Given the recent gyrations in the financial markets, clients sticking to equities and fixed income alone might be challenged when it comes to meeting expectations.
However, there are more complex financial products available that can help address the challenge.
Today structured products, alternative investments and private placements are gaining ground. According to the Wall Street Journal, $55 billion in structured products were sold in the US in 2017. New technology and energetic marketing have certainly contributed to rising sales. But the pool of “accredited” investors with access to complex investments could grow as legislators have floated the idea of expanding the definition of “accredited investor.”
It’s market conditions though, that have really fired interest. The length of the bull market and fears of a downturn, as well as talk of being late in the credit cycle, have combined to dampen the previously good returns enjoyed over the past decade. This is what has advisors looking at alternative investments like hedge funds and structured products.
In 2007, structured products were also popular, and the trend has been that these products are moving into the retail market. Advances in technology have made it easier to engage in price discovery, tweak product design and buy these notes. Technology is making a much broader product set available to a new group of investors. Advisors and investors are also better educated today. Platforms such as SIMON and iCapital both emphasize education and work to ensure that advisors understand the products they sell.
Some naysayers are concerned though and believe that an influx of people investing in products they don’t understand will create additional risk. Others believe that sales efforts are responsible for the uptick in interest, and warn that structured products aren’t bought, but sold. They typically involve high commissions and fees, increasing incentives for the sellers.
While new product platforms are appearing, firms eager to generate fees and an environment headed to less rather than more regulation, advisors should educate themselves about these products and get used to hearing more questions from clients.
For more information, please read:
Structured Products on the Rise, Again | Wealth Management