"[The media] is not objective and it is not fair," said Joakim Bornold (pictured), saving economists at Nordnet Bank, speaking on in the Big Debate panel during SRP's fourth Nordic Structured Products & Derivatives Conference in Stockholm on September 13, 2018. "There is always a story to tell. You just have to embrace it," said Bornold, adding that, in his opinion, the media perhaps has been fair to structured products.
"I love structured products and I love the derivatives market," said Bornold. "It has been part of my career for 20 years and I have worked in structured products myself, but we did it wrong. We didn't look at what [these products] can do for the customers, instead we looked at what [these products] can do for us."
Structured products have been a great success financially in many ways, but, according to Bornold, they have not always been a "great success when it comes to results for the client".
Mikael Axelsson, chief executive officer, Garantum, said the criticism that we hear today surfaced 10 to 15 years ago. "The industry has moved on," said Axelsson. "You cannot stay in the business unless you have clients that are happy and come back for more. We definitely had to change, and we have, but I don't think the media has picked up on that change."
The media, while perhaps not being unfair and unbalanced in the past, nowadays is "incredibly unfair and unbalanced", according to Axelsson. "It is to be expected, because the whole idea of media logic is to simplify and exaggerate," said Axelsson.
The media could, and should, pick up on the return history, for example, according to Axelsson. "Our own return statistics - 7.4% compounded annual return on over 800 products - is pretty good. You cannot maintain a categorically negative view of structured products when you hear those numbers," said Axelsson. "We only distribute through investment advice which means full suitability testing and there are controls in first line, second line, third line."
According Per Akerlind, CFP & head of capital markets at the Swedish Export Credit Corp, the market in Sweden got what it deserved. "The transactions that were issued; there was no price transparency; they were too complicated; there wasn't any disclosure; we did not check the client suitability and so on," said Akerlind. "That's why we ended up where we were."
However, Akerlind said he agreed with Axelsson that the market has moved on. "And the only way is to behave in the best possible way," he said. Swedish Export Credit Corp also distributes structured notes in the US, where, according to Akerlind, the Securities and Exchange Commission has even tougher rules and regulations [than the European Commission's Mifid 2]. "In the US, you have to disclose everything in the note. There is full transparency."
Japan, where the company is also active, has a somewhat different approach, according to Akerlind. "In Japan, people have realised that it is very important that you have full disclosure and that you are transparent, but instead of having an extremely detailed regulation and ending up with a lot of problems, they basically have passed seven principles that have the same features as Mifid 2," said Akerlind. "It is some kind of self-assessment among the banks."
Jacob Bolinder, head the Swedish Structured Investment Products Association, said the industry is constantly getting caught at a crossroads. "We have to represent the banks and safeguard their interests, and we also have to try and find a media strategy to deal with the negative press," said Bolinder. Because the banks have their own strategies, it is very difficult to get all the different views and to try and meet that with the media, according to Bolinder.
"I absolutely do not agree that the media are fair or balanced," said Bolinder. "It is constantly being picked upon that it is one negative product, or that it is being mis-sold to one client and that is then blown out of proportion. Everyone likes to comment when things go bad and not when something is going well," said Bolinder.
According to Bornold, when you reading about structured products in the newspapers, banks are partly to blame themselves. "[Banks] send out a spokesperson who doesn't believe in the product, who doesn't understand the product, and probably doesn't stand for the product. He or she looks like a reindeer in front of the headlights," he said.
"It's a bit like having a priest who doesn't believe in god," said Bornold. "You have to send someone out there who really believes the product is good. Otherwise, you will be smashed and that's what happens in the Swedish media, everytime."
Related stories:
Volumes are down in Sweden and non-existent in Denmark, SRP Nordics
Sustainable, passive investing continue to dominate index trends, SRP Nordics
Eat, sleep, rinse, and repeat, SRP Nordics
European rules have restricted local regulators, SRP Nordics
Structured products are extremely tangible, SRP Nordics
ESG is about knowing your end-user, their motivation and their regional lens, SRP Nordics