The democratization of bespoke investment products

Updated: Mar 17


Banking is at an inflection point. Customer expectations are evolving as they become accustomed to the personalized experience delivered by apps such as Amazon and Netflix, not to mention the fintechs disrupting the finance industry.

Research by the Boston Consulting Group (BCG) shows 37% of customers want their bank to be more like Amazon, while 29% expect the level of assistance provided by a personal shopper.

Delivering bespoke services offers substantial upside- $300 million in revenue growth for every $100 billion in assets, according to further research by BCG. Conversely, those banks that fail to evolve risk losing customers to more tech-savvy rivals.

This trend applies to investments as much as other types of financial products. Personalized services have traditionally been restricted to the wealthiest customers, but technology is levelling the playing field. That partly explains the success of robo-advisors like Wealthfront and Moneyfarm, which tailor portfolios for retail investors, typically using exchange traded funds tracking the performance of an underlying index.

However, an even greater level of personalization is possible, including products which have previously been out of reach for retail investors.

 

The privileged world of structured investment products

With Interest rates already at record lows before the coronavirus pandemic depressed them further, investors have been forced to look for opportunities outside conventional asset classes.

Structured products appeal to high net worth clients for a number of reasons. They’re bespoke, allowing investors to choose which underlying asset they’d like to gain exposure to, in line with their risk profile. They also offer asymmetrical returns- they protect capital while providing leveraged participation in the upside of the asset. According to the Structured Products Annual Performance Review, published by Lowes Financial Management, nearly 70% of UK products that matured in 2020 generated positive returns and just short of 24% paid back capital only.

The costs of creating an investment product, regardless of whether it’s structured or streamlined, are high- the provider needs to publish a prospectus, issue an identifier such as an International Securities Identification Number (ISIN), assemble the underlying assets and create a wrapper an investor can buy.

Streamlined products offer greater economies of scale, as they split these costs among a much higher number of customers. That’s why structured products have been the preserve of the wealthy. Trading teams don’t go to the trouble of creating a security for a retail investor with capital as low as $10,000 or $20,000. Until now, that is.

 

Structured products for the masses

Futora has developed a solution that allows smaller banks to become issuers of their own personalized investment products for clients across all customer segments. By automating the management of the entire lifecycle of a structured product, from sourcing securities to clearing and booking trades and settling transactions, our solution cuts the prohibitive costs which have excluded many providers from this $7 trillion market. It also drives revenue by enabling banks to broaden and diversify their investment offerings and tap into new markets segments.


 

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