Wealth management platforms in Asia face a different challenge from their European counterparts, especially in terms of acquiring prices and booking the respective payoffs because the majority of structured products in Asia are traded over the counter (OTC), according to Julian Schillinger, co-founder and chief executiev officer of Privé Financial.

The company provides integrated asset and wealth management that "allows our B2B clients to build their own robo advisor solutions, which could potentially include structured products," said Schillinger. "We build a specific model, which we call the structured products portfolio analytics tool, and this tool allows clients to evaluate how a structured product has, and can affect the overall portfolio."

The majority of private banks in Asia plugged into Privé Financial's wealth management platform use structured products, according to Charles Wong, the company's co-founder and chairman. "Right now, many of the banks still rely on structured products to basically create that bottom line for the institution, because the current cost of maintaining an individual client from a compliance perspective has increased dramatically due to regulations," said Wong. "This means that if, as a private bank, you have a portfolio of US$10 million, you are basically using a relatively high percentage of assest under management just to onboard and maintain clients, while, at the same time, trying to generate value. All that the banks can rely on is a product that can give them that 2% or 3% of revenue or profit on the very first day. This is why structured products are very attractive for banks in Asia."

Wong believes that the "holy grail" in all of the discussions about structured products is how to deploy them in a portfolio construction context as structured products have always been synonymous with product pushing in Asia and, as a result, banks find it difficult to fit structured products into a portfolio advisory context.

"This is where our platform comes in," said Wongh. "We are able to position structured products in a way so that the client can visualise how such products would perform historically within a portfolio and exactly what are the risks related to it. I do not think structured products will go away, but if they can be made to be sold in the context of portfolio advisory, the market will actually grow."

Structured products can sit alongside other products such as ETFs, bonds, stocks, mutual funds or hedge funds, according to Schillinger (right). "We build an analytics engine, which can simulate the impact of structured products to the overall portfolio and, as a result, how the overall portfolio risk avoidance changes by adding such products," Schillinger said. "This changes the dialogue, and it is no longer about the different payoffs. Now, it is about how asymmetric risk can help you achieve a better risk reward in your overall portfolio -- and that is the game changer that we can provide."

Technology developments are bringing new innovations to the market such as robo-advisors which have also brought concerns around suitability. "Suitability is one concern, but not the whole reason," said Schillinger. "Most robo advisors do not even offer bonds or equities directly. The majority of the robo advisors offer ETFs portfolios." However, the next generation of robo advisors will concentrate in smart beta and will offer more interesting options with better returns at a given risk using smart-beta baskets, such as symmetric baskets, smart beta strategies, and with more interesting underlying, such as bonds, equities and structured products, according to Schillinger.

"The reason why many [robo advisors] do not offer structured products right now is because the capability to model structured products in a portfolio context is very difficult, and they are focusing on the simple ends," said Schillinger. "We are trying to change this by offering our APIs to the other robo advisors and other distributors in the market."

According to Schillinger, the next step of the evolution is to provide new application layers and functionalities rather than building a whole new platform. "We have multiple projects going on with different types of clients so it ranges from newer companies to large banks looking exactly at this capability and using our FinTech as a service, or SaaS, framework to pipe in the functionalities they cannot replicate in-house," he said.

Banks are moving towards digitalisation, and there are things they will need to do in order to remain competitive, according to Wong. "More and more banks are subscribing to the idea of using our service," said Wong. "The company has created a set of API tool kits, so that if some of these banks want to create their own user journey, they can do so. Mid-size and local banks need some time to get used to this process. According to Wong, however, banks will eventually realise that it will be more cost efficient to use third-party vendors instead of building their own platforms.

Related Stories:
China's Pintec robo advisor targets Southeast Asia

MIPs: Integration is in motion but it will take time

IFM unveils structured products online calculator