SPA Conference: We need technology, education, consistency, panelists say

By Emma Trincal

New York, March 6 - Technology providers can support the expansion of the structured products business but in exchange they need issuers to overcome a few obstacles that continue to make the industry unnecessarily complex, said Tim Mortimer, managing partner of Future Value Consultants, a research and analytics consultancy firm specializing in structured products.

"Structured products have grown to a large industry but still have a long way to go to truly establish themselves," he said.

"Obstacles still exist to achieve scale and efficiency," he added pointing to inconsistencies in products' nomenclatures and education.

"Different issuers have different ways of naming products. People are interested in how the industry can harmonize those names," he said.

"Education needs to be tied to products-by-products. This is why our firm offers deal-by-deal analysis and monitoring."

From CDs to notes

The issue of education was a recurrent theme at the conference including during a bank panel. Speakers at this panel - mostly broker dealer affiliates of banks - explained the need to train bankers and licensed brokers within a bank in order to facilitate the understanding of products that depart from the traditional CD, such as market-linked CDs and structured notes. For bank clients, but also bankers who are used to the concept of FDIC insurance, the effort to understand structured notes may take time.

"The big concern in our firm is training our reps," said Bruce Stava, national director of sales at First Bank in Huntington Beach, Calif.

"It makes sense for a manufacturer to broaden the supply of products to notes and not just CDs but it might not translate easily to our average customer. I haven't seen the upside match the risk yet," Stava said.

"I'm not sure our customers are ready for structured notes yet, but I am waiting to be convinced," he added, saying that his firms uses Midwood Financial Services for the training of its staff.

Alan Blank, president of Midwood, said that "the challenge for the bank culture accustomed to dealing with mutual funds, annuities and managed money is to understand these structured products and see which clients they may appeal to. This requires time and education."

RIAs want communication

Panelists at a RIA and family office panel stressed the importance of education as well but also of internal communication.

Dean Zayed, chief executive officer of Brookstone Capital Management, said that his firm publishes a list of internally compliance-approved deals.

"We give our reps the ability to pick their own notes. It fits nicely as a complement to an asset allocation model or a hedge equity strategy, something that can add a lot of value to a managed strategy," he said.

"We publish our list weekly and we break it down in two categories: income-oriented products and growth. Ninety percent of the interest is on the income side right now. For instance, right now, our reps are gravitating around range accrual notes."

Zayed said that he was optimistic about the industry's ability to overcome the education and training challenges it has been facing for some time.

"Most advisers were reluctant in the mid-90s or even in the late 90s to do ETFs and we know the rest. I think we're at the bottom of the first inning. It's a snowball. Clients have a good experience and they ask their advisers to come up with more products. I can only imagine that volume will increase significantly over the next two years."

Eric Greschner, who runs simultaneously Regatta Research & Money Management, a registered investment advisor, and Your Financial Coaches.com, a financial education firm, said that training advisers can only help the industry overcome some of the negative stigma attached to it.

"What we like in structured products is that it allows you to predefine, predetermine your risk return and that's very attractive.

"In order to counter some of the factually incorrect and biased articles one can read online, I think our industry needs academics or at least independent sources to put out white papers, which would enable the public to understand the benefits of structured products," he said.

"How aggravating is it to you to hear many people still associating structured products with Lehman?" Zayed asked the audience.

Part of the problem could be the complex nomenclature of products, the panelists said.

"The nomenclature has raised a lot of confusion on the client's part. It would be great to have some sort of uniform terminology," said Zayed.

Greschner, who pushed for this idea for a long time, agreed.

"The adoption of a uniform system that would allow advisors to compare structured products in terms of costs and payoffs would be very welcome. It would help a lot in terms of education and understanding of the products," he said.

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