Panelists discussed how buy-sides drive the innovation of technology and platforms within the structured product industry at the SRP Americas 2024 conference held in New Orleans, LA last week.

Technology and platforms in the structured product industry have been a positive boost to the financial advisor's space, Tom Baughman, managing director, head of advisor distribution for private wealth solutions at iCapital, kicked off the “distribution avenues and access through technology” panel discussion.

There is a lot of opportunity for any technology provider to offer optimization or shortcuts to the auto-pricer space - Matt Linker, Arta Finance

“We've essentially been able to take this business off of spreadsheets and on to a place where you have order entry and lifecycle management, not to mention all the education and research capabilities that bring as well,” Baughman said in the panel moderated by Tom Layton, senior vice president at Raymond James Financial.

Matt Linker, head of derivatives at Arta Finance, agreed with Baughman’s points as he also saw the value of having multi-dealer platforms for advisors to iterate faster through them. But there’s a remaining challenge coming side-by-side.

“There's almost too much choice in a sense, so we need to figure out 'How do we then optimise? How do we then select the best offerings for end clients?’” said Linker.

“Buy-side completely drove the innovation and the platform development, particularly with respect to structured products,” Vanessa Simonetti (pictured), managing director, global equity derivatives at TD Securities, said.  “I do think the end goal is still to grow the pie and make the market more prominent. That will ultimately benefit issuers, but it has also created headaches and work for issuers and changed how issuers deliver pricing to all these requests.”

Panelists highlighted the importance of issuers' auto-pricing technology, with many having the resources to develop such tool internally.

“It used to be that you would say to someone, ‘I can price these 12 iterations for you, and I'll have it for you in about an hour or two,’” Simonetti said. “Now, that's expected to be 30, 40 or 50 iterations in five minutes.”

While from the wholesaler side, Baughman said most of the work iCapital works on the auto-pricer front is related to price discovery for clients, Simonetti said the Canadian bank's auto-pricer is strictly for internal use.

“I think there's a lot of opportunity for any technology provider to offer optimization or shortcuts to the auto-pricer space,” Linker said. “How do we come closer to the end goal even if you don't go all the way there to the final structure?”

Meanwhile, the increasing digitisation and automation brought up concerns about the younger generation coming into a structured product industry with full understanding of various pieces of option pricing, Linker and Simonetti noted.

Linker shared about being in a pickle when he tried to hire a structuring role at the firm earlier this year.  “As someone who believes strongly that you should know all of those details, know how to dive into Excel, know every single dynamic that feeds into these structures, I had an incredibly difficult time finding people that were able to do that,” he said. “Ultimately, I was able to make the hire. But I think it speaks to the challenge that we're going to start to see.”

Baughman sees iCapital’s next scope for growth is to show a financial advisor and their client the impact to their portfolio by investing in structured notes.

“Our competition is what the 85% or so of advisors that aren't using structured notes to generate income or create hedges in their portfolio – I think that's the best next step to trying to expand the pie and using technology to do so,” he said.

“The more we can work to simplify some of the options you have with respect to structured products, I think that will help further drive growth in the marketplace,” Simonetti concluded. “I do think that the technology of the platforms can really help drive that organised thought process for the advisors.”

Do you have a confidential story, tip or comment you’d like to share? Contact Us | SRP (structuredretailproducts.com)