No need for fund managers, says Barclays Wealth

Colin Dickie, a director at Barclays Wealth, said: “You may never need a fund manager again because structured products can give you the whole solution: access to asset classes and capital protection.”

He added: “I can see the day when structured products and ETFs will largely cover the solutions traditionally met by the life and fund companies.”

The latest generation of structured products offers investors a genuine, and in some cases superior, alternative to conventional long-only funds, Dickie claimed.

Discussing the merits of structured products at an industry briefing, Dickie argued that today’s protected investments are largely unrecognisable from those offered in the past.
 
Pay-offs are increasingly determined through fund-like strategies and products accessing a wide range of asset classes, he said.

Structured products are increasingly being seen as alternatives to cash as advisers assess “safer” investment options during market volatility, Dickie claimed.

Changes to capital gains tax and other taxes have made such products more appealing to investors, he said.

He pointed out that the current suite of protected investments are able to act like a fund manager would in similar circumstances – adjusting market exposure according to changes in volatility for instance – so that returns from historically rockier markets are effectively smoothed. But, he said, protected investments can steal a march on long-only funds by marrying this approach – which, unlike conventional funds, is not subject to human fallibility – with capital protection.

However, Dickie stresses that investors and advisers should carefully consider their views on markets when choosing from this new breed, pointing out that providers often link to the same asset class or underlying index in a range of different ways in order to alter the risk/reward equation.

He was also keen to stress the extra significance of credit ratings in the current climate:

“I am passionate about people knowing the risks they are taking on. We all know what happened to Northern Rock and the demise of Bear Sterns etc. The risk between an ‘AA’ and ‘A’ bank of defaulting is miniscule. The reality is an ‘A’ bank is perhaps five times more likely to default but it is still a consideration.

"For too long we only talked about investment risk – we should also understand who is ultimately going to pay the return. Whereas credit risk was dismissed a year or so ago it is now something people should think about.”

He acknowledged that a great deal of work still needs to be done by the structured products industry.

“Our penetration of fund supermarkets and wraps is negligible, “Dickie admitted. “We will be talking to supermarkets about structured products, and I suspect that it will be a good time to talk given that they will have suffered a severe setback in funds under management.”

“When wraps originally came in they weren’t particularly interested in structured products sales. I think the dynamic has changed. Supermarkets have done well during a bull market – we are no longer in that market.

“The other factor is economics – structured products are somewhat cheaper than the collective equivalents and the business model adopted by some of the supermarkets relies on trail to fund the proposition which structured products do not do. But I think if you are trying to offer a total solution in terms of asset allocation an element of protection should be included in the supermarket and wrap platforms.”

When asked whether Barclays Wealth were close to getting their products on any of these platforms, Dickie said: “We’ll see – it is work in progress.”

He continued: “We need to give IFA the tools they use alongside their current set. We are very silent as an industry – we need to try and move into the middle. If IFAs are using tools that standardise their wrap platform we have got to try and plumb our way into these tools to make sure we are represented, because otherwise we will always be on the fringes trying to nip our way in.”

In four years Barclays Wealth has built up around £4 bn AUM and the firm is keen to retain these funds.

“We clearly don’t want that money to walk out the door when it matures, " Dickie said. "With good performance that £4bn could grow to £5 bn or £6bn – so we have a whole programme planned to retain funds under management. With it now being four years most of the products started out as five-year plans, so we have a year before we start hitting a whole slug of maturities.

“There is value in the back catalogue. Our other area of interest is the secondary market. People think that they take this product out and that is it for five years – that they can not get out – that is not true. They can get out – we offer fortnightly trading. It could be daily – there is value in these things. Clearly if someone wants out all protection bets are off but they do add value. Potentially there is an assets allocation type of model to be developed for secondary market trading.”

Dickie believes that the line between funds and structured products has begun to irrevocably blur, arguing that it is only a matter of time before protected investments become more central to investors’ portfolios.

He said: “The innovation we have seen in the sector over the last three years has been staggering and the industry now offers a dynamic and relevant range of products for advisers and their clients. The explosion in the growth of payoff styles and expansion into new and exciting investment areas mean that structured products can offer a genuine alternative to conventional long-only funds, plus the added comfort of capital protection.

“The advent of 130/30 funds, life-styling and specific retirement funds shows that the traditional fault line between structures and funds is shifting in a way it never has before. I believe that as advisers embrace portfolio modeling tools and get a better handle on understanding risk, then structured products, either as funds or as term-based protected investments, will become increasingly central to portfolio planning and credible alternatives to traditional fund-based solutions.”

Earlier this week, Barclays Wealth enhanced the rates on its latest range of defined return plan (DRP) investments.