Structured products – leading the change towards better outcomes for customers

SPONSORED BY : Old Mutual International

Added 25th January 2017

Structured products are typically fixed-term investments that pay-out an amount that is linked to the performance of another asset or set of assets (such as a stock market index or indices).

Structured products – leading the change towards better outcomes for customers

Depending on their design, they typically provide the investor a high degree of certainty that they will get back their initial capital at the end of the term, plus a return on the amount invested. The products tend to be useful for clients who want a degree of capital protection whilst also providing exposure to investment markets or a fixed return. 

Whilst structured products meet a unique set of customer needs, they can also be expensive and overly complex for clients (and their advisers) to understand. It doesn’t need to be this way though so Old Mutual International (OMI) is leading an initiative to bring a better range of structured products to international markets. On the one hand, customers will get access to products that are simpler to understand and more competitively priced. From the adviser’s perspective, the products will be simpler to explain and provide them greater surety that their clients will get a good outcome.

In order to bring the new range of structured products to market, the first thing required was to establish new standards for pricing, simplicity and transparency. OMI then started working directly with third party product manufacturers who showed an appetite to embrace the new standards. 

Ensuring fairer pricing

There is typically a range of parties involved in the manufacture, marketing and distribution of structured products in international markets. Each of these parties requires their own set of fees to be built in to the product’s design. These fees ultimately diminish the competitiveness of the structured product being sold. By working directly with the third party product manufacturer, OMI has been able to cut out the ’middle people’ in the value chain. 

"Old Mutual International (OMI) is leading an initiative to bring a better range of structured products to international markets"

Ensuring simplicity in product design

Every pound of fee built into a structured product needs to come from somewhere and that ‘somewhere’ leads to the customer taking on more risk. Lowering the fees that need to be built in allows third party manufacturers to simplify the product and reduce their risk. The performance of the products in the new range is linked to no more than three major worldwide indices. 

Ensuring transparency

As regulations continue to evolve globally, advisers need to abide by greater levels of transparency and disclosure. All the products in the new range are accompanied by retail friendly brochures that explain product features, costs and risks in a clear and transparent manner. 

BNP Paribas is the first to launch under the new range

BNP Paribas were the first bank to embrace the new standards. Through OMI’s portfolio bond wrappers, they have now made available a new range of ‘CTF’ branded structured products, the CTF standing for ‘Committed to the Future’. In the new range, advisers can access products denominated in various currencies with three unique pay-off profiles meeting the spectrum of a client’s objectives when investing in structured products. BNP Paribas expect to launch new tranches of the products every six-weeks, providing advisers with continual access. There is no minimum investment amount required. 

Now that BNP Paribas have launched their new range of CTF products through OMI’s portfolio bond wrappers, other banks are closely following. Having more providers on-board will allow advisers to diversify their client’s investment holdings across various product issuers.

The start of a broader change

The launch of the new range complements OMI’s ‘Future Fit’ programme for advisers. OMI anticipates that going forward; advisers will start seeing the benefits of using structured products that are simpler and more transparent. 

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About Author

Prakash Chandramohan

Head of International Product,

Old Mutual Wealth

Prakash oversees the International product team, covering product development, pricing, illustrations and product management. He has 5 years’ experience with Old Mutual Wealth and has 11 years’ previous experience in the investment banking industry.  He holds a Bachelor of Commerce & Bachelor of Science from the University of New South Wales, Australia.

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