The distribution of structured products is still a people's game with regulation expected to remain in focus for some time as the industry tries to regain some of the credibility lost among clients, according to panelists debating current trends around the distribution of structured products at SRP's 13th Annual European Structured Products & Derivatives Conference.
There are no new techniques in the distribution of structured products but the increased weight of regulatory requirements has forced distributors to streamline their operations and reduce costs through investing in technology and automation. "The ticket size is coming down but the number of transactions is increasing, we need to automate", said Holger Lunden, global head of structured products at Danske Bank.
Emma Davidson, director at Affinity Capital and Oumar Diawara, head of structured products at Natixis Asset Management, however, pointed that there is no innovation in terms of distribution techniques in the UK and France as of yet because the human relationship in these two markets still prevails over technology.
"Clients still prefer the personal contact over robo-advisors," said Elisabete Pinto Pereira, vice president at Novo Banco, because "they [clients] don't want to know only about a specific structured product [...] but they want to know about the reality around it." According to Pinto Pereira, robo-advisors, on the other hand, are much more suitable for the role of reaching new clients, especially within the younger generations as they are more 'technology-oriented'. However, once a certain income level is reached, the personal relationship to the financial advisor becomes important, according to Pereira. "The future will be a mixture between human financial advisors and robo-advisors," said Pereira.
The notion that the bond between retail clients and banks is still strong was also supported by Lunden who sees robo-advisors as a tool used predominantly in the private banking sector, while Davidson pointed at regulatory requirements for the appeal of algorithm-based advisory among regulators. According to Davidson, as it has happened with the mobile ride hail app, Uber, technology solutions are less heavily regulated as compared to humans. "Eventually, it [technology] will get the same [regulatory] treatment as we get," said Davidson. "Regulators are always going to love algorithm instead of human beings because they are prone to mistakes."
The generational divide is evident in the distribution of structured products with younger investors/advisors having better understanding of the products' characteristics. According to Davidson, millennials' experience with the financial crisis makes them "far more aware with what's going on in the financial world" which enables a franc and open discussion. In addition, "the younger generation recognizes the fact that you have to face some risk", said Diawara who expects the generational balance and risk perception to change.
As the generational divide in the structured products market grows, so is the necessity for the younger and well-informed investors to have easier access to such investment opportunities. Unlike Germany, where investors are already able to buy structured products directly via their mobile phones, in France and many other markets) that is still not the case. According to Diawara, today, it is more difficult to by a structured product "which is less risky" than it is to be long in equity, and this has to do with the market's credibility. "As an industry, we have definitely lost trust [...] and for as long as we do not have the trust, we will be regulated extremely harshly", said Lunden.
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