One of the challenges that any financial institution faces is finding the best place in the organisation to locate the retail structured investments team.
The position of the team is important because it can help to maximise sales, manage costs, mitigate risks and better meet clients needs.
If your company has it’s risk management, product development, dealing and distribution all under one roof the answer is relatively simple.
The questions that do arise include whether your people focus solely on structuring or that is only part of their roles. The former may be more cost effective but the latter provides more focus. Another challenge is should you employ specialist sales people or rely upon your general sales force? This one applies to most products and the answer will depend upon the strengths of your organisation, budget and your clients’ needs.
Within organisations that separate out production and distribution the challenge is greater. For example, where the investment bank writes the products but the private bank executes and distributes them. The new rules on the separation of “good banks and casino banks” may decide this outcome. Or where an asset manager manufactures the investment and the insurance company or retail bank provide the sales force.
Over the years, I have experienced a number of such challenges. In Coutts & Co, whether to focus Customised Investments within the private bank or the investment banking arm of the RBS Group? The answer was the latter, although we ran a number of mutually beneficial joint ventures with our colleagues in RBS. At Skandia, should the structuring team be part of the insurance business distributing solutions or the investment manager creating the funds? Whilst I was at Skandia, my team was based in the investment management arm, SIG. More recently the structuring team seems to be moving closer to the insurance business.
As with many things in life, the best solution will vary from organisation to organisation and the decision should be customer focused as much as possible. However, there a number of other factors that come into play including the type of products, regulations, people and means of distribution.
Products – the investment management arm is a logical place to locate the development of structured funds. Whereas, it may work less well for structured deposits or notes. Those solutions may be better located in the treasury or a bank.
Regulations – there are at least two angles to think about here. In terms of risk management, the only part of a group that has the systems, processes and authorities to run a derivatives book may well be the investment bank. Whereas, the private bank may be the business unit with the permissions to sell to and advise private clients.
People – the same may be true of people. An investment bank or investment manager will employ teams that are qualified and experience in managing trading books or portfolios. Whereas, the wealth management or insurance businesses possess the staff who have the authorisations and track record of selling to retail investors.
Retail clients – tend to have their relationships with the high street arms of banks, the private client division of asset managers or wealth managers. Regulations are making it increasingly difficult and risky for the institutional side to deal directly with private individuals. Some do but they tend to focus on very high net worth clients.
There are always pros and cons for each but in my experience the key is to leverage the strengths of the organisation and clients preferred ways of buying.
At Nomura, sales people were comfortable with selling bonds and traditional warrants via the syndicate desk. Clients were happy with this distribution model too. At that time, they tended to see Nomura as a Japanese and other Asian equity specialist, placing great value on the broker’s research. We delivered covered warrants on Asian equities via the syndicate desk and where successful as a result. It was also much easier to develop solutions as people across the firm were familiar with the process and the existing infrastructure was in place.
During these challenging times when firms are streamlining their businesses, the positioning and profitability of the structuring and distribution teams is coming under greater focus. Experience tells us that the answer is not always straightforward but staying close to your core strengths and clients is a good starting point.
Have a great Easter weekend!