Structured products sometimes get classified as an asset class, but they’re more like a proposition giving investors exposure to underlying assets such as equities and credit. In this respect, they don’t increase the burden on investment teams in terms of researching themes or macroeconomic trends.
However, structured products are complex, so they pose different challenges. These challenges divert time from higher-value activities, but they can be overcome by leveraging an automated solution like Futora’s.
Derivative prices vary broadly, so once a client settles on an underlying asset, the investment team must shop around with the sell-side to secure the best deal. When conducted manually, price discovery involves lengthy email exchanges with issuers, and the process has to start again if the client decides to change the funding rate.
Futora’s multi-issuer platform streamlines price discovery, as it allows investment teams to source as many quotes as necessary. It stores quotes and responses on a central repository which is easier to track than an email inbox.
A structured product must match a client’s risk appetite. The first stage of this process involves running simulations on its possible performance trajectory and back-testing it. The investment team must also confirm the Key Investor Information Document (KIID) provides a Summary Risk Indicator (SRI) score, so clients understand the risk/ reward profile. Assigning an SRI score is one of the key requirements of the EU’s Packaged Retail and Investment and Insurance-based Products (PRIIPs) regulation. However, not all issuers provide this information.
Futora’s platform has a built-in analytical tool which calculates the risk/reward ratio of a structured product on both the primary and secondary markets. It also predicts the potential performance of an investment before the derivative matures to help a client pick the right time to exit.
Communications between the investment team and relationship managers, who may represent hundreds of clients each, can be hard to track. High-net-worth-individuals expect a bespoke service, and requests from relationship managers, under pressure to deliver products that meet their clients’ needs, add to the burden on the investment team.
Futora’s platform includes a tool which simplifies communication between the two divisions. One of its features is a repository which stores quotes, research and other documentation.
Another factor influencing the customer experience is how the investment team manages the lifecycle of a structured product. This means calculating its value on an ongoing basis so relationship managers can provide timely and accurate updates and monitor events that impact the return on investment (ROI), such as breaching an upside or downside barrier.
Futora’s platform automates the process of valuing structured products and cash flow management. It also produces client reports with visual aids like graphs.
The asymmetric risk/reward profile of a structured product may appeal to a client, but they could be deterred by the complexity of calculating the ROI. The same applies to a relationship manager who wants to add the proposition to their product range. The responsibility for creating educational material (and presenting it internally) falls on the investment team because that’s where the expertise lies.
Futora’s platform includes an educational hub which creates interactive graphs explaining to relationship managers or clients how structured products work. The hub also features a glossary of key terms and a quiz to test proficiency.
To find out how Futora can help your bank streamline the distribution of structured products to high-net-worth clients, arrange a demo today.