Experts: Neutral Asset Allocation - From past to present: the customer and the product.

(From Professional Wealth Management (PWM))

Byline: Rex Cowley

Structured products must be one of the biggest wins for consumerism within the financial services industry for the past 100 years. Customers' needs took pole position with bankers and investment specialists looking to deliver absolute solutions for a single client requirement.

These actions resulted in improved customer retention by virtue of satisfying explicit client demand. However, the ramifications of this pioneering thought and early academia was far greater than imagined. It initiated a revolutionary trend that would enable the financial services industry to create an entirely new market with unparalleled appeal and seemingly endless potential for client acquisition and revenue generation. This saw a paradigm shift where investors looked to decouple the concepts of risk and return and this fundamental step change has transformed the market place forever.

In the pioneering days of structured products, customer demand revolved around two mutually exclusive objectives of income or growth. Both objectives were underpinned by a strong common desire to maintain capital values or to strictly limit loss.

Today, both practitioners and investors often misinterpret structured products as guaranteed or capital protected vehicles because of this legacy. But more worryingly, investor expectation regarding structured products would seem to be somewhat misplaced as many look to structures as a means of achieving multiple objectives from a single product. Unfortunately the industry has done little to address this problem as marketing machines compete in a tightening environment for wallet share.

Definition