Structured Investment Products: Not Yet A Staple In Advisor’s Business

Once viewed as a low-risk way to generate additional returns on funds, structured investment vehicles have taken some heat recently as companies reinvested securities collateral in them and they sank in value during the market downtown. In fact, after the Bear Stearns and Lehman Brothers fiasco, these products have come under heavier scrutiny from advisors, investors, and regulators alike. As a result of ongoing issuer risks, more and more firms have been tinkering with the design of these products to reengage advisors. However, based on our 2010 Advisor Brandscape™ results, not all advisors are taking notice.

Our findings show that slightly over one-quarter (27%) of advisors report using structured notes in their businesses today. Not surprisingly, wirehouses, where these products originated, report the highest usage of structured investments, at 39%. This is significantly higher than the Regional, Independent, and registered investment advisor (RIA) channels. Coming in a close second are banks, where 37% report using structured investments as part of their business model. This is in stark contrast to the RIA market, where only 13% of advisors report using these alternative products today in client portfolios.

In addition to variation by channel, there also appears to be differences across books of business as measured by assets under management (AUM) and advisor tenure. Only 16% of advisors with AUM below $25 million report using any structured investment products as part of their offering, while 37% with AUM of more than $100 million offer these products to their clients. Tenure is less of a correlating factor than is AUM, with the highest percentage of advisors offering structured investments having 5 to less than 20 years experience. Only one-fifth of advisors with more than 20 years of experience are recommending these products, while about 29% of advisors with less than 5 years under their belt offer them.