Absa will not offer structured products through Virtual Investor, the newly launched online investment platform which uses artificial intelligence and computer algorithms to recommend investment products for customers based on their financial attitudes to risk.
The South African bank has decided not to include structured products in its initial product palette because of suitability issues around the sale of these products via robo-advisors, according to Johann Gunter, head of external distribution at Absa Investments.
"Current robo-advisers run risk/return algorithms [and] structured products are difficult to accommodate in these calculations," said Gunter. "Think of capital protected products giving exposure to equities - you have the return profile of equity, but the capital risk of cash. In addition term-based structured products could be problematic for portfolio rebalancing."
Virtual Investor provides automated online investment recommendations, and structures each customer's portfolio against associated known product sets based on their investment risk appetite, 'using technology rather than active human interaction'. The first phase of the Virtual Investor will offer customers access to a pre-selected range of Absa's unit trusts, with more investment products, like retirement annuities, expected to follow soon.
Despite Absa decision to exclude structured products from the online platform, Gunter pointed that automated tools can increase transparency and education around structured products in the long term, and help grow the market.
"It's certainly an opportunity to provide investors with educational tools and introduce a new segment of the market to the benefits of utilising structured products in their portfolios," said Gunter. "I do believe that robo-advisers will evolve significantly over the next few years and that future iterations will offer investors a much wider universe of investment products."
Armien Tyer (pictured), head of Absa Investments, said that Virtual Investor's low minimum deposit requirements mean that 'more people are able to invest and grow their wealth' via an 'easy-to-use interface (accessible from any device) and low investment fees further reduce the barriers to entry that often accompany investment services'.
According to Tyer, the bank's clients will now be able to use the direct channel to 'take full control of their investment portfolio' and access 'investment products that suit their risk profile'. 'Customers can also still make use of financial advisers for more guidance and assistance with the more complex decisions around investing,' said Tyer.
Virtual Investor will be available globally as a self-service, 'online digital infrastructure with automated, low-fee investment platforms offering asset allocation and portfolio balancing, based on easy and customer-friendly risk assessment questions'.
The launch of the new platform reflects Absa's 'focus and efforts towards becoming a more customer-led business that is driven by customer insights and digital enablement means' to make it easy for customers to transact and access products and services.
Absa Capital with 50 tranche-based products launched and estimated sales of over US$80m was the second most active provider of structured products in South Africa's retail market in 2016 after Standard Bank which issued 120 products worth US$265m.
Year to date, Absa has marketed 14 structured products worth an estimated US$40m. Most of them (10 products) offer exposure to the Eurostoxx 50 index but the bank introduce at the beginning of the summer a new range linked to the Commerzbank Global Equity Risk Premia 15% RC.
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