Sophisticated Wealth Management through Structured Products

Sophisticated Wealth Management through Structured Products

Written by

Alon Tal
November 9, 2016

investment alternatives

In low interest rate environment bank deposits provide low yield. Capital markets and alternative investments such as commodities and currencies are volatile and risky. The Holy Grail for investors would be a product that offers a combination of low risk investment along with high yield potential.

Usage of structured products provides an investment alternative, that if properly use, may allow the investor to achieve this goal. Additional advantage of using such products is having access to asset classes which are limited even for high net worth individuals.

Regulation made many steps forward in favor of the investors during the last decade, however, unfortunately, many structured products offered to the public, by reputable banks are still used to serve the bank’s needs to lower their funding costs (get cheap financing) and the distribution channels for distribution fees rather than serving the investors’ need for efficient investment tools. Such products may be available on efficient “tailor made” version only to ultra-high net worth individuals.

packaged investment strategies

Structured products are hybrid investment tools offering a combination of capital protection (similar to bank deposits) along with potential high yield (derived from stock markets, alternative investments and derivatives activity). Structured products enable to pack a whole investment strategy aiming to achieve pre-defined goals, in one product. Goals may include characteristics such as:

ü  Risk controlled solution offering capital protection (full or partial), customized to the investor’s needs

ü  Access and exposure to various markets and asset classes (equities, debt, currencies, commodities, indices) enabling portfolio diversification and better performance (risk/reward).

ü  Hedging of currency risk.

avoiding conflict of interests

There are many advantages of using tailor made structured products offered by an independent third party, other than the issuing bank that have interest in the products or by a brokerage firm having incentives derived from its distribution. 

Many family offices and high net worth individuals choose to use a buy side specialist who has its fiduciary with the investor rather than with the bank.

main advantages and tools for success

Engineering of such products requires special expertise, understanding various domains on investment and relationship with prime banks. Such qualities may be utilizes in advising banks, investment funds, family offices and high net worth individuals. 

Products are tailor made in all and any aspect, such as: domain of investment (equities, bonds, commodities, currencies, indices and so on), investment horizon (term of product), full or partial equity protection, level of participation in basic asset performance (partial, full, or enhanced) and choice of issuing bank. 

Tailor made structured products also have the potential of saving in banking distribution fees (up to 100% saving).

Other useful features of the service are the ability to purchase the product from any bank account the client may use, daily liquidity and ongoing reporting.

Advanced strategies enable also the possibility of having well balanced leveraged portfolio by usage of product as collateral for credit.

The main advantage of the tailor made structured products services offered by buy side, rather than sell side player such as a bank or a brokerage firm is having a clear, simple and fair offering without “small letters” that make big difference to the actual yield versus expected yield.  

Disclaimer: The Article may not be considered as investment advice or offering of financial products. Structured products may contain risk.