Following the success of Bank of Montreal's (BMO) Raymond James Analysts' Best Picks (06367TQJ2), a synthetic-linked structure that sold $310m in the US earlier this year, SRP spoke to Eric Yates (pictured), Raymond James' head of structured products about using research to increase the reach of its structured products offering, how the company is reacting to changes in the market, and how structured products can add value to investors.
"We have been cultivating this ['Best Picks'] theme for some time within our system," said Yates. "It is based on our Analysts' Best Picks, which has been around since 1995, and it helps us to identify the challenges advisers are facing when trying to market and explain products or investment themes to investors."
One of the challenges advisors face when placing products with a large number of investors is the administrative burden of placing a dozen or more individual trades for dozens of investors in a time sensitive and cost effective manner for all sizes of portfolios and trades - resulting in advisors working predominantly with their top 3/top 5 clients, and those clients further down that list end up not participating in these types of ideas do not get the most efficient recommendations, according to Yates. "That is why we developed the Raymond James Analysts' Best Picks structured note, which we did for the first time in 2004," said Yates.
The research element of the product has helped advisers to reach more investors because it allows them to engage with smaller clients and discuss those research ideas that they otherwise would not discuss with them because of the administration burden and the relatively high cost for small trades, according to Yates. "This particular note wasn't designed as a solution for all clients, but really to focus on a sub-set of our clients," said Yates. "What we're trying to do is to provide advisers with research ideas, not necessarily a product, and when we market, we focus on the research, as opposed to the product."
The market has evolved and there is a drive from advisers to find more clients interested in research versus trying to pitch a product, according to Yates. "There is a different mindset when it comes to structured products," said Yates. "We are having success with an effort that is no longer product- but research-driven, and we are marketing multiple solutions to wrap and supplementary accounts suitable for various accounts."
This kind of research also helps advisers find the right products for their clients and explain the themes that are driving yield, said Yates. "This is an area we are looking into to develop new products that can be delivered to advisers via the right vehicle," he said. "We use our research group to leverage our offering and identify those investment themes that will add value to investment portfolios. One of the themes that is resonating at the moment with our research team is reflation, and we are also looking continuously to the energy sector and how it is evolving."
Raymond James also believes that anything related to interest rates, corporate tax structures and regulatory environment changes are interesting and will be drivers of activity this year, according to Yates.
After a challenging year for structured products, it is "very important" for companies to look at opportunities and review plans. "There are also positives, as this kind of environment promotes change and evolution," said Yates. "This year, we are focusing on the development of a number of fee-based structures to respond to the fact that many advisers are switching to a fee-based set up. The market is moving away from commission-based structures, and we believe we can capitalise on this shift by responding to the needs of advisers and end investors. We are focusing on leveraging the findings of our research group, as we believe that to succeed in this market selection and positioning are two key elements."
Raymond James will continue working to address upcoming regulatory challenges, according to Yates. "The DoL's [US Department of Labour] fiduciary rules will have an impact on the market, not as a negative thing but as an evolutionary step for the industry," said Yates. "We have been developing a number of solutions for some time to be aligned with the DoL's requirements, if the rules come into force or if they change the rules."
Structured products can provide value to investors in many ways, according to Yates. "These are very flexible products that can extract value from growing and falling markets, and you can access not just one but a wide variety of structures, such as external hedging complex mechanism or something as simple as a delta one structure, which can be low in fees, easy to get to market and fit different risk profiles, and anything in between," he said. "As long as these products are marketed and used properly, they are great vehicles in any investment portfolio."
There are 20 products linked to Raymond James Analysts in the US database, with a sales volume of $1.1bn, according to SRP database. BMO has been using Raymond James analysts' best picks research since the beginning of 2014, when it sold the first tranche of the Raymond James Analysts' Best Picks Notes, an uncapped call/uncapped put structure that sold US$168m and matured delivering 105.093%/4.91% pa to investors.
Other products in the US featuring Raymond James' research include the USD Certificates Linked to the Raymond James 2014 Internet of Things Certificates sold by BNP Paribas in 2014, and the Raymond James Sustainability Equity Securities Linked Notes, sold by TD Bank in 2016. Two of the company's indices, the Raymond James CEFR Domestic Equity TR Index and the Raymond James Analyst Current Favorites TR Index, have also been featured in structured notes marketed by Scotia Bank in the US.
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