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Structured Products Halfway House between Deposits and Managed Funds
© Copyright StructuredRetailProducts.com 2014
Wealth Options: structured products halfway house between deposits and managed funds
17 Mar 2014
When Wealth Options was first established in December 2003, the Irish structured products market was dominated by Bank of Ireland, Irish Life and Allied Irish Bank, while providers such as ACC Bank, Anglo Irish Bank, First Active, Friends First, Mercury Wealth Management, Northern Rock and Ulster Bank launched tracker bonds on a regular basis.
Ten years on, while many of the above distributors have long since disappeared, Wealth Options has firmly cemented its position in the Irish market. Since its emergence, the company has launched 130-plus structured products in Ireland and has collaborated with a range of third-party issuers including Bank of Ireland, Ulster Bank and most recently Dutch private bankers Van Lanschot.
Based in Naas, County Kildare, Wealth Options – essentially a wholesale distributor of financial products – sources, packages and promotes a range of products exclusively to Ireland’s independent financial adviser (IFA) community.
The firm is headed by managing director Eanna McCloskey and currently employs 17 staff – including seven business development managers who are based across Ireland – and its customers are insurance brokers, financial advisers and other intermediaries who are authorised by the Irish regulator Central Bank of Ireland to give advice about financial products to the Irish consumers.
SRP spoke to Wealth Options director Brian Flynn about the company’s position in the Irish market, its new platform for brokers, the impact of regulation and the recent collaboration with Van Lanschot.
In a market which is highly competitive, Wealth Options says it aims to provide financial products coupled with self-administered pension structures for independent intermediaries and the company firmly believes that independent impartial advice is now more important than ever.
“A cornerstone of our philosophy is that we believe this type of advice is best sourced from an independent financial adviser and not necessarily from a product manufacturer,” Flynn says.
Wealth Options constantly reviews the Irish market and the different types of product offerings which are available and the firm has not always been impressed with what’s been on offer. “In the main we have found there has been a diet of mediocrity available to brokers and their clients from the traditional providers,” Flynn adds.
“This is a shame because, despite the low interest rates, the Irish market for structured products is buoyant, with many investors seeing structured products as a halfway house between a deposit and a managed fund.”
To generate ideas and to be able to provide innovative solutions for brokers and their clients, Wealth Options has set up focus groups across Ireland, which are run by their business development managers. “We see ourselves as part of a brokers’ development team,” Flynn says. “As a wholesale business we have to listen what our clients want and need.”
Wealth Options has recently introduced a broker platform which is available to approved (minimum) retirement funds (A(M)RF), personal retirement bonds (PRB), self invested personal pensions (SIPP) and small self administered pensions (SSAP) along with a personal trading facility.
“Our broker platform allows the broker’s client to access investment opportunities including managed portfolios in the high, medium and low risk category using international fund managers such as Dimensial Fund advisers and Morningstar,” Flynn says.
Alternatively, brokers can help their clients build their own portfolios with access to structured products, equities, hedge funds, real estate investment trusts (Reits), commodities, loan notes and life company funds according to Flynn.
“There are thousands of investment funds and a broad range of asset classes that are now accessible,” he says. “The platform will allow brokers to compete in a space that has been traditionally the preserve of stockbrokers and the life companies.”
The launch of the broker platform comes at a time when Ireland has seen investors return to independent brokers for advice, having lost faith in the traditional financial institutions after the financial crisis. “Clients are coming back through the IFA’s door for good quality advice,” says Flynn.
Unlike the UK and the Netherlands, where commission is banned, brokers in Ireland have the option of either receiving commission from a product provider or charging clients a fee for their services. “As a product provider we ensure that any products we develop have an inherent flexibility to insure they can meet the broker and their client’s needs,” Flynn says.
Regulation is a hot topic in Europe these days, with the European Securities and Markets Authority (Esma) recently releasing its views on the Mifid practices for firms selling complex products, while Esma’s executive director Verena Ross last month announced that the authority will publish a discussion paper on the Mifid II technical standards once the European Parliament has approved the final text.
According to Flynn, the Irish financial industry has benefited as a whole from regulation in recent years, including the revised consumer protection code (CPC) which was introduced in 2012 by the Central Bank of Ireland.
“The CPC, for example, meant all providers had to write their brochures in a particular style. This is a good thing for investors as it makes it easier for them to make a distinction.”
Wealth Options considers the Irish regulatory regime a cornerstone of the industry which all participants must commit to supporting. “We are a compliance-led organisation engaging both internal and external experts to advise us on our activities,” says Flynn.
“As part of our processes we take into consideration the authorised status of the brokers that hold agencies with us whenever we are considering the launch of a new product or structured to ensure the majority of our intermediaries are authorised to give advice on whatever products we are marketing at a given time.”
As an independent business, Wealth Options is not tied to any particular counterparty, but instead the firm has the flexibility to deal with all of them.
“Counterparties tend to engage with us on a regular basis,” says Flynn. “The start of a collaboration that leads to a product usually depends on an idea that they have at a given time or their appetite for an idea that our broker focus group has come up with.”
A counterparty Wealth Options has been working with for over three years is BNP Paribas. During that time the firm has implemented numerous proprietary strategies in products that the French bank has brought to the market through third-party issuers in conjunction with Wealth Options.
“Proprietary indices give us the opportunity to work with hedge providers like BNP Paribas and formulate ideas that we have discussed with our broker focus groups,” Flynn says. “In turn it creates a barrier to entry for our competition in the Irish marketplace, ensuring exclusiveness for the product offerings we have available.”
However, Flynn does admit that when Wealth Options first came on the scene ten years ago it used benchmark indices such as the Eurostoxx50, FTSE100 or Nikkei225, instead. “The market has evolved since then.”
Where asin the past Wealth Options mainly worked with local third party issuers such as Ulster Bank and Bank of Ireland for its structured products, in recent months we have seen the firm team up with Dutch private bankers Van Lanschot and its subsidiary Kempen & Co – a collaboration which started in November last year when the Enhanced Global Absolute Return Bond S1 was launched.
“Besides the potential yield we are happy to provide products where the credit risk is linked to the oldest independent private bank in the Netherlands,” says Flynn about the bonds which are structured by merchant bank Kempen & Co. “The service from Kempen with regards to the issuance is key to our product offering to the Irish market.”
Since then Wealth Options has launched another five products with Van Lanschot, including three more Enhanced Global Absolute Return Bonds, which offer exposure to the Standard Life Investments Global Absolute Return Strategies Fund (Gars), and two Enhanced Global Star Performers Bonds.
Both products are linked to a BNP Paribas proprietary index with Van Lanschot, as the issuer of the notes, entering a financial derivative contract with BNP Paribas in order to generate the variable return linked to the performance of either the BNP Paribas SLI Enhanced Absolute Return Index or the Wealth Options BNPP Global Star Performers Index.
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