.

“We’re a retail shop. Issuers have agreed to lower their minimum. We’ve seen the lowest at $250,000. That helps with the bespoke conversation.”

Elegant but...

Jason Barsema, a former partner at Credit Suisse Private Bank, offered his own take on growth as co-founder of Halo Investing, a multi-issuer technology platform for structured notes.

In his view, technology can solve a number of problems faced by distributors and wholesalers alike, in particular educating first-time users, providing more liquidity and transparency and making structured notes available to a larger audience with smaller minimum sizes.

“I spent my career at Credit Suisse, one of the largest consumers of structured products, and I was very familiar with structured products from the buyside’s standpoint,” Barsema said.

“I saw that structured notes were some of the most elegant products. They were also some of the least efficient products.

“We created Halo to democratize structured notes and make the life cycle easier for the consumers.”

Simplicity

Halo offers its platform directly to RIAs who can choose among different issuers based on competitive and transparent bids.

“Half of our customers have never bought a structured note, sometimes they never heard of it,” he said,

Barsema agreed with Sowinski: RIAs tend to feel comfortable the most with buffered notes.

They also tend to dislike notes tied to lesser-known indexes, such as smart beta and proprietary indexes.

“My clients don’t like products on [those] indices,” he said.

“We keep things very, very simple.”

Scale

One distribution challenge, Sowinski said, is to get issuers to offer their pricing feedback on deals in a timely fashion. This view was largely echoed at another panel on private wealth.

“When they get back to you quickly it’s always positive for the client,” he said.

But as demand for customized notes increase the logistics of keeping track of the performance, roll dates and back office in general can become burdensome.

“The main challenge remains scalability,” he said.

Progress

For Barsema, Halo’s portal brings a new educational tool for advisers.

“Our clients who are new to structured notes get comfortable after the first or second trade. After that they’re self-driving,” he said.

“Technology scales the business. Growth is a function of new RIAs coming into the market and buying.

“We should see more than 20% increase year over year for this market. It should be 50%.

“There is no reason why we shouldn’t be able to improve the optics, the liquidity, the transparency, the fees. Every issuer should work on that.”

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.