Guaranteed attractions
Some providers believe guarantees are an important part of third-party products for the wealthy, reports Yuri Bender.
“We have a robust process for selecting third-party funds,” says Christine Ross, the managing director of distribution through financial advisers for private bank SG Hambro, which runs assets worth e11.7bn. The statement may be a commonplace one, but in this case it is more than a generalisation. Hambro is not just selecting funds to be sold as standalone third-party products through an increasingly fashionable open architecture model. The funds are selected, modelled into an institutional-style product and distributed through a retail-style adviser network to high net worth individuals (HNWIs). Ms Ross was a big noise in the well developed world of Anglo-Centric UK financial advice networks, but gambled on moving in-house to an institution that concentrates on marketing to the seriously wealthy, a more European approach. This is partly cultural – the bank is owned by French house Société Générale. Typical institutional-style products structured for external distribution are FX linked deposits. “We are experiencing very low rates of interest, so investors are looking for new ways of boosting returns,” says Ms Ross. Funds are chosen in the Guernsey office and manufactured into structured products in the Luxembourg factory. They are often sold down the line to smaller continental private banks that do not have their own product development capacity. Last year, a product linked to the FTSE index raised E23.4m for SG Hambro. A product for clients willing to take on more risk is now under construction. Ms Ross is increasingly wrapping these products, equity funds, exchange-traded funds, hedge funds of funds and bond assets, into a guarantee before passing them down through the independent financial adviser (IFA) chain. She has already brought in E47m in this fashion. She criticised some IFAs for turning portfolios over too quickly, however. “Only a small number are dedicated to investments. They have to advocate a buy and hold strategy,” says Ms Ross. “Many IFAs are playing at being portfolio managers without any training in portfolio theory or asset allocation.” HNWIs still want guarantees if they are investing in hedge funds, says head of the bank’s portfolio management team Andrew Popper. It is often difficult to sell a product that does not capture the public imagination, he says. Last year, SG Hambro tried to sell Swing, which consisted of 18 stocks, to wealthy investors. The total return would equal the return of the least volatile stock. “The product structuring group fell in love with it but it was not a major success with investors,” says Mr Popper. On the other hand, some products which are straight copies of existing funds on the market, repackaged under a new name and label, become instantly popular. According to Mr Popper, there is no accounting for taste.
