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Provider Q&A

With Steven Graham, Partner at Mariana Capital

Steven Graham discusses the changes in the structured products industry during his career, his view on the challenges the industry faces and his favourate part of working with structured products

How did you get into working in the Structured Products industry?

I started life in the structured products industry in 2001 working with an early product provider, dealing with structured products exclusively. It involved working with financial advisers on solutions for their clients. I am a firm believer that the products bring value to clients and financial advice is the conduit for most to understand them and decide for them to be included within an investment portfolio. The financial community is well-placed to help investors with the perceived risks of holding structured products.

I really wanted to continue working in the industry and ended up being one of the founding directors of Gilliat in 2009. I joined with the intention of creating well-thought out strategic structured plans with the right counterparties, in other words not tied to a particular bank. The success behind the firm was partly due of the backing of the private bank Arbuthnot Latham, which is helpful during the volatility of the financial crisis. During such times, where there was a high sensitivity to risk, the balance sheet of the private bank provided reassurance to investors.

In 2014, I joined my current firm Mariana, where the partners are experts in derivatives and the business has been built with extensive experience in investment banking on the sell side of a range of different institutions. There has been a move away from traditional ways of working, to thinking backed by research and strategy.

What is the most challenging part of working in the Structured Products sector?

Regulation is of course for the benefit of investors, but it is a hurdle that all investment businesses face. Embedded misconceptions about structured products is the biggest challenge that is difficult to tackle, as such views are hard to change. StructuredProductReview.com and Lowes Structured Investment Centre, alongside the UK Structured Products Association, have made inroads, but progress has been slow. There has been consolidation of providers and those in the industry are working better since the Thematic Review. There is more a unified voice with best practice emerging as a benchmark.

What is your favourite part of working in the industry?

After 15 years, I still believe structured products add value to client portfolios, with the recent research that has come out proving this is the case. As an industry we haven’t been great in singing our own praises, with evidence that products do provide set defined returns to client portfolios.

What’s the biggest change that has developed during your time working within the sector?

Looking at a comparison of 2001 to 2016, the role and responsibilities of the product provider have changed where there is more focus on the best outcomes for clients. That was a consideration, but it wasn’t the only one. Now it’s about ensuring what you’re doing brings value to clients. Evidence of structured product efficacy is huge progress forward.

How would you like to see the industry progress, including what aspirations should there be?

What I would like to see going forward is products continue to be better constructed for the best client outcomes and the belief grows that structured products aren’t satellite holdings but core investments. Better education for those sceptical of structured products and the move of structured products into the mainstream. They do bring value, but there, in my opinion, are too few financial advisers who give them consideration. Structured products can be considered within part of a client’s equity exposure and can be complementary to other investments, with their downside protection offered and ability to make positive returns in sideways markets. The defined level risk and return of structured products alongside traditional investments can be a great diversifier for portfolios.

What is your advice for finance professionals considering structured products for their clients?

My advice to financial advisers is to help investors understand them and be open and forward about this desire to educate. The first step is to talk to clients about how structured products work- considering the different product types and risks. The second step is defining a client’s attitude to risk is and help them build their portfolio around that tolerance.

How would you explain how a structured product works to a new investor?

There is the misconception that they are complex as the derivatives and options used behind the product are complicated. However, structured products should be considered as more simplistic. You are loaning money to a financial institution and the rate of return is dependent upon the performance of the underlying asset or assets.

As with any loan, there is the risk of loss if the financial institution collapses during the duration of the loan. There is a pre-defined level of risk and return, and the potential performance of product can be considered at outset. The possible scenarios can be understood before investment and there isn’t reliance upon a fund manager making the right decisions at the right time. The defined levels of risk and return enable financial advisers and clients to track the performance of the product during the investment term.

Where do you think the industry will be in 10 years time?

Now the opportunity exists to work in partnership not only with other product provider, but Lowes Structured Investment Centre with insight into what investors want and need from structured products through an established financial adviser. Since the financial crisis, innovation has been viewed with cynicism, as there has been a history of innovation for the sake of innovation. The 10:10 plan is a brand new concept, and is valuable to investors by introducing a 10-year term to market and the benefits this brings. It doesn’t increase risk by being innovative and isn’t doing something fundamentally different from the kick-out concept, but using an existing formula and extending the term. In 10 years time, I expect this thinking to be more prevalent- innovation for the benefit of investors, not for the sake of it.