The US structured retail products market saw its sales volume at the end of 2017 standing at US$64bn up 28% year on year and has US$379bn of assets under management invested in structured products. The reasons behind the revival of the market include renewed activity in the insurance and annuities market and the increasing weight of distribution platforms targeted at the intermediary/advisory market, according to panellists during the Letter from Americas panel at the 15th Annual Europe Structured Products & Derivatives conference at the etc.venues, County Hall, in London.

In the US there are lots of different other investment pools that tab the same value proposition but the vast majority of the business at Wells Fargo is market linked deposits (MLD) rather than structured notes, according to Rick Silva, managing director, co-head of equities & investment solutions, Wells Fargo Securities.

"The insurance distribution market is enormous in particular the subset that is essentially a structured note payout imbedded in an insurance annuity products so an investor as part of their life planning would buy an insurance benefit but really what you're buying is an investment scheme," said Silva. "It's a way of accumulate investment over a long time horizon on a tax-deferred basis so you can think of it as a retirement plan with an insurance policy imbedded in it. That wrapper is very very popular in the US and historically the market place as ben very segmented so the structured notes has been sold through brokerage channels and insurance products has been sold through insurance brokers."

Although in the US firms need a different licence to sell insurance than to sell securities, the dynamic in the US is that those worlds have been "bleeding together".

"More and more insurance companies offering index linked annuities, equity indexed annuities which is really nothing more than structured notes dressed up as an insurance policy," said Silva. "It has been going on for a couple of years now. Before the financial crisis insurance companies used to offer a product called a variable annuity which was a long-term annuity that was based upon the performance of a market index with a sort of cliquet payout. That product went away and as part of their effort to innovate to sustain their annuities sales what they have been doing is to try and take pieces of our technology and relying on it more and more. So that's just something to be aware of. It's another channel."

This has opened up new opportunities for manufacturers and distributors, and a shift in the market towards a more wrapper agnostic approach.

Jason Barsema, managing director at Halo Investing, believes that the future of distribution is to be wrapper agnostic. "From our perspective at Halo we don't care if it's a unit investment trust (UIT), a structured note or an insurance product," said Barsema. "The problem with some of the insurance products and some of the structured notes is that they are getting overly complex. Instead of focusing on proprietary indices or strapping on more features that no one really understands our focus is on helping automate the process to make it a lot more efficient to reduce someone's cost of issuance."

Christopher Schell, partner at Davis Polk & Wardwell, pointed that although "it doesn't really matter what vehicles are delivering the exposure" the regulation in the United States looks at the different vehicles "totally differently".

"The insurance market is state-based regulated, so each state has its own regulator, and those rules are not necessarily the same," said Schell. There's probably a gap between their understanding of how that works with the broker dealers that have had more experience over the last 20 years selling structured notes. Obviously not every broker dealer in the US sell structured notes but those that are, have now been heavily trained due to in part a lot of SCC prompting. That has not happened in the insurance market and so there's a certain amount of questions about what is going to happen when more and more variable annuities are sold on a structured basis in the US."

Reducing the cost of issuance has a beneficial impact on the terms of the product as providers can pass the savings to the end investor and remove the perception structured products are expensive, according to Barsema. "This is what we call Henry Ford's assembly line," said Barsema. "In the United States structured products are distributed, delivered and manufactured very similar to how cars were prior to Henry Ford's assembly line in the early 1900s: very manual, very expensive."

Half of Halo's customers have never heard of a structured note and the firm's philosophy is to grow the pie instead of "taking a share of a shrinking pie or slightly growing", according to Barsema.

Distribution platforms however are no panacea and will not replace sales team, but can act as "an extension of that desk", according to Barsema. "Halo learned this the hard way. We were going to be the Amazon of the structured notes market in the USA and we thought we would never had to deal with a human, but that never worked. Until we started collaborating with the banks and started using humans it didn't really take off."

This can also be applied to Robos, said Barseman. "Would you trust your money to an algorithm? The answer is...maybe. But the thing is with a new product or our money in general we want to talk to a human. The platform [however] is really efficient means to execute, to educate, and to manage products but you still need the sales person to help navigate that customer through portfolio fit, through how does it benefit, how does it work," he said.

The regulatory framework remains at the top of the structured products market agenda but has not really had a negative impact overall because the regulatory and compliance convergence is a positive result as financial institutions are now spreading out the knowledge of how to deal with some of these conflicts [of interest] that arise into those other wrappers."

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