Itransact rolls out multi-issuer platform to IFAs in South Africa

Itransact, a division of Automated Outsourcing Services (AOS), one of the largest independent administrators of South African and international units trusts, mutual funds, hedge funds and listed structured products with assets under administration exceeding ZAR140bn ($12.2bn), is set to launch Istructure, an investment platform specifically designed for the distribution of structured products through financial advisers.

The launch of the platform, which will include listed and unlisted structured products as well as market-linked endowments, is scheduled for March 2 and will be the latest addition to the Itransact investment platform of exchange-traded products which already includes Isave (exchange-traded funds (ETFs), exchange-traded notes (ETNs) and risk profiled segregated ETF portfolios); and Iretire (regulation 28 risk-profiled ETF retirement annuity portfolios, living annuities and preservation funds).

Itransact has been working on the project for the last year as a natural progression of its offering as a structured products administrator and distributor for Absa Capital over the last three years, said Lance Solms (pictured), founder and head of Itransact. “We have matured our systems and expertise, and it made sense to move our platform to the next stage, which is to bring structured products to the larger retail market,” said Solms. “We believe this represents a significant development because advisers can now access all these products in one place.”

The launch of a dedicated multi-issuer structured product platform is an important first for the South African market and is “another milestone in ensuring that investors and advisers ultimately have a wider choice” when making their vital asset allocation calls, said Ryan Sydow, head of retail, structured and risk solutions at Barclays Africa. “Structured products are underutilised in the South African retail market compared with their European and US counterparts, yet their attributes lend themselves to being a well-suited vehicle to use in the unsophisticated retail arena (for example, for explicit capital protection).”

Solms is planning to spend most of the next few months educating advisers and the market on the use of structured products and how they can enhance investors’ portfolios. “We want advisers to see structured products as an extra tool to diversify investment strategies and provide clients with access to products they could not access in the past,” said Olms.

“Traditionally, the South African investor has been focused on unit trusts which are products designed for the long term, but the reality is that people have a need to invest for the short term and it is important that investors identify that there is a space for them to invest for the short term without having the volatility that is necessarily associated with short-term investing.”

As a multi-issuer platform, Istructure will act as a wholesaler for investment banks to provide access to an independent distribution market as well as an “enabler and enhancer” of banks’ distribution capabilities to get to the independent financial adviser (IFA) part of the market.

The main providers of structured products in the country, including Barclays, Investec, BNP Paribas and Societe Generale, have already signed up to the platform and will sit alongside eight other providers that deal exclusively with ETFs. Olms said the launch is also a reflection of things to come with the Retail Distribution Review (RDR) regulation that is being implemented by the Financial Services Board with regard to the marketing of financial products to the retail market.

“We have done extensive due diligence and, while working with the European and South African banks, we have seen how thorough their compliance processes are,” said Olms. “There are now many controls in place for structured products and I think that is one of the messages we need to take to the market.”

"Structured products have had a bad press, but the regulation around them is very strong, and the banks we’re dealing with survived the credit crisis because they had good controls in place," said Olms. “We are confident this market can add value to investors and we have put our brand and reputation behind this project.

The Istructure range will be available to investors through a countrywide network of IFAs. The fee and disclosure model of the platform, said Olms, is based on an upfront charge to investors, “as opposed to over the term of the product, so the investor knows exactly how much of the capital is going directly into the structured product, [and meets the provisions of the RDR]”.

A source from a domestic bank with a client base of over 6.5m said the new platform will not bring new opportunities to providers that deal with and advise retail investors, but acknowledged that it is a step towards further dispelling myths on structured products surrounding lack of transparency and daily pricing with bid/ask spreads.